Avoiding Large Problems in Small Stores

Schaufenster

Some retailers have embraced the strategy of opening a large number of small stores rather than focusing on a few flagships. Advantages include minimizing the chance of significant economic loss in any given location and increased exposure on a national level.

One drawback to this strategy is that, with the greater number of leases to be negotiated, there is an attendant possibility of large legal fees. The retailer could, with justification, believe that, since the rent is small for each location, the legal fees should be similarly modest.

However, the retail tenant’s counsel cannot be any less vigilant in negotiating these store leases. That is because certain types of liabilities can be very costly, no matter the size of the store or the amount of the rent. Those liabilities generally arise from problems with the physical condition of the store.

Landlords come in all sizes and shapes, and often different negotiation strategies are called for depending on who is on the other side of the table. But there is one thing all landlords have in common: they want the tenant to accept the premises “as is” and be responsible for all physical problems within the demised premises. “You have inspected it,” they will say, “or if you haven’t done so, you should do so at once.” But by the very nature of the small store strategy, the tenant is opening in locations where it is unfamiliar with local laws and may not wish to undertake the expense of hiring local architects and expediters to inspect and report on real or potential problems at each location.

Typically, the tenant retailer knows it will have to do work to prepare the store for its occupancy, but the tenant will likely also be unwilling to accept responsibility for any major construction needed to prepare the space for its occupancy. One would imagine that landlords would feel the same way, but often that is not the case. Even if we leave aside landlords who wrongly seek to conceal defective or environmentally unsafe conditions and look at honest landlords, we find that it is not uncommon for them to worry about their buildings being consistently up to code. Even if the building was in full legal compliance at the time of original construction, laws change, and repairs and replacements over time may not be in compliance with the updated code. The big fear is that, when a retail tenant applies to have its plans approved for its leased space, the building department will return with a laundry list of upgrades that are essential to bring the entire building up to code.

Retail tenants must anticipate and respect that fear, and savvy tenant counsel should be able to handle the concerns of the landlords with sensitivity (and often creativity) to help the landlords overcome their fears. The solutions that arise in these situations, when parties cooperate and reasonable compromises are made, can be mutually beneficial. But one thing is certain: the goal of counsel for the retail tenant is to do what is reasonably necessary to help keep costs both predictable and under control.

Credit: Steven J. Rabinowitz

Steve is counsel in Phillips Nizer’s Real Estate Law practice.


Ahoy, Retailer!

Battleship_USS_Missouri

Flagship is a naval term meaning the vessel on which the senior officer commanding a formation of ships has made his seaborne headquarters. A “flag officer” (typically an admiral) has a distinctive flag that flies from the mast of his command vessel so that it is clear to all which ship in the fleet is his “flagship.” It is often, but not necessarily, the largest of the ships under his command. American English being rich in metaphors and neologisms, flagship soon became jargon for a retailer’s home store—usually the first or primary store and often the location of corporate headquarters. Because every brand wants every customer to see it as (to use another neologism) a BFF wherever the customer is located, brands were soon launching flagships all over. In time, we have seen the term applied to any store carrying all, or nearly all, product lines available under a brand—or simply its largest store in a given city.

So what does flagship mean today? After careful analysis of market conditions, lexographic innovations and the synchronicity between industry slang and nautical terminology, we hereby offer a revised definition: A flagship is any retail door big enough to have a Nespresso machine in the break room.

So now we know.

Credit: Alan Behr

Photo Credit: Richard Brown (Own work) (Wikimedia Commons)


What a Lovely Ankle, Dude.

Guy-CroppedRolledJeans-AnklesShowing

Last summer, we were treated to a new take on the skinny pants trend for men.  In this go-around, it was sans socks, and the trousers were either hemmed several inches above the ankle or simply rolled up to resemble a pair of clam-diggers that had spent too much quality time in the clothes dryer.  In the late Victorian era, you might have heard that an attractive woman had a “well-turned ankle”—because that was about the only part of her below the neck that cleared most of the enveloping layers in between.  As anyone has recently offered such praise for women’s ankles?

We invite readers to share with us whether, at any point in the history of humankind, in any culture or territory, anyone has had anything exceptional to say about the allure of men’s ankles.

I have a photograph of my father at about the age of twelve, standing beside his nanny and his horse.  He was wearing plus-fours, and as was correct for the period, he also wore socks that disappeared into the breeches.  You see, guys: sometimes the old ways are the best ways.  As the summer season unfolds, let us all sit back and take heed of the advice of a wise friend who has often reminded me, “Socks are important.”

Credit:  Alan Behr


Would Bogart Play An Asset Protection Associate?

Woman Stealing Clothes From Store

Like government, finance and many sectors of business, fashion is not above altering its use of language to soften perceptions.  My brother’s first job was assistant fragrance buyer at a department store; if he had known that he was actually developing a career in “beauty,” he might not have quickly given it all up for a life in the financial markets.

When I first began working in a department store, the in-house cop was called the “detective.”  Although there were days when it seemed that our shoplifters outnumbered our paying customers, our man never caught as much as a head cold.  Needless to say, he was replaced by four rougher sorts who called themselves “security.”  Not long after my mother retired from the department store where she worked (You see a pattern here, right?), security became “loss prevention.”  More recently, we’ve seen “asset protection.”  Along the way, practitioners’ tools have become more sophisticated, and they have gotten better at what they do—which is the important job of stopping theft (now called “shrinkage”); but the perception of dangerous charm of a “detective” in the Raymond Chandler/Dashiell Hammett mode does not come to mind when considering the tech-savvy guy who controls a bank of video monitors.  Would Humphrey Bogart have played an asset protection associate?  We will have to think about that.

Credit:  Alan Behr


To Pay Or Not To Pay – The Intern Question

fashion, apparel, clothing
Did you hear the one about the man and woman who walk into a bar and say they interned for a luxury fashion company, a magazine conglomerate, a movie studio, a modeling agency, a jewelry designer or the Los Angeles Clippers and say they should have been paid for it?

It’s not a joke. The legal assault on the unpaid internship continues to pose serious issues for unwary employers. More and more unpaid interns (typically, but not always, students or recent graduates) and their attorneys are rejecting the age-old rite of passage/symbiotic relationship that requires them to work long hours and perform varied tasks without pay in exchange for the opportunity to learn the business, make meaningful contacts, pad a short resume and demonstrate the moxie to make big money from future paid employment. Interns and former interns who never before (outwardly) complained about their arrangements are finding clear support from federal and state wage and hour laws requiring payment of minimum wage and applicable overtime premium pay for all the hours they work—just like regular employees—and are filing and participating in lawsuits to get what they believe they are owed. The public interest website ProPublica compiled and updates a chart tracking filing and status of interns’ lawsuits (http://projects.propublica.org/graphics/intern-suits#corrections).

I Don’t Want to Pay My Interns…

Okay, and you don’t have to—if your unpaid internship program satisfies all six of the following factors:

  • the internship, even though it may include the actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
  • the internship experience is for the benefit of the intern;
  • the intern does not displace regular employees and works under close supervision of existing staff;
  • the employer that provides the training derives no immediate advantage from the activities of the intern—and indeed, on occasion, its operations may actually be impeded;
  • the intern is not necessarily entitled to a job at the conclusion of the internship; and
  • the employer and the intern understand in advance that the intern will not be entitled to wages for the time spent during the internship.

If that does not sound like the program in place for your summer (or other) unpaid interns, you should carefully re-evaluate whether you are in compliance with the federal Fair Labor Standards Act and applicable state law. The test creates a very high threshold, but not an impossible one—for example, it may be satisfied where, among other things, an intern receives educational credit for an internship program that extends a classroom educational experience for her or his benefit to provide experience and training in a company setting. However, employers most often fail the test where an intern does work generally performed by paid employees, is left to work independently or does productive work for the company’s benefit (even if it also benefits the intern). In all of those cases, the intern likely will be entitled to payment for his or her services.

I’m Not Going to Pay My Interns…

Okay, but be aware of the potential consequences for misclassifying someone as an unpaid intern, which include all the back wages owed (including overtime for hours worked in excess of forty in a workweek) for three years (under federal law) or more (under some state laws), penalties of 100% or more of the unpaid wages and the obligation of paying not only your own legal fees, but those of the intern who sued you. Additionally, understand that many of these cases are brought as class or collective actions on behalf of other similarly situated interns. When you add to the mix the fact that companies rarely keep accurate working time records for those interns they elect not to pay, it all makes for a potentially very expensive proposition—particularly when weighed against the option of simply paying minimum wages in return for work performed. Given the wealth of resources and advocates for unpaid interns, the time has come for employers to toss out the “that’s the way it has always been around here” mentality and carefully re-evaluate their unpaid internship programs.

Credit:  Marc B. Zimmerman

Marc is a partner in Phillips Nizer’s Labor & Employment Law Practice and Litigation Department.


Keeping Control Over Your Brand

1960Mini-BritishFlagPaintJob

In the movie A Hard Day’s Night (1964), unscrupulous menswear marketers lure George Harrison into their office, there to assure him that the two new shirts they put into his hands are essential to his self-esteem. When George says the goods are frightful, the head marketer comforts his team that, “within a month, he will be suffering a violent inferiority complex and loss of status because he isn’t wearing one of these ‘nasty’ things.”

The point was that the guiding spirits of the generation of the 1960s formed up against the commercialism and consumerism that were behind marketers’ attempts to pass off “nasty” goods as status symbols for insecure youth. How times have changed. Someone with a device in his pocket that pitches out brands and branding stories faster than summer rain drenches a field views branding and the commercial motives behind it in a much more positive light. Brands ignite consumer interest as never before, and brands win when they have good stories to tell—stories that create interest and become viral once consumers are engaged. Brands are, after all, nothing but good will with consumers, and once that is obtained, the message is spread most effectively by consumers imitating each other and aspiring to what each other has. The bad news that follows from the good is that consumers, in exchanging with each other messages about brands they know, are becoming as important in the control of a brand’s destiny as the brand’s owner—and its marketers.

For that reason, never has the creation and the protection of strong trademarks been more important for the fashion business. The value of the trademarks is applied directly to the bottom line in the form of good will. There are terrific fashion brands that own little else but their trademarks and related domain names—not the factories that make the clothes, not the stores in which they are sold, not even the photocopy machines in the corporate office. What they have are strong trademarks protected throughout the areas of current use and expected operations. The moral of the story: work with your trademark lawyer to develop, as early as possible, a solid and workable trademark protection program, and then stick to it by carefully searching and analyzing all new prospective trademarks and by registering them promptly as soon as the anticipated need arises. What have you to lose by not doing that? Only everything you may have.

Credit:  Alan Behr


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