Michael Lewis Partner
+44 (0) 1727 738980
13th August 2018 | Michael Lewis | Retail, Landlord
Online shopping is growing faster than ever and retailers must find a sustainable way to compete. The collapse of House of Fraser is raising serious questions about viability for traditional and internet businesses relying on concessions to promote their products in malls and shopping centres.
There are key issues to consider if you find yourself caught in the middle.
What is a concession
The concession model involves a designated space in one or more department stores (local or national with multiple locations, such as House of Fraser, Debenhams or Westfield) that operates largely autonomously. The concession brand often benefits from a physical separation, with its own signage, walls, furniture and displays and own staff. It may also be operated independently, although more often than not the store has in place legal and operation controls over distribution, profits and reporting. The benefit of a concession model is that it is moving away from the wholesale model of a distribution, by selling products direct to consumers. Most concessions are subject to written agreements but if you do not have an agreement with a store in writing, then you should contact us.
From a legal standpoint, the concession relationship falls somewhere between a landlord-tenant relationship and a supplier-retail distributor relationship. Contracts can be as long as 200 pages (including annexes). The concession agreement has certain leasing aspects, employment issues, co-branding, intellectual property and privacy matters to address. The relationship between brand and store is not purely legal of course.
With online retail, brands are trying to move away from the traditional distribution model in order to put their products directly in the consumer’s hands more quickly and efficiently, and to maintain better control. This trend is getting even more more popular as desirable brick-and-mortar real estate has become very costly. As a result, landlords are continuing to look for long-term commitments from brands.
Sometimes the interdependency between landlords/stores and their concession is such that if the mall or store collapses, then the concession (which can sometimes be nationwide) and their staff suffer.
Brands should carefully assess how a concession may be terminated in the event of the collapse or the repurchase and change of control of the store business and the rights and obligations arising on either party.
Particular consideration is needed if the brand agreed to exclude the effect of the Landlord and Tenant Act 1954 which, in certain circumstances, protects tenants at the end of the lease by allowing them to remain in occupation and request a new lease. These rights are usually excluded in concession agreements. The agreement may also provide that the area allocated to the concession holder may be changed at any time. This means that a brand may have to relocate with its staff in an area which no one agreed to go to.
You should also read the contract carefully regarding contribution regarding dilapidation costs and other effects of termination (for example on your stock). This means that you will need to consider relocating the stock on termination of the concession.
Consequence on employees and staffing
Staff working in concessions are generally employed by the brand, rather than the store itself. Even though the store may require the brand’s staff to read and abide by the policies and procedures of the store and attend certain training carried out by the store, the brand remains primarily (and legally) responsible as the employer of the staff of the concession.
There are circumstances in which the store is held responsible for the costs of a breach of employment rights, such as discrimination, but the concession agreement should have anticipated such circumstances by putting in place indemnities for their benefit, should one of the brand’s employees bring a claim against them. Generally, however, any employment claims would be enforced against the brand.
The holder of concessions should therefore consider how to approach small or large scale redundancies, particularly where a large store such as House of Fraser goes bust. If redundancies are necessary, employees with more than two years’ service are entitled to receive a statutory redundancy payment and for their redundancy to be handled fairly. Failure to follow a fair procedure could result in an unfair dismissal claim. In addition, if the store is a big one and more than 20 redundancies are necessary, then the employer must undertake collective consultation and cannot make redundancies for a period of at least 30 days. Specialist legal advice is always advisable in these circumstances.
You should consider whether or not you are insured for business interruption and contact your insurer to find out what steps are required to benefit from the cover.
Bad debts and goodwill
Generally, there will be a provision in the concession agreement to the effect that a store will bear bad debts provided that you observe control procedures. However, you may be asked to indemnify stores from any bad debts incurred as a result of non-compliance with such control procedures.
Some stores expressly state that any goodwill that accrues as a result of your operation of the concession will belong to the department store. However, if this is not stated in the concession agreement, then it is likely that you will own any goodwill that you accrue.
If the store is in breach of the concession agreement, then your chances of obtaining damages will depend on your record keeping of sales, complaints, changes to commission rates, introductions of new lines, footfall, marketing efforts and events, publicity, including on your efforts and success in developing the brand.
When to seek legal advice
On the employment law side, we recommend that the concession seeks legal advice early as part of its plan to reorganise its work force and its business.
For the other cases where there is a potential dispute with the store, it will depend on the type of dispute and whether it is likely to escalate into something which will cause harm to the concessions business. It is very much a question of judgment. Something which starts out small can soon turn into a serious dispute.
Contact Mike for more information.