What will the price be for retailers after Brexit?
Author: Carol Osborne
This article was originally written for Retail Gazette.
UK retailers, like all businesses, are facing several years of uncertainty following the Brexit vote.
This uncertainty will not be alleviated until the terms of the UK’s withdrawal from the European Union are defined and UK legislation is either modified or adopted to address any “holes” created by the withdrawal from the regulatory framework of the EU.
Unfortunately, uncertainty is especially challenging for an industry that relies on forecasts, trends and forward purchasing.
However, not everything is uncertain and the Brexit vote already has had an immediate (although hopefully not lasting) impact on retailers. Take the sterling–US dollar exchange rate: for retailers with outstanding purchase orders for goods from Asia or from the US and paying for those goods in US dollars, the margin impact is both certain and immediate, absent of favourable exchange rate hedging strategies.
For purchase orders not yet issued, it may be necessary to review those orders in light of the exchange rate fluctuation. In addition, contracts with suppliers should be reviewed for any minimum purchase requirements. Where minimum purchase requirements exist, retailers should consider whether there is an ability to renegotiate the requirement entirely or request a deferral or suspension of the requirement with a “catch-up” arrangement when the exchange rate returns to more normal levels (or levels consistent with when the agreement was negotiated).
On the other hand, exchange rate volatility is not without an upside. Foreign purchasers, especially the Chinese, are delighted by the fall in the value of sterling against the Chinese yuan. A surge of foreign tourists enjoying exchange rate-driven discounts at hotels and restaurants will also bring some good news to the retail high street. Products manufactured in the UK but sold abroad will also be more attractive so export numbers should improve.
Footfall numbers remain a significant challenge and put pressure on retailers’ real estate portfolios. Pre-Brexit uncertainty had already contributed to the sharpest decline in May 2016 in high street footfall since February 2014 (according to numbers published by the British Retail Consortium and Springboard). Consumer confidence and shopper sentiment then fell after the Brexit vote at a pace not seen since the early 1990s. If UK consumers are closing their wallets and purses while they wait for clearer economic news, retailers need to consider their real estate portfolios. Key considerations will be likely outcomes of near-term rent reviews and the opportunities to exercise any break clauses. The long term movement towards ecommerce and away from the high street is also likely to continue, which should prompt retailers to evaluate their ecommerce programs, including the location and capacity of distribution centres and their logistics partnerships to ensure those resources are capable of meeting the very different demands of ecommerce.
Although it is essentially impossible to predict all of the future changes that Brexit might impose on the retail industry, there are some areas to watch and, in a few cases, some planning to be done even if we are not seeing an immediate impact.
The workforce of UK retailers is likely to be effected, even if EU citizens living and working in the UK are allowed to remain. If the UK insists on limiting its acceptance of the free movement of people, changes in the composition of the workforce are inevitable. It is not clear whether the UK can provide enough candidates for retail jobs and competition for qualified sales and managerial staff may increase – bringing pressure on wages and on margins. In the near term, retailers should be mindful of the anxieties their existing staff may be facing, especially those who are EU citizens and who may be concerned about their ability to remain in the UK. Competent and capable staff are hard to come by even in the best of times and outreach to existing staff is an inexpensive way to reinforce loyalty.
The withdrawal from the EU may include a withdrawal from its ambitious programme to implement a “digital single market” and thereby level the playing field for ecommerce and eliminate virtual boundaries to shopping. Initiatives under consideration include prohibitions on geo-blocking, continued improvement in uniform consumer protection initiatives (thereby improving consumer confidence) and improving transparency and cost in cross-border logistics. The UK ecommerce universe would sit outside this programme if the UK leaves the single market. Although many could argue that ecommerce businesses in the US are able to function cross-border in a relatively seamless way, there is still a cost in terms of overall consumer confidence which generally results in a cost to overall sales. One strategy for UK retailers would be to monitor these developments and then adopt policies aligned with the digital single market. This alignment could then be promoted as a marketing strategy to encourage online visitors from the EU.
Finally, an additional challenge posed by Brexit and a possible departure from the single market is the potential return to the “dark ages” of tariffs and cross-border controls with imported and exported products subject to delays at the border. Every day of delay at the border can translate into lost sales and pressure on margins. Retailers should encourage their trade associations to take an active role in monitoring the negotiations on this issue and perhaps finding avenues to minimize any negative impacts.
New Labour Law - Welcome Change in France
Authors: François Alambret and Sarah Delon-Bouquet
A new labour law was enacted in France on August 9th, 2016 (“El Khomri Act”, named after the current French Labour minister).
The main goal of the Act is to simplify the complex obligations companies in France face in this arena, a change welcomed by retailers and other businesses operating in France. The Act covers various topics with respect to labour regulations including collective agreements, dismissal for economic reasons, occupational health and personnel representation for franchise networks.
Companies may see the most important aspect as the Act’s provisions which allow companies to adapt their methods of organizing working time, paid vacation and other aspects of labour relations to the realities of their operations—in other words, a more practical framework will be allowed going forward rather than the past labyrinth in which companies have had to operate.
Another significant change concerns franchise networks. For these the Act provides that a “social dialogue committee” must be established for all franchise networks that have more than 300 employees in France and whose franchise agreements contain clauses relating to the working conditions of franchisees.
Our Paris office is available to explain these important changes and is holding a breakfast briefing on September 27th (from 8.30 am to 9.30 am) to discuss the main features of the new Act (click this link if you would like to attend).
British Appeals Court's Counterfeit Ruling Forces ISPs to Act
Paula Levitan interviewed in WWD
LONDON - Britain is tightening the noose around counterfeiters in cyberspace — and demanding that Internet service providers play their part.
Britain's Court of Appeal has upheld a 2014 decision forcing the country's Internet service providers to block web sites selling counterfeit goods.
Several big providers, including BT, EE and Virgin Media, lost their appeal earlier this summer to overturn the High Court's 2014 ruling.
The ruling was the first of its kind by a senior court regarding counterfeit blocking in Europe. Advocates say it is a clear win for brand owners and designers who are increasingly battling online counterfeiting.
The original ruling was a particular triumph for Compagnie Financiere Richemont, which had originally brought the case to court.
The High Court ruled that five major providers block access to the rogue web sites, which were selling fake Cartier, Montblanc and IWC Schaffhausen products.
The landmark ruling created a framework for Richemont and other luxury groups and designers to apply for court orders to block access to the sites, rather than having to take action against the web sites themselves — an arduous task since there can be hundreds of them, meaning a company must tackle each one.
Paula Levitan, a partner at the international law firm Bryan Cave LLP, said that the Court of Appeal's decision was significant because it crystallizes the responsibilities of the Internet service providers.
She pointed out that while the providers do not have a monitoring duty, they must act if they are made aware of the counterfeit sites. "When they are made aware of a counterfeit site, they have an obligation to block it, and they can be injuncted if they do not," she said in an interview with WWD.
Levitan said the Internet service providers had argued that rogue sites were not their responsibility. "The ruling has made clear that if the ISPs are made aware, they do have to take down these sites," she said.
"They don't have an obligation to monitor — that is the burden of the brand owners," said Levitan, adding that intellectual property is important to companies large and small, and that more and more designers and brands are aware of their rights today and more active in seeking legal recourse to protect them.
The original court action in 2014 came in response to a growing number of sophisticated sites selling fake goods — often with U.K. addresses —that had regularly duped customers into believing they were legitimate.
In lieu of legal action, Richemont had in the past worked in partnership with other firms such as eBay to remove fake goods for sale online.
Frederick Mostert, who retired as chief counsel at Richemont shortly after the original decision was handed down, spearheaded the original case.
The article was originally published in WWD. Click here to read the full article.
Guest Inteview
London based Retail Team Partners Paula Levitan and Sarah Atkinson talk to Mary Jardine, founder, creator and designer for new luxury handbag brand Jardine of London.
As founder of the brand, what inspired the inception of Jardine of London?
I’ve always loved handbags and one of my dreams was to have my own luxury handbag business. After a career in the modelling world running a modelling agency, I was approaching my fiftieth birthday when I decided to set up my own handbag business in 2014 – and Jardine of London was born!
As creator and designer of the brand, what have your inspirations been for your handbag designs?
The Jardine of London logo, and the essence of the brand as a whole, was inspired by a royal family heirloom; the Jardine Star Brooch which was left to Queen Elizabeth in 1981 by Lady Jardine. It’s obviously one of her favourites because she still wears it a lot, including on her ninetieth birthday and on her Diamond Jubilee. It’s perfect for the brand because it encapsulates luxury and style.
What sets your handbags apart from other lines?
From my very first collection I have been committed to ensuing my bags are quintessentially British. Every element of every bag is sourced in Britain, from the linings to the hardware to the leather, and handmade in a fifth generation luxury leather goods specialist factory outside of London. It’s important to me that my bags are made in England. So many brands claim to be “British” or “Made in England” but they’re actually put together elsewhere.
How would you describe Jardine of London handbags?
Clean, classic and timeless. I always wanted my bags to be understated; the market is saturated by excessively branded handbags, but I don't think people are going to always want that.
What is your five year expansion plan for Jardine of London?
I have big ambitions for Jardine of London. My handbags can currently be found in the newly refurbished Fenwick, Colchester store, and I’d like to increase our UK retail presence further. I want the brand to become an established British brand for luxury handbags and other luxury accessories. I’d like to partner with an investor who shares my passion for the brand and can assist me in expanding the business globally. I believe Jardine of London has huge international potential, and we have already had online orders from across the globe. My sole aim is to create a successful global business while staying true to the brand’s British DNA.
California Adopts New Prop. 65 Warning Regulations
Authors: Merrit Jones and Marcy Bergman
California's Office of Environmental Health Hazard Assessment (OEHHA) has adopted new Proposition 65 warning regulations. The new regulations will take effect in two years, on August 30, 2018. In the interim, businesses may choose to comply with either the current or new regulations.
Prop. 65 prohibits businesses from knowingly and intentionally exposing California consumers to a chemical known to the state of California to cause cancer or reproductive harm without first providing a "clear and reasonable warning." The new regulations substantially change what constitutes a clear and reasonable warning.
Regulations Seek to Reduce Burden on Retailers
The new regulations seek to put the primary responsibility for providing warnings on product manufacturers or suppliers, who must either label their products with any required warnings or provide notice and warning materials to retailers. The manufacturer or supplier must specifically identify the product requiring a warning, provide all necessary warning materials, receive written or electronic confirmation of receipt from the retailer’s authorized agent, and renew the notice every six months for the first year and annually thereafter. The manufacturer or other supplier of a product must notify a retailer within 90 days if a new chemical or endpoint (cancer or reproductive toxicity) must be included in a product warning.
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A retailer can still be held responsible for failure to provide a required warning for the retailer’s private label products or where the retailer has:
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knowingly introduced or caused a listed chemical to be created in a product ;
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covered, obscured or altered a product’s warning label;
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received a warning notice and materials from the manufacturer or supplier, but sold the product without supplying the warning; or
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actual knowledge of the potential consumer exposure requiring the warning, and there is no manufacturer or supplier who is subject to Prop. 65 (has 10 or more employees) and a place of business in California or a designated agent for service of process in California. Actual knowledge will be presumed within five days of receiving a 60-day notice of violation
The new regulations provide that, regardless of the above, a retailer may enter into a contact with the manufacturer or supplier of a product that specifically allocates the legal responsibility for providing a warning.
Regulations Allow Electronic Warning, and Require Warning Prior to Internet Sales
The regulations continue to allow a product-specific warning to be provided on a sign, shelf tag, shelf sign at each point of display of the product, or on a product tag or label.
The regulations also allow, for the first time, a product-specific warning to be provided via any electronic device or process that automatically provides the warning to the purchaser prior to or during the purchase of the product.
For internet sales, the regulations require, for the first time, that a warning must be provided on the product display page, or a clearly marked hyperlink using the word “WARNING.” This is a departure from the current regulations, which do not expressly address internet sales and provide only that a warning must be provided prior to exposure.
Regulations Create New Safe Harbor Warning
The regulations require that a warning list the name of one or more chemicals for which the warning is being provided. This is a departure from the current regulations, which do not require the name of any chemical to be included.
The regulations also require, for the first time, a symbol involving a black exclamation point in a yellow equilateral triangle with a black outline. Where a sign or label does not use the color yellow, the warning can be provided in black and white. The triangle must appear in a size no smaller than the word “WARNING,” which should appear in all capital letters and bold print. The warning should state:
WARNING: Cancer – www.P65Warnings.ca.gov/product
WARNING: Reproductive Harm - www.P65Warnings.ca.gov/product
For food products, the warning should state:
Consuming this product can expose you to chemicals including [name of one or more chemicals] which is [are] known to the State of California to cause cancer [and/or birth defects or other reproductive harm]. For more information, go to www.P65Warnings.ca.gov/food.
Warnings may include supplemental information only to the extent that it identifies the source of the chemical exposure or provides information on how to avoid or reduce exposure. Where a shelf sign or product label provides consumer information in a language other than English, the warning must also be provided in that language.
Artificial Intelligence: increasing brand exposure and facilitating online sales
Authors: Paula Levitan and Nicola Conway
In April 2016, Facebook announced the launch of its 'Chat Bot Platform' which enables developers to create Artificial Intelligence 'chat bots' to simulate human conversation with users. One such chat bot has been created by Spring, an online shopping portal, to connect consumers to over 900 brands through a robotic personal shopper.
The Spring chat bot is accessible through Facebook's messaging app. On initiating a conversation with the bot, the customer is asked five multiple choice questions about the type of garment they are looking for, including their gender and budget. The bot then follows up, almost instantaneously, with five suggested items which can be purchased immediately by simply clicking to redirect to Spring's online store. Over time, and with increased use, the bot will study the shopper's purchase history and learn their preferences in order to tailor its offerings to personal wants and needs.
The bot system is intended to facilitate the online shopping experience by minimising the time customers spend trawling through multiple online stores, websites and apps, and by assisting the product comparison process (thereby also increasing competition amongst retailers). The option for immediate interaction with these virtual consultant bots is also expected to minimise retail costs spent on manned telephone and email helplines.
With the introduction of these personalised e-concierge bots into the Facebook Messenger app, which has a reported 700 million monthly active users, the exposure that the software may bring to brands, and the impact it may have on e-commerce generally, promises to be quite significant!
Amongst other legal regulation, online retailers operating websites in the EU need to comply with a whole host of rules contained in (i) the Consumer Contracts Regulations 2013; (ii) the Consumer Protection (Amendment) Regulations 2014; (iii) the Consumer Rights Act 2015; (iv) the Electronic Commerce (EC Directive) Regulations 2002; and, (v) the Data Protection Act 1998. Our Retail team would be delighted to help you make sense of all this, should you have a website in the EU and have any questions about compliance.
