Skechers executives say they settled the false-advertising allegations… (Jay L. Clendenin, Los Angeles…)
WASHINGTON — Hall of Fame quarterback Joe Montana said they improved his strength and posture. Celebrity Kim Kardashian boasted they allowed her to ditch her personal trainer.
But federal and state officials said the rocker-bottom Shape-ups and other toning shoes made by Skechers USA Inc. don't live up to the hype from the company and its high-profile endorsers.
On Wednesday, the Manhattan Beach company agreed to pay $50 million to settle false-advertising allegations by the Federal Trade Commission and the attorneys general of 44 states, including California, as well as the District of Columbia.
Most of the money will be used to provide partial refunds to consumers who paid $60 to $100 a pair for shoes they were led to believe could give them Kardashian's curves or the slim physique of the middle-age Montana.
"Unfortunately, for the millions of people who bought Skechers toning shoes, the only thing that got a workout was their wallet," said David Vladeck, director of the FTC's Bureau of Consumer Protection.
The cost of the settlements, though, didn't hurt Skechers as much as the market did.
Skechers was the leader in a market estimated to be $1.1 billion at its peak in 2010 — before an oversupply and lawsuits over the health claims of toning shoes led to a sharp falloff in sales. The market was down to $500 million last year, according to SportsOneSource, a sporting goods research and analysis firm.
Skecher's stock has fallen about 60% from its all-time high of $43.85 in June 2010. It was down 42 cents, or 2.3%, Wednesday to $17.85.
Skechers will pay twice as much as Reebok International Ltd. to resolve similar FTC claims. Reebok agreed in September to pay $25 million to settle allegations that it falsely claimed its toning shoes strengthened muscles.
Skechers executives were defiant Wednesday, saying they vigorously denied the allegations and settled only to avoid "the exorbitant cost and endless distraction of several years spent defending multiple lawsuits in multiple courts across the country."
"The company has received overwhelmingly enthusiastic feedback from literally thousands of customers who have tried our toning shoes for themselves and have written unsolicited testimonials about their positive experiences," Skechers President Michael Greenberg said.
Matt Powell, an analyst at SportsOneSource, said he expected Skechers to reintroduce its toning shoes next year after working through an oversupply.
"I don't think we'll see them making the kind of claims they made the first time around," he said.
The shoes were very popular, Powell said, but not because of boasts that they led to firmer muscles and improved blood circulation.
"I'm not sure people ever really bought them believing all the claims to begin with. I just think they thought the shoes were comfortable to wear," he said.
The settlements do not prevent the company from selling toning shoes or making claims about their benefits, Greenberg said.
The rocker-bottom technology has been around for 15 years, and "researchers from around the world have analyzed various models of toning shoes and found demonstrable fitness benefits from walking and standing in such shoes," he said.
Federal and state officials told a different story.
They said Skechers made false and unsubstantiated claims in high-profile ads, such as one featuring Kardashian that aired during the 2011 Super Bowl, that people who wore the shoes would lose more weight and get more muscle tone than they would with regular fitness shoes.
"But when comparing its toning footwear to standard fitness shoes, Skechers put its foot in its mouth by making unproven claims that its toning footwear strengthened muscles, increases weight loss, reduces body fat and improves circulation and aerobic conditioning," Vladeck said.
Skechers agreed to pay $40 million to settle the FTC allegations and an additional $5 million to settle the state allegations. The company also agreed to pay $5 million in class-action legal fees. Under the settlement, Skechers is barred from making claims about the benefits of its toning shoes unless they are true and backed by scientific evidence.
The FTC said the research studies cited by Skechers had defects, including incorrectly reporting results.
"They said that people lost weight when in fact they gained weight," Vladeck said.
One ad featured a chiropractor named Dr. Steven Gautreau recommending the shoes based on an independent clinical study he conducted comparing their benefits to those of other shoes.
The FTC said the ad mischaracterized the study and that Skechers didn't disclose that Gautreau was paid to conduct the study or that he was married to a Skechers marketing executive.
Under the federal settlement, consumers who bought the shoes are eligible for refunds, with the amount dependent on how many people apply.
Skechers began selling Shape-ups in April 2009. Other shoes covered by the settlement are Resistance Runners, Toners and Tone-ups. Information about the refunds is available at http://www.ftc.gov/skechers.