Naked Wines to pay $650K to settle California subscription-charge suit; trims US jobs
Nakedwines.com Inc., a Napa-based subsidiary of a United Kingdom-based online wine retailer, has reached a settlement with several California county prosecutors who said the company failed to follow a newly tightened state law that protects consumers from unknowingly getting charged for subscriptions.
In the judgment announced Thursday, the U.S. arm of Naked Wines will pay $650,000 in civil penalties and investigative costs plus refund any California customers of two company programs since April 2017 who request it.
The move comes as the company has also announced job cuts.
District attorney’s offices in Napa, Sonoma, Alameda, San Diego and Shasta counties filed the complaint in San Diego County Superior Court.
It claimed two of the company’s programs violated newly added provisions of the Automatic Renewal Act. Specifically Naked Wines failed to provide the required disclosures about recurring charges before taking payment information, provided “insufficient” information about future payments and a “simple” way for customers to cancel and stop payments, according to a news release.
One of the programs in question is Wine Angel, which charges participants $40 a month to be part of an angel-funding-like effort to back wine-making projects. Customers could use the accrued money in their “Naked piggy bank” to purchase the wine made from those projects.
The other program is Wine Genie, which would charge participants for automatic monthly shipments of wine selected based on consumer preferences.
“Naked Wines’ Angel program is one of the most customer-friendly recurring payment programs on the market,” General Counsel Anne Huffsmith told the North Bay Business Journal in an email Friday.
“We issue refunds at a customer’s request, at any time and for any reason.”
Huffsmith said the company settled without admission of liability and that none of its customers were involved in the district attorneys’ inquiry.
The company said it had more than 964,000 “angel” members at the end of its last fiscal year, which ended March 28. Of those, more than 300,000 are in the U.S., according to Huffsmith.
Napa County District Attorney Allison Haley said the purpose of the law is to protect consumers.
“The Automatic Renewal Law exists to ensure that consumers understand that they may be agreeing to months or years of recurring charges,” Haley said in the announcement.
The law took effect in 2010, but it got a significant upgrade in July when Assembly Bill 390 kicked in. Signed by Gov. Gavin Newsom a year ago, it added requirements for renewal notices and cancellations.
“California’s (Automatic Renewal Law) has been a lightning rod for consumer class-action litigation and public enforcement actions by California county attorneys for years, and numerous challenges have resulted in multimillion-dollar settlements,” wrote global law firm Cooley just after AB 390 was signed.
“Businesses selling auto-renewing subscription plans to consumers should carefully review their policies and practices to ensure they are prepared for the latest changes.”
News about the California settlement came the same day the publicly traded parent company, Naked Wines PLC, announced personnel, operational and strategic changes, including cost-cutting and an “orderly reduction” of “too much wine.”
Those measures include job cuts to 6% of its workforce, or 30 people across the company, according to Sky News.
In the U.S., Naked Wines employs 162, with the majority based in Napa, according to Huffsmith. The recent job cuts involved 16 positions in the country, with 12 in the Denver office and four in Napa.
“We remain committed to our U.S. operations and do not anticipate a further reduction in force,” Huffsmith said.
On a Thursday investor webcast, Naked Wines executives revealed changed plans for downshifting from fast-growth mode, which left the company with a lot of inventory as it ramped up to slake a surge in consumer thirst for wine in the pandemic.
“We bought too much wine in 2021 when we thought we would grow faster, and so the balance of our overstock problem today sits in casegoods that we have,” said Nick Devlin, CEO.
Sales had surged 68% for the fiscal year ended March 29, 2021, to £340.2 million ($469.3 million at the time) amid the shift in consumer buying online amid early pandemic restrictions. The company started rapidly stocking up on wine to make up for availability issues, nearly doubling over the fiscal year to £142.4 million ($160.7 million on March 28).
But by the end of fiscal 2022, Naked Wines experienced a similar flattening of sales growth seen by other online wine retailers as physical stores reopened. Sales were up only 3%, to £350.2 million ($458.4 million, reflecting a weaker value of the pound to the dollar).
Half-way through fiscal 2023, the company is eyeing an “orderly reduction to maintain brand value and winemaker relationships,” Devlin said. The goal is to ease inventory from its peak this month down to £185 million ($213 million) by April 2023 and back to £145 million ($167 million) by April 2024.
Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at email@example.com or 707-521-4256.
Updates, Oct. 21, 2022: This story has been updated with details from the investor webcast.