Amid the holiday cheer this year, you may have noticed longer shipping times and more items out of stock, even as you’ve ordered more online than in the past. Businesses and consumers alike have learned over the past 21 months that the COVID-19 pandemic has led to supply chain bottlenecks and hampered delivery times. Companies often have no control over these delays, but a recent $950,000 settlement between the State of California and Yeezy Apparel LLC/Yeezy LC (Yeezy) — an apparel and shoe company owned by Ye (formerly known as Kanye West) — highlights the need for businesses to plan ahead and remain vigilant when promising swift delivery of products. Most importantly, internet retailers must work with manufacturing and shipping partners and ensure that websites and confirmation emails accurately convey information. The Yeezy case provides a cautionary tale for businesses that may promise quick delivery of products that consumers purchase online.
| Businesses across the country are facing challenges, including lawsuits, as they grapple with how COVID-19 has impacted their operations, work forces, and supply chains. The wave of litigation is rising, and it appears that no industry is immune. Schiff Hardin’s Coronavirus Task Force is publishing this series to identify of-the-moment issues and potential liabilities facing businesses as they begin to re-open, transform their processes, and face the new reality. |
The Yeezy Lawsuit
On October 21, 2021, the District Attorneys of Los Angeles, Alameda, Napa, and Sonoma counties jointly filed a complaint in Los Angeles County Superior Court against Yeezy.[1] The complaint alleged that Yeezy violated California consumer protection statutes[2] when it made allegedly misleading statements. Yeezy allegedly did not ship products within the timeframe represented on the website, including when customers had paid for expedited shipping, and sometimes allegedly failed to ship products within 30 days of an order. Section 17538(a) of the California Business and Professions Code, in particular, requires that companies ship internet orders within 30 days of payment or take remedial measures if they cannot meet the deadline.
Yeezy entered into the settlement agreement in November with the counties. While Yeezy admitted no wrongdoing, it paid $950,000 in civil penalties, attorneys’ fees, and a cy pres contribution to the California Consumer Protection Prosecution Trust Fund. The Yeezy agreement also included injunctive relief. Yeezy and its current or future third-party logistics provider would be required to take various steps to ensure compliance with the statutes, such as developing a compliance policy, employing a compliance officer, creating a system for tracking and responding to consumer complaints, and maintaining various methods for consumers to contact the company.
Though the shipping delays allegedly started long before the pandemic, the complaint highlights steps that companies should take given continued supply chain impediments and the robust increase in internet sales over the past 21 months, especially during high volume sales periods like holidays. As discussed below and alleged in the Yeezy complaint, California requires companies to notify customers when they cannot fulfill an order within 30 days to offer a refund, provide similar replacement products, or proactively provide a refund.
We outline some preventative steps below that businesses may wish to take to avoid headaches, many of which are out of their control.
Keep Tabs on Overseas Supplies
Companies should create systems to track and update domestic supplies on-hand of products and component parts. Prior to the pandemic, businesses with finely tuned supply chains often reduced the need for domestic warehousing through “just in time” manufacturing. Companies often tried to minimize the time from manufacturer to consumer as much as possible. With container ships anchored outside ports in the Atlantic and Pacific, businesses face challenges in getting products from shipping containers to warehouses to consumers in an expedited manner, or even to their own assembly facilities within the United States that create finished products out of components from around the globe.
Coordinate Messaging on the Website and in Emails
Businesses also need to ensure that their manufacturing branches coordinate with website operations. If the company anticipates manufacturing or back-end transportation delays, the internet retail and marketing divisions need to timely update website information and communicate accurate information to consumers to the extent possible. Sellers also may want to advise consumers in confirmation emails that the pandemic continues to cause unanticipated delays outside the control of the retailer.
Communicate with Shipping Partners
Shipping providers have taken significant steps to meet the logistics demands of the proliferation of internet orders since March 2020. Despite increased capacity and the stabilization of online sales in the fall of 2021, internet retailers should be prepared for future disruptions in shipping. Unknown events such as continued high employee turnover rates and new coronavirus variants may impact shipping capacity in the future. Companies should communicate with their shipping and third-party fulfillment partners on a regular basis as issues arise, or in anticipation of delays, to take remedial steps and address customer concerns. Businesses that have exclusive contracts with a single shipper and may not be able to use an alternative provider should be particularly vigilant.
Prepare to Take Remedial Measures
The Yeezy case illustrates that internet retailers have little to no control over some of the factors that may lead to pandemic-related and other unanticipated delays California Business and Professions Code Section 17538 sets forth measures that companies may take to avoid violating the statute, such as providing automatic refunds or offering written notice about the delays with offers for refunds or proposals for equivalent or superior substitute products.[3]
The COVID-19 pandemic continues to affect many aspects of American life. Consumers and businesses have no way to anticipate all future events. Supply chain and shipping delays are likely to remain a problem for the foreseeable future. Companies should take steps to reduce the risk of litigation or enforcement actions related to various consumer protection statutes.
[1] People v. Yeezy Apparel LLC, et al., No. 21STCV38971 (Cal. Super. Ct. LA Cty. Oct. 22, 2021).
[2] Cal. Bus. & Prof. Code §§ 17500, 17538; Cal. Civ. Code § 1770.
[3] Cal. Bus. & Prof. Code § 17538(a)(1)-(4).