Having your garments for sale in a major department store or chain of retail outlets is a milestone many designers hope to achieve. However, it is important to understand the terms of the agreement you have with a retailer to make sure they make commercial sense for your label in the short and long term. In particular, in an environment where retailers are increasingly making use of “exclusivity arrangements” when securing fashion labels, ensuring that the terms of the agreement facilitate the ongoing success of your label is vital.
Unfortunately for fashion designers, the appeal of an “exclusivity agreement” with a retailer can quickly fade, as Kym Ellery found out earlier this year.
The designer found herself in legal strife when she agreed to supply department store David Jones with her “Ellery Land” label, allegedly in breach of a 3 year “exclusivity agreement” with rival, Myer. In Ellery’s case, the agreement reportedly prevented the designer supplying her “Ellery Land” label to any Australian retailer with more than 15 stores, yet did not oblige Myer to place any orders.
Myer brought legal proceedings against Ellery in which it sought to prevent Ellery from being able to supply David Jones until her contract with Myer ended, as well as damages.
Ellery argued that the exclusivity arrangement was unenforceable.
While the parties ultimately settled the dispute once the trial had begun, the case serves as a reminder to designers to carefully consider the impact of entering into an exclusive retail relationship.
Exclusivity It has become something of a marketing coup for major retailers to claim to be the exclusive stockist of particular fashion labels. While it is no doubt flattering to have a retailer seek out your label and want it on an ‘exclusive’ basis, designers need to ensure that the arrangement is commercially viable.
If exclusivity is a non-negotiable point when entering into a contract, you should consider including terms which allow for this arrangement to be adapted over time. For example, it may be worthwhile including a clause that allows you to convert the agreement into a non-exclusive agreement if certain requirements, crucial to your label’s financial viability, are not met.
One such example is having the agreement stipulate that set minimum units of your products must be ordered by the retailer on a regular basis during the term of the agreement. If these minimum orders are not placed, the agreement should include a mechanism enabling you to convert the agreement into a non-exclusive arrangement, or even to allow for early termination. This will then allow you to legitimately seek out other buyers without fear of legal recourse.
You may also want to consider including a term in the agreement that the minimum orders can be reviewed and adjusted periodically throughout the term of the agreement to meet the demand for your label over time.
What’s in it for me? You may also consider trading off the requirement for exclusivity with other terms that will increase the sales of your label. For example:
Marketing expenditure: Placing a contractual obligation on the retailer to spend a specific amount of money throughout the term of the agreement on the advertising, promotion and marketing of your label. This will assist in maintaining and developing the strength of your brand and can avoid any frustration that may result from restrictions on where your garments are sold.
Product visibility: Leveraging the strength and popularity of your brand to increase the visibility of your products within the store and within marketing or advertising campaigns.
For example, this could include your label being displayed in a particular position on the retail floor, or that a minimum number of stores within a retail chain must stock your brand. The location of your garments in stores (and the number of stores stocking your brand) can have a major impact on sales and the financial viability of your label.
Other trade channels: Retain the ability to sell your products in ways that do not compete with the retailer, this may include online or overseas.
While having your brand stocked in a retail chain might be a huge step in the development and visibility of your designs, make sure you take the time to think about the impact of an exclusive arrangement on the future growth and long term viability of your brand, and ensure any exclusive arrangement has benefits for both parties.
For more information about legal issues affecting the fashion industry, contact Lisa Egan, partner at K&L Gates – lisa.egan@klgates.com.
