Bill Seeks to Curb Bogus ‘Going Out of Business’ Sales

Some retailers seem to be forever going out of business.

Furniture stores, jewelers and Oriental rug dealers appear particularly vulnerable to bankruptcy and clear-the-shelves economic catastrophe, judging from the frequency with which they advertise their imminent demise.

For years now, the California attorney general’s office, and local prosecutors from San Diego to Sacramento, have been targeting such businesses, alleging that perennial going-out-of-business sales are a bogus ploy to get customers in the door by suggesting that special deals are to be had.

But the officials’ efforts have been hindered because, unlike 25 other states, California has no law clamping down on the practice.

That may be about to end. At the urging of Atty. Gen. Bill Lockyer, Assemblyman Herb Wesson (D-Culver City) is carrying legislation that would limit a going-out-of-business sale to 90 days--and would prevent the business from ever advertising under that premise again.

The bill, AB 2725, would also require a retailer to disclose in advertisements if it planned to continue replenishing inventory during the sale, and would prohibit use of the term “bankruptcy sale” unless a bankruptcy trustee was supervising. The legislation cleared the Assembly Consumer Protection Committee last month and has yet to encounter any opposition.

“There’s stores that have been going out of business for 30 years, OK?” Wesson said. “If someone says they’re going to do something, they should do it. It adversely affects the consumer, and it adversely affects legitimate business. . . . Call it a white sale, a black sale, a summer sale, a spring sale--call it something. Don’t call it a ‘going out of business’ sale.”

Herschel Elkins, who heads the state attorney general’s consumer law section in Los Angeles, said law enforcement has had some success in cracking down on the misleading sales under false-advertising laws. By informing federal judges, they have cut especially into a scheme by which companies would seek reorganization in federal court to stage bankruptcy sales--then bring in new merchandise.

But prosecutors and consumer groups say stopping the sales completely is hard--and will always be, even if Wesson’s bill passes.

“There are circumstances where companies go in and out of business, same people involved. Or people that have some kind of relationship, a brother or a cousin, [transfer control] of the business,” said Barry Goggin of the Better Business Bureau in Sacramento. “How are you going to stop them from continuing to do that?”

Wesson acknowledges that his bill may not solve the problem. But it will bring the state a step closer, he said, to actually putting this business practice out of business.