The first half of 2024 saw a number of high-profile insolvencies in the fashion sector including the online retailer Matches Fashion and brands such as The Vampire’s Wife and Roksanda. Indeed Matches was reported to have owed over £35.9 million to various luxury brands, with a low percentage in respect of the amount recovered for supplier brands.
So, what can brands do to guard against retailers and wholesalers in the fashion supply chain becoming insolvent?
Retention of title – Incorporate a robust clause into your sale contracts
Retaining title is the most important action in guarding against wholesaler and retailer insolvency. This is because a retention of title clause ensures full ownership of goods until the buyer, whether a retailer or wholesaler, settles the payment in full.
Consequently, if a retailer defaults on payment before the invoice. has been fully settled, the brand can reclaim the goods and seek alternative avenues for resale.
However, in order for a brand to be able to do so it is imperative that the retention of title clause is properly drafted and is included in the brand’s standard terms and conditions of sale. A brand can have the best drafted retention of title provision in the world but if the brand’s standard terms are not properly incorporated in the contracts into which the brand enters with a retailer, the retention of title clause will be of little use.
It is also critical for the brand to be alert to the situation where the buyer – wholesaler or retailer –seeks to ensure that its standard terms and conditions of purchase govern the contract with the brand.
Unsurprisingly these terms and conditions will be drafted so as to protect the purchaser. No reference will be made as to the retention of title by the brand. Instead, it can be expected that such terms and conditions will provide for title to the branded merchandise to pass to the retailer or wholesaler at the first opportunity!
Sometimes there can be extensive back and forth whilst both parties try to contract on their own standard terms of sale and purchase respectively. The brand will refer to its standard terms and conditions of sale when confirming the retailer’s order. This could be followed by the retailer acknowledging the seller’s confirmation but in doing so making reference to its standard terms and conditions of purchase.
Whilst the legal equivalent of a tennis match may ensue, where possible, brands should ensure that their standard terms and conditions of sale are the ones contracted upon.
With reference to the retention of title clause itself, a well-drafted clause should grant the brand rights to enter the retailer’s premises for goods recovery and impose an obligation on the retailer to segregate these goods from its own or others’ brands. Additionally, it should enable the brand to claim profits from any sales or sub-sales made by the retailer or wholesaler, so enabling the brand to recover more of its debt after the buyer has gone into administration.
It is important to act swiftly to exercise your rights under the retention of title clause to recover goods. It follows that the brand should maintain an electronic folder for each order with a completed check list to ensure that with respect of each order it has a record of title having been retained, the retention of title provision being incorporated into the relevant contract together with invoices and payments to evidence the unpaid amounts.
Due diligence
Your choice of retailer or wholesaler is also important. It is important to do your due diligence to be aware of the risks of supplying them. Depending on the sophistication of the brand, it may be practical to implement formal procedures to weigh up the financial risks of engaging with a particular retailer. Accordingly for smaller brands it is important to check a retailer’s latest accounts filed at Companies House prior to accepting an order to gain a better understanding of the risk and also to give thought to the size of each order placed
This due diligence should also be exercised within an ongoing buyer relationship to monitor the retailer’s financial health and compliance with its contractual obligations. Brands should closely monitor any outstanding debts and ensure such debts are chased as soon as they become overdue.
Insurance
Brands should also explore trade credit insurance as an option to minimise potential losses. Concern that a prospective buyer has a poor credit rating, could be addressed by credit insurance.
Conclusion
Retaining ownership through robust retention of title clauses properly incorporated into sale contracts is vital for brands to mitigate the impact of retailer insolvency. This proactive measure, combined with due diligence, and insurance, will help brands to navigate the fashion industry’s periodic insolvencies.
