Shoe Seller HeyDude To Pay $1.95 Million In Settlement With FTC

Comfort shoe maker HeyDude reached a settlement with the Federal Trade Commission on charges that it misled consumers by keeping negative product reviews off its website, the agency announced on Monday.

The FTC said that the suppressed reviews included more than 80% of reviews with ratings of less than four or more stars out of a possible five. It contended that the company also violated the FTC’s online-ordering rules in several ways, including giving customers gift cards instead of cash refunds, between 2020 and 2022. HeyDude agreed to pay $1.95 million to the FTC to settle the charges.

“As this case makes clear, when retailers publish consumer reviews online, they cannot suppress negative reviews to paint a deceptive picture of the consumer experience,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement. “And when retailers don’t ship merchandise on time, they must give buyers the option to cancel their orders and promptly get their money back.”

Forbes profiled HeyDude earlier this month, detailing the unlikely path that its founder Alessandro Rosano, an Italian entrepreneur living in Hong Kong, and his business partner and U.S. distributor Daniele Guidi had taken to build the company. Crocs acquired their operations for $2.5 billion in cash and stock in February 2022. With that deal, Rosano became a billionaire, worth $1.4 billion, while Guidi gained a fortune of some $650 million, by Forbes estimates.

With comfort shoes having a moment, HeyDude’s sales rose to $581 million in 2021, with net profit of $175 million, from $20 million in 2018. Under Crocs, the brand’s sales have surpassed $1 billion for the latest 12-month period.

The FTC’s complaint says that HeyDude failed to issue shipping-delay notices when it couldn’t fill its customers orders in a timely way, failed to cancel consumers’ orders and issue prompt refunds when it couldn’t send customers their shoes on time, and issued gift cards instead of refunds for merchandise ordered.

It also alleges that from January 2020 to June 2022, the company chose to have all five-star reviews (the best rating) posted on its website with little scrutiny, while in many cases rejecting less-favorable reviews. HeyDude’s “written policies and procedures instructed staff to publish certain types of reviews only if they were positive,” according to the FTC. HeyDude only started publishing all consumer reviews after finding out it was under investigation, according to the FTC.

The proposed court order, announced by the FTC, requires HeyDude to change its conduct going forward and to pay $1.95 million, which the FTC expects to use to provide refunds to consumers harmed by its unlawful conduct.

The alleged violations of the FTC’s rules “primarily occurred over the holiday months in 2020, prior to Crocs’ acquisition of the company,” Crocs said in a statement.

“Contrary to the statement released earlier by the FTC, the monetary portion of the settlement is not related in any way to review suppressions, but instead relates to fulfillment times of a small number of HeyDude product orders placed online,” the Crocs statement continued. “Since our acquisition of the company, we have worked diligently with the FTC to come to a quick and satisfactory resolution, and we are pleased to put this behind us and move forward with the excellent customer experience, transparency and accountability for which Crocs’ brands are known.”

Crocs shares closed down 0.66% at $92.75 and rose slightly in after-hours trading.

Updated 9/11/23 at 8:35pm: This story has been updated to add comments from Crocs.

Updated 9/12/23 at 2:30pm: This story has been updated to reflect updated information regarding the monetary portion of the settlement.