When it agreed to settle a lawsuit last year by distributing hundreds of thousands of coupons, Tillys faced the possibility of financial devastation. If all of the available coupons were used for the maximum possible discount, the clothing retailer could have been on the hook for some $300 million – more than half of all the revenue it earns in a year.
But by making its coupons difficult to find, cumbersome to use and impossible to share, the retailer just might have succeeded in discouraging most of its shoppers from using the coupons they rightfully earned.
A 50% off coupon that was issued last year finally expired last week. So if you’re a Tillys shopper and didn’t use yours – or didn’t know you even got one – it’s now too late to dig around in your email inbox or log into your store account to go looking for it.
And that’s a relief for Tillys, which doesn’t have that potential coupon expense hanging over its head anymore.
The whole thing started back in 2016 when Tillys sent promotional text messages to more than 600,000 customers who had enrolled for an account with the retailer. But one customer filed a class-action lawsuit, claiming that she and others never gave Tillys express consent to text them. Tillys ultimately agreed to settle the case by offering all affected customers a coupon good for 50% off a purchase of up to $1,000, valid for one year.
And that one year is up. If all 600,000+ customers had redeemed their coupon for its maximum value of $500, Tillys could have found itself making the equivalent of a nine-figure payout to settle the lawsuit. Instead, the company reported last month that only 2.1% of the coupons had been redeemed at all – “resulting in no material impact on its business,” it reassured anxious investors. That means about 13,000 customers used their coupon. If they all saved the maximum $500, the coupons would have cost Tillys just $6.5 million. But, assuming every coupon user did not actually buy $1,000 worth of products in a single purchase, that final amount is most likely much lower.
Compared to some coupon settlements that issue unattractive, nearly-worthless coupons, 50% is not bad at all. So how did Tillys manage to get so lucky, that so few shoppers used their coupon?
Maybe “luck” had nothing to do with it.
Shoppers were alerted about the offer via email, but many never even opened it. “Thought it was a scam as I didn’t even know about the class action suit,” one shopper wrote on an online deals forum. The email didn’t contain an actual coupon, but a notice that a coupon was available in shoppers’ accounts. “I don’t recall ever getting any emails about this, but I checked my account and I have the voucher,” another forum participant wrote. The coupons were account-specific, so you couldn’t print them out and give them away. And they were only good on full-priced items, which dampened some recipients’ enthusiasm.
And that’s how you ensure only 2.1% of more than 600,000 people use an otherwise attractive and potentially valuable coupon.
“The level of redemptions probably is lower than we probably thought it was going to be,” Tillys Chief Financial Officer Michael Henry told investors late last year. “Not quite sure why the redemption level is as low as it is. But, in a way, it’s a good thing because it’s not having a material impact on our business.”
Issuing coupons to settle class-action lawsuits has become a controversial practice, since routinely, few of them are actually redeemed. So most of the people who receive them end up getting nothing for their troubles.
But no matter if there was a last-minute rush to redeem coupons at Tillys last week or not, the lawyers’ share of the settlement is secure. The plaintiffs’ attorneys are set to receive $4,616,947 in fees and expenses.
“I’m writing a law that states lawyers in class action lawsuits must be compensated in the same method as class members,” one disgruntled shopper wrote online. “If the class gets coupons, so do the lawyers.”
And if the attorneys only redeem 2.1% of their $4.6 million worth of coupons – Tillys, for one, likely wouldn’t object to that idea at all.
Image source: Tillys
