Patagonia Accuses Luxury Retailer Nordstrom of Selling Counterfeit Apparel

It remains to be seen whether Patagonia’s legal tussle with Nordstrom Inc.  (JWN) - Get Free Report will ever see the inside of the courtroom.

In a recent lawsuit filed with the U.S. District Court in Los Angeles, Patagonia accused Nordstrom Rack of selling counterfeit versions of its goods, including polyester apparel that falsely claimed to be made from organic cotton. The chain also allegedly sold clothing that wrongly claimed people who helped make the merchandise were paid a fair wage.

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The two sides will likely reach a settlement of sorts: these cases rarely go to a jury. And here’s something that might lower temperatures: Nordstrom said it pulled the items listed in the lawsuit from all 240 Nordstrom Rack stores across the country.

“As soon as we were made aware of Patagonia’s concern, we removed the select products from our Nordstrom Rack stores, contacted the supplier who sold us these products, and took steps to determine what took place,” a Nordstrom spokesperson said.

The company didn’t identify the supplier nor what its investigation found. At the same time, Nordstrom insists that it tightly controls its supply chain.

“At Nordstrom, the quality and integrity of our products is our top priority,” the company spokesperson said. “We have rigorous standards in place to ensure the authenticity of our products and seek to partner with suppliers that share our commitment to producing quality products through ethical business practices.”

Betting on Nordstrom Rack

Perhaps. Then again, Nordstrom’s decision to remove the Patagonia products tactically acknowledges the crux of Patagonia’s complaints, that there was something not right with those goods. Otherwise, why remove them if they were legit?

Either way, the spat demonstrates a big problem with retailers, especially those who sell clothing. Despite best technology, procedures, and intentions, the global supply chain is large, porous, and prone to fraud.

And while online retailers like Amazon Inc.  (AMZN) - Get Free Report, eBay  (EBAY) - Get Free Report, and Alibaba  (BABAF)  get most of the headlines when it comes to counterfeit goods, even well established brick and mortar retailers like Nordstrom can fall victim to it. And one has to wonder if those too good to be true highly discounted brand name merchandise found at booming off-price retailers like T.J. Maxx  (TJX) - Get Free Report, Ross, and Burlington Stores  (BURL) - Get Free Report are authentic.

Nordstrom has every reason to put this Patagonia mess behind it. The luxury retailer has been struggling of late: the company predicts annual revenue this year will fall 4% to 6%. Nordstrom has completely pulled out of Canada and the only stores it plans to open are — you guessed it — Nordstrom Rack stores.

In fact, the company is placing most of its hopes this year on growing Nordstrom Rack, especially in an economy where inflation-wary consumers are watching what they spend on discretionary items like apparel.

“Our first priority is to improve the performance of Nordstrom Rack,” CEO Erik Nordstrom recently told analysts during a conference call to discuss first quarter earnings. “Rack stores are a great investment, with returns that exceed our cost of capital and a short payback period. They also represent the largest source of new customers for Nordstrom.”

Balance Speed With Integrity

But Nordstrom executives also acknowledged that its supply chain needs work. Specifically, the company wants to improve the speed on which it moves products through its system and also offer faster delivery times to consumers.

So here’s the question that needs to be addressed: can Nordstrom do all of that and make sure the goods they sell are actually real? Can the company reconcile speed with integrity?

After all, Patagonia wasn’t too happy with the way Nordstrom handled its complaints. Even though Nordstrom said it quickly removed the offending products, Patagonia claimed that it only filed the lawsuit because the retailer failed to do anything — at least at first.

“In an effort to avoid litigation, Patagonia brought this problem to Nordstrom’s attention and requested that the company voluntarily recall the products or reimburse customers,” according to court documents.

“Because Nordstrom has failed to recall these fake, mislabeled Patagonia-branded products (or even inform its customers that they purchased counterfeits of inferior fabrication and quality), Patagonia must file this lawsuit to prevent further harm to Patagonia and consumers.”

The Nordstrom spokesperson said the company had no comment on the status of Patagonia’s lawsuit.