FTC’s Lord & Taylor case: In native advertising, explicit disclosure is always fashionable

This is a flattering dress with spaghetti straps, an engineered paisley print and an asymmetrical hem. It is at the center of an enforcement action against department store chain Lord & Taylor for its alleged deceptive use of native advertising — the first such case since the FTC issued an enforcement policy statement in December. The lawsuit also challenges Lord & Taylor’s “product bomb” campaign on Instagram as misleading.

Lord & Taylor has used widespread social media to drive the launch of Design Lab, its own clothing line aimed at women aged 18 to 35. The strategy was interesting: focus on just one item—the paisley asymmetrical dress.

For the local advertising portion of the campaign, Lord & Taylor signed a contract with online fashion magazine Nylon to publish an article about the Design Lab collection, which included photos of paisley dresses. Lord & Taylor reviewed and approved the paid Nylon article without requiring disclosure of its commercial arrangements.

Additionally, Lord & Taylor contracted with Nylon to post photos of paisley dresses on Nylon’s Instagram page. Lord & Taylor again reviewed and approved the paid post without requiring disclosure.

This is just part of the campaign. Lord & Taylor has also recruited a team of fashion influencers who all have two things in common: a sense of style and large followings on social media platforms.

Lord & Taylor gave the dress to 50 influencers and paid them $1,000 to $4,000 to post themselves wearing it on Instagram during a designated “Product Bomb” weekend in March 2015 Photos of the dress – the same weekend Nylon posted photos of Lord & Taylor-approved products. Lord & Taylor tells influencers you can style the dress however you want, but otherwise the contract is strictly business. Influencers must: 1) use the @lordandtaylor Instagram handle and the campaign hashtag #DesignLab in the photo caption; 2) tag the photo @lordandtaylor.

Representatives from Lord & Taylor pre-approved each influencer’s Instagram posts to ensure they included the required hashtags and Instagram names. The company also edits some of the content the influencers plan to publish.

While the company has taken a meticulous approach to hashtags, handles, and more, Lord & Taylor has been strangely silent on other key aspects of the campaign. For example, according to the FTC, Lord & Taylor’s contracts do not require influencers to disclose that Lord & Taylor has paid them. Additionally, none of the Lord & Taylor-approved Instagram posts disclosed that the influencer received the dress for free, that she was compensated for the post, or that the post was part of a Lord & Taylor advertising campaign. As the complaint alleges, Lord & Taylor did not add a disclosure to this effect to any of the influencer posts it reviewed.

Instagram activity reached 11.4 million individual users and generated 328,000 brand interactions (likes, comments, retweets, etc.) through Lord & Taylor’s Instagram handle. The paisley dress is also sold out.

The FTC complaint charges Lord & Taylor with three separate violations: 1) Lord & Taylor falsely represented that 50 Instagram images and captions reflected independent statements by unbiased fashion influencers, when in fact they were Lord & Taylor advertisements part of a campaign to promote sales of a new product line; 2) Lord & Taylor failed to disclose that the influencers were paid endorsers of the company—a link that is important to consumers; 3) Lord & Taylor wrongly Nylon’s articles and Instagram posts reflect Nylon’s independent opinions on the Design Lab series, when in fact they are paid advertisements.

Under the terms of the proposed settlement, Lord & Taylor is prohibited from falsely claiming, expressly or implicitly, that endorsers are independent users or ordinary consumers. If there is a material connection between the company and the endorser, Lord & Taylor must clearly disclose this connection “in close proximity” to the statement. Lord & Taylor cannot suggest or imply that paid advertising is a statement or opinion from an independent or objective publisher or source. You may submit online comments on the proposed settlement until April 14, 2016.

What does the Lord & Taylor case suggest about your company’s social media activities?

If you use native ads, consider context. As the Federal Trade Commission explains in Native Advertising: A Guide for Businesses, “The watchword is transparency. An advertisement or promotional message should not suggest or imply to consumers that it is not an advertisement.” Never have industry expertise on new forms of promotion Review your native advertising from a knowledgeable consumer perspective.

If there are significant connections between your company and the endorser, disclose them. What is a material connection? According to the Federal Trade Commission’s Endorsement Guidelines, the connection between the endorser and the seller can have a significant impact on the weight or credibility given to an endorsement by consumers. Read the FTC’s Endorsement Guidelines: What People Ask for for specific compliance advice, and apply these principles if you recruit influencers, bloggers, or others in your marketing campaigns.

Disclosure of significant connections must be clear and conspicuous. How about explaining the substantive connection in a footnote, behind a vague hyperlink, or in a general About Me or Info page? No, no, nor. As with any major disclosure, companies should place the disclosure where consumers can see and read it. Of course, the terms of the Lord & Taylor settlement apply only to that company, but a good rule of thumb for prudent marketers is this order of standards: “very close” claims.

Train your affiliates and monitor what they do on your behalf. If your company uses social media campaigns like this, make your expectations clear to influencers from the beginning and follow an effective compliance program. There’s no one-size-fits-all approach, but the Federal Trade Commission’s Endorsement Guidelines: What People Ask for list elements that each plan should include:

1. Since advertisers have the responsibility to substantiate objective product claims, explain to your connections claims you can back up;
2. Tell them they have a responsibility to disclose contact with you;
3. Search regularly to ensure they follow your instructions; and
4. If you spot questionable practices, follow up.

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