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Lord & Taylor is learning the hard way that native advertising is still paying to promote a product and subject to regulation. The 50-unit department store chain settled with the Federal Trade Commission Tuesday over charges stemming from a marketing campaign last spring in which Lord & Taylor failed to disclose to consumers that Instagram posts and a magazine article were paid promotions.
"Lord & Taylor needs to be straight with consumers in its online marketing campaigns," said Jessica Rich, director of the FTC's Bureau of Consumer Protection, in a statement. "Consumers have the right to know when they're looking at paid advertising."
In the spring of 2015, Lord & Taylor tapped 50 online fashion celebrities, dubbed influencers, to promote its new Design Lab clothing collection on Instagram in exchange for free apparel and thousands of dollars. None of the posts, which reached 11.4 million individual Instagram users and resulted in 328,000 brand engagements with Lord & Taylor's own Instagram, disclosed that they were paid endorsements. Lord & Taylor also failed to disclose that it paid for an article about its new collection in online magazine Nylon. According to Kantar Media, Lord & Taylor spent $28 million on measured media in the U.S. last year.
"Lord & Taylor is deeply committed to our customers and we never sought to deceive them in any way, nor would we ever," the retailer, which is owned by Hudson's Bay, said in a statement, noting it has fully cooperated with the FTC. "We encourage the FTC to continue to update and communicate their guidelines clearly and swiftly as the digital and social media landscape rapidly evolves. We remain dedicated to our core values of transparency and honesty in everything that we do for our customers."
There is no monetary fine for first-time violations, according to an FTC spokesman. However, a second offense would result in a fine of $16,000 per violation per day until the conduct is corrected. As part of its settlement, Lord & Taylor is prohibited from misrepresenting its paid advertising in the future. The company is required to disclose any unexpected material connection with its influencers. The consent order also creates a monitoring and review program for Lord & Taylor's other campaigns.
Of course, as Lord & Taylor noted, the digital landscape is swiftly changing. We can expect to see similar complaints and settlements in the future, said Ron Urbach, chairman of law firm Davis & Gilbert. He noted that it's up to the advertisers, and not the publishers, to comply with the FTC's rules regarding native advertising, a hot-button topic that the FTC is keen to enforce.
"There are going to be more issues in the future, not less," said Mr. Urbach. "The FTC has made it known that there are more cases to come. So advertisers and agencies, be on notice—you could be next."