The FTC expects the settlement, which has not been finalized, to be its largest ever in terms of the amount of money refunded to consumers. The agreement also involves refunds for the company’s Resistance Runner, Toners and Tone-ups shoes.
“Skechers put its foot in its mouth by making unsubstantiated claims,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection.
Skechers denied the allegations and defended its advertising as “appropriate.” In a statement, the company said it chose to settle to avoid protracted legal battles that would have imposed “an unreasonable burden” on its business.
The company previously had disclosed that it would pay a one-time settlement of $45 million. While most of that money would go toward the FTC settlement, the remaining $5 million will settle related lawsuits involving the District of Columbia and 43 states, including Maryland and Virginia, the attorneys general in those states announced Wednesday. Another $5 million will be paid for class-action attorney fees, the company said.
“While we vigorously deny the allegations made in these legal proceedings and looked forward to vindicating these claims in court, Skechers could not ignore the exorbitant cost and endless distraction of several years spent defending multiple lawsuits in multiple courts across the country,” said David Weinberg, the company’s chief financial officer.
The settlement marks the second of its kind for the FTC in the past year.
In September, Reebok agreed to pay $25 million to settle deceptive-advertising charges related to its EasyTone and RunTone shoes. The FTC has received thousands of claims tied to that deal and expects to mail refund checks in the next few months. Reebok did not agree with the FTC’s allegations, either, and said it settled to avoid drawn-out legal battles.
The Skechers settlement involves a larger dollar amount than the Reebok one because Skechers has a larger market share, the FTC said. It captured half of the $550 million retail toning-shoe business last year, according to research firm SportsOneSource.
That business took off in 2009 when Skechers launched its specially shaped, rocker-bottom Shape-ups. Rivals such as Reebok and New Balance joined with their versions. All claimed that the rounded soles create mild instability, forcing the muscles to work harder.
Skechers sales are off their peak in 2010 because Skechers overestimated U.S. demand and made too many shoes, forcing prices to drop, said Matt Powell, an analyst at SportsOneSource. The FTC’s allegations add to the company’s headaches.
The commission said the Skechers ad featuring the chiropractor highlighted bogus clinical studies. One claimed that eight participants lost 3.25 pounds on average wearing Shape-ups for six weeks, but the study did not have a control group for comparison. Another study claimed weight loss among Shape-up wearers, but some participants had gained weight.
As for the Resistance Runner shoes, the FTC said Skechers “cherry-picked” from the results of a study that claimed the shoes boost “muscle activation” by up to 85 percent for posture-related muscles, 71 percent for one of the buttock muscles and 68 percent for calf muscles compared with regular running shoes.
The settlement bans Skechers from using test results, including quantified percentages, that lack scientific evidence. Skechers said the agreement targets only certain ads and does not stop the company from claiming that shoes like the Shape-ups can lead to more leg muscle activation, calorie burn and improved posture.
Michael Salinger, a former senior FTC official, said Skechers’s defiant stance is unusual.
“It’s just asking the FTC to be particularly vigilant in enforcing the order,” said Salinger, a professor at the Boston University School of Management.
Consumers seeking a refund can go to ftc.gov/skechers.