How long can you be 'Going Out of Business'?

How long can you claim to be "Going Out of Business"? According to my colleague Monica Yant Kinney, who wrote Sunday about a long-running sale at Cherry Hill Rugs, the limit in New Jersey is 90 days, and stores can't conduct such sales more than once a year - even if they miraculously stave off death every six months.  (Read her column, which is also about the store's ailing owner, here.)

The rules in Pennsylvania are even stricter, according to Nils Hagen-Frederiksen, a spokesman for the state Attorney General's Office.  He says the state limits "Closing Out Sales" to 30 days, and requires a permit from the city treasurer or borough secretary. The permit can be renewed for another 30 days with an affidavit stating that no merchandise has been, or will be, added.  "Anyone can file a complaint with the Court of Common Pleas in the county where the sale is occurring," he says.

So why do sales at certain kinds of stores still seemingly last forever?  Here's how Kinney quoted the head of Philadelphia's BBB answering that question:

"I don't know why this happens so much in the rug industry, but it happens more there than others," said Andrew Goode of the Better Business Bureau.

"It's almost tradition," he said, for customers to pass a rug shop and say, " 'Look, that's the crazy store with the perpetual sale.' "

But it's really not that much of a mystery - as Goode acknowledged today in a follow-up phone conversation.  It has to do with the economics of pricing - and the explanation is important for consumers to keep in mind.

Many kinds of manufactured or standardized products - toothpaste, refrigerators, even automobiles - have fairly transparent prices.  If a store advertises "Everything 50 Percent Off" and then tries to sell you such products at close to the normal markups, you'll likely notice and grow suspicious.

But other sorts of products - rugs and furniture are two notable examples - have pricing that's much more opaque. Without an expert by my side, I can't tell whether a $500 or $1,000 rug is a steal for me or something closer to grand theft by the rug merchant. The same goes for many kinds of furniture, at least outside the realm of standardized distributors such as Ikea.

Nor is the problem limited to the descendants of traditional crafts. You can also encounter it shopping, say, for personal computers, where complex mixes of components, and rapid changes in speeds and capacities, contribute to this same problem, which economists call "asymmetric information." Is that $999 PC really "25 Off" and a great deal? Or are all prices for last year's models about to plunge?

Are rug dealers a special case?  Goode thinks they may well be.  Though he's not sure why, he says "that we see oriental rug dealers holding perpetual sales more often than other stores selling items with less-than-clear pricing."

Still, he said he agrees with my conclusion: that "buyer beware" is evergreen advice but that, above all, consumers need to know when and where to have their antennae up.

It's not that rug merchants are especially tricky.  It's that rug prices are tricky, creating an especially large incentive for rug merchants to advertise deep discounts. 

If pricing isn't familiar and transparent, the answer is to deal with a business you fully trust, or to find another strategy for coping.