- 10 Finsbury Square, London EC2A1AF
- +44 (0) 20 7628 2000
Concessions - attracting new customers can be a risky business at a time of Brexit uncertainty
Q. What links JoJo Maman Bébé, Quiz, and Ted Baker?
A. Each of them have been in the news this month with a mention of the brand’s concessions in the story.
A retail concession enables a brand to promote its products to the public within a broad retail environment, typically a department store.
The store owner will require the brand to enter into a concession agreement. This covers the commercial aspects, as outlined in our article, and generally provides the store owner with significant flexibility. Employment issues, fit-out and insurance are further areas to consider.
Below are some of the issues which can arise under commercial, employment and property laws and which brands need to consider.
The commercial relationship
From a commercial perspective, a concession agreement should cover issues such as:
- the initial duration of the concession;
- the services to be provided by the store owner;
- advertising and displays;
But what the agreement covers and the extent to which the relevant provisions favour the store owner will vary from store to store.
Generally, the concession agreement can be expected to provide the store owner with considerable flexibility in terms of being able to require the brand to be relocated within the store and control over how the concession is staffed. It is also the case that minimum sales requirements are often included – the store will be looking to achieve a minimum return based on sales per square foot or metre.
Unsurprisingly, a contentious issue can be the concession fee payable to the store owner. In some instances this will be presented as a relatively low figure in which case, invariably, there will be various add-ons related to the provision by the store owner of certain services (for example, the removal of rubbish), the provision of utilities, and contributions to promotions by the store owner. It is therefore important for the brand to know that it has taken account of all payments to be made under the agreement and as to how the amounts in question can increase over the duration of the concession agreement.
Equally important to bear in mind is that sales made in concession will flow through the store owner’s accounting system and bank account before reaching the brand. This can have a disruptive effect on cash flow.
Some store owners will require the brand to go on sale at the same time as the rest of the store. It is uncertain as to whether this requirement constitutes an infringement of competition law.
So far as employment law is concerned, it is necessary to take account of the store owner’s ability to affect the relationship which a brand has with its employees working in the concession.
It is possible that the concession agreement will enable the store owner to play an active role in the recruitment of employees by the brand to work in the concession. This could be by specifying the selection criteria or having a final say as to who is recruited.
Once recruited, the brand’s employees will need to comply with both the brand’s and the store owner’s policies and procedures.
Although staff working in the concession are the employees of the brand, as a matter of employment law, they could also be contract workers of the store owner. In turn, this can result in their having claims for discrimination because of a protected characteristic (for example, race, disability, or gender) against both the brand and the store owner. But the store owner will usually require the brand to indemnify it for such claims!
Discrimination can also result from the inclusion in the concession agreement of a provision which enables the store owner to require any of the brand’s employees who work in the concession to be removed from the store.
As a concession holder, the brand is taking a licence to use a particular area in the store. It is not entering into a tenancy agreement and therefore will not be protected under the Landlord and Tenant Act 1954.
A fit out of the concession will be necessary in a way which is comparable to a retail unit. The concession agreement may require the brand to undertake the fit out. In this situation, the brand will need to check to ensure that it has the relevant rights of access at the times required in order to do so. The alternative is that the concession agreement will require the brand to contribute to be fit out undertaken for the brand by the store owner.
The concession agreement may require the brand to contribute to the store’s insurance premiums. Whether or not it does, it is important for the brand to consider:
- the extent of the cover provided for stock in a situation where title will not pass from the brand to the store owner until immediately before the sale is made to the consumer.
- Insurance in respect of claims made by employees. Following on from the above comments, whilst the store owner may require that the brand acts in a particular way which results in a claim, the store owner’s insurance may not cover the brand.
Equally, it is important that the relevant insurance held by the brand is checked to ensure that it extends to the concession.
Concession agreements can work well and do provide an alternative to other property arrangements. But care does need to be taken so as to ensure that the particular terms of the concession agreement make the exercise of taking the concession worthwhile.