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this post was submitted on 28 Apr 2024
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The bottom line is operating income, not revenue. And WSM had an operating income of ~$1.5 billion last year.
The FTC found seven products were falsely advertised, starting with a mattress cover. But Pottery Barn sells over 10,000 products, in fact there are over 500 products in their bedding section alone. And Pottery Barn is just one part of WSM.
It's near certain that a $3 million fine wiped out whatever profit these seven products made for WSM, and then cut into profits made by other products. So breaking the law was not a profitable strategy for WSM.
The punishment should be calculated based on gross revenue from the product. Not net profit. 50% of gross revenue sounds good.
Why? We want to disincentivize malicious business practices, and fines proportional or greater to earnings from those practices are more than enough to convince a for-profit corporation to keep it clean.
Lol. This is the real world, and it's already proven that the current system is inadequate, it is not enough to stop companies from doing it.
The fact that companies keep continuing to do it is the proof. The fines are NOT enough to disincentivize the practice. The current fines are still less than the benefit the company receives from the act, otherwise they wouldn't be doing it.
Bullshit like false advertising should have a dramatic punishment, not a slap on the wrist. I don't give a shit if it bankrupts a business. A business lying to their customers should destroy it. If they want to take a chance at destroying the entire business over something as small as a fake label, they can decide to roll those dice, but don't be surprised when they lose it all.
As a whole you're correct, it often is inadequate, but in this very specific case of 7 products including some teen bed-padding, then the fines seem pretty proportional.
It depends on how much they made from these products. If the profit from the sale of those products is more than the $3.2M in fines, it is still just a cost that can be planned for when determining sale price and margins. The penalty needs to be higher than the profit from the deceptive practice or else it's just a cost that can be planned for, not a real deterrent.
According to their 10-K end of year SEC Filing they made $1.7 Bn cash inflow profits, which resulted in a $1.3 Bn cash balance.
So, hypothetically, if they had made 3.175 Million net profit on selling one of their hundreds of types of bedding products, one of thousands of types of products total, then it would be 1/500th of their total profits across their many brand names and stores, or another possible scenario would be if everything else they sold at a cost and they actually did make this much profit from this specific bedding.
They actually saw a 9.9% decline in net revenue that year, attributed to store closures.
Of course 50% of gross revenue would immediately bankrupt WSM.
But if you still think that's an appropriate deterrent, what if we imposed the same penalty on cannabis dispensaries? After all, they are not simply violating FTC regulations, they are engaged in federal felonies.
And? Is a housewares store too big to fail?
No, but causing a business to fail is not necessarily the best response to a violation. I don't want WSM to fail over "made in the USA" labels for the same reason I don't want dispensaries to shut down.
If a dispensary lied for years about where it sourced its weed and went bankrupt due to the fines, I wouldn't shed any tears there either.
False advertising should be given zero tolerance. And it isn't, which is why people keep dying in Teslas using the Autopilot mode.
OK, and if the dispensary violated DEA regulations for years should it likewise be fined out of existence?
No, because that doesn't kill people in some circumstances. Seems like a big difference.
Violating DEA regulations often kills people in some circumstances.
It's true that a cannabis dispensary is unlikely to kill someone, but the same is true of a "Made in the USA" label.
If the specific circumstances of a violation matter for a dispensary, then they should also matter for WSM. Dispensaries don't sell narcotics, and WSM doesn't sell Teslas.
If punishment are severe then the corporations would look twice before committing fraud and deception. If not it's just another slap on the wrist
I think a fine of $3 million is more than a slap on the wrist. It's a lot more than whatever benefit WSM got from "made in the USA" labels.
That's the problem the companies don't fear the consequences for their action. If the fine was huge enough to bankrupt a company. Then the other companies will take a second guess before committing any fraud or deception against the consumers like you and me.
I wish people would be open to changing their opinions when new information is introduced, instead they're just downvoting you because they don't want justice they want to be mad.