By Jonathan Stempel
NEW YORK (Reuters) - Michael Kors Holdings Ltd (N:KORS) agreed to pay $4.88 million and change its sales practices to settle a class action lawsuit claiming it used deceptive price tags at its outlet stores to fool shoppers into believing they were getting big bargains.
The preliminary settlement was filed on Friday in Manhattan federal court, and requires court approval.
Michael Kors was accused of creating an "illusion" of deep discounts by using tags containing made-up "manufacturer's suggested retail prices," or MSRP, and offers to sell the products at lower prices, termed "our price."
Shoppers said the suggested retail prices were artificial because the tagged products had been made exclusively for Michael Kors outlets, and the London-based fashion house never intended to sell them at those prices.
As part of the settlement, Michael Kors will replace "MSRP" with "Value" on its price tags and display signage explaining that term, or stop using reference prices for products made exclusively for its outlets.
In a court filing, the plaintiffs' lawyers said the lawsuit is among several accusing well-known retailers of deceptive marketing in outlet and factory stores that violates state consumer protection laws.
Michael Kors denied wrongdoing in agreeing to settle. It did not immediately respond to requests for comment.
Friday's settlement covers shoppers who bought products from Michael Kors outlets in the four years ending July 25, 2014.
The plaintiffs' lawyers plan to seek legal fees of up to 30 percent of the settlement fund, court papers show.
The case is Gattinella v. Michael Kors (USA) Inc et al, U.S. District Court, Southern District of New York, No. 14-05731.