I was struck by the news that Target’s limited edition Lily Pulitzer collection sold out within hours, after Target took its website off-line in the face of extraordinary demand when the collection went on sale. It is surprising that a sophisticated retailer and a well-known fashion brand did not expect either the demand or that it would manifest itself in a stampede to Target’s website. Can it be that fashion brands and retailers do not appreciate the fundamental shift in consumer behavior of which this is merely the latest manifestation?
As the mother of a daughter who is what the media has taken to calling a millennial, I have had a highly personal view of the change in what was once a fundamental consumer activity: shopping. For me, shopping, which includes searching for luxury brands at bargain prices, is a treasured leisure time activity. It was an activity I used to share with my daughter. The siren call of the mall in Florida, California or wherever else I might be where there was a mall was an essential not-to-be-missed feature of any vacation. And in Manhattan, which has no malls, a stroll on Fifth Avenue or Madison Avenue was a wonderful activity on a nice day.
That stopped when my daughter became a teenager. The one and only shopping trip we have taken in the last 5 years was to find a gown for the prom. That’s not to say that my daughter is not obsessed with fashion or is not an inveterate shopper. She spends more time shopping than I ever did. But the only stores she visits in person are Sephora, to play with cosmetics, the Apple store, to play with gadgets, and thrift shops and vintage stores to find that perfect ugly Christmas sweater or 60’s bargain accessory.
Instead, she shops on-line at all hours of the day and night, particularly when she is procrastinating to avoid writing papers or completing other school assignments. She shops on her iphone, on her iPad and on her Macbook. She orders everything she is interested in on-line, preferring to try things on in the comfort of her own room, returning what doesn’t work and keeping what does.
For her, on-line shopping is also a highly social and communal activity. She sends links of potential purchases to friends and solicits their opinions. She takes selfies of herself in garments to poll her friends on what she should keep. She follows the brands she likes on social media so that she knows what’s coming and when the sales start.
None of this is new. It has been going on now for years. It is the reason why malls are dying and why some teen retailers have struggled while others have thrived. It has dramatic implications for fashion brands and retailers and important implications for lawyers who serve them. We all must master the internet, social media and the changes in distribution channels that these portend. So bear in mind all: this is the generation that killed the compact disc and record stores and is well on its way to killing iTunes, even though it consumes more music from all over the world than we ever did. It is killing the book store and books (college texts can be rented, ordered on-line and sometimes consumed electronically), although it actually reads more than we do. You’d better get with the “what I want, when I want it, without getting dressed” generation or you’ll soon be a relic of the past. And message to Target and other retailers: if you frustrate your customers and they see your goods as something unattainably dangled out of their reach, you’ve lost them as customers. Millennials do not take frustration well, and the web offers lots of alternatives that are more accommodating. Like Top Shop!
Credit: Helene M. Freeman
Over the years, retailers have liberalized their returns policies. I have been offered thirty days, ninety days, sometimes one hundred eighty days in which to receive forgiveness if I should change my mind. I have even been quietly assured that, if I sign up as a preferred customer, the returns privilege is open-ended, which I suppose means that you can bring back your bar mitzvah suit after you wear it a second time for your retirement party (as long as you have the receipt). Even if formal policy says no to a return, it may simply be ignored if you are polite about it and willing to accept a store credit as a compromise.
In part to soften customer concerns about the risks of buying online, retailers have made buying from the Internet into a shop at home service, making returns as easy as putting the product back into the box, sticking on a return label and sending it back from whence it came—sometimes at no additional cost. (Shoe purchases seem to be particularly blessed in that way.)
When the goods come from a boots-on-the-ground shopping experience, customers are increasingly becoming their own shop at home services, scooping up whatever looks promising (sometimes in alternative sizes and colors) and making final purchase decisions in the privacy of their own bedrooms. The result of all this back and forth is that is that, depending on the category, returns can equal as much as forty percent of a retailer’s sales—perhaps even more in seasonal spikes.
When an item is marked “final sale,” however, the retailer is saying: “I’ve had enough of all that; I really want this one to move; here it is at a very good price I would never otherwise accept; now take it and don’t ever let me see it again.” We can all understand why a no-returns policy makes sense for underwear. But consider this as well: every luxury retailer has stories about evening gowns returned the day after a well-publicized big event, fragrant with perfume. For the same reason, it is understandable why a jeweler would make returns difficult or even impossible—to avoid, that is, turning into a free lending library for expensive necklaces and bracelets.
So by all means, take advantage of final sale offers. (By definition, it is your last chance to buy the item anyway.) But keep in mind that there is no turning back when you do. Your moment as your own style consultant has come: if you buy it, you own it, so make sure you like it at point of sale.
A special, final and heartfelt warning: if you are a guy with a wife or girlfriend who examines what you wear as if your reputation and hers depended on it (How, you may ask, would I know of such a guy?), you had better bring her along, just to be sure. If she first sees it when you bring it home and on the spot offers an opinion along the lines of, “What were you thinking? Take that thing back!” it is no time for your response to start with, “Uh…”
Credit: Alan Behr
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.
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)
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
Pop-up stores have become fashionable among small businesses and large companies alike because they offer a company the opportunity to sell merchandise and to test retailing concepts with minimal investment. They are also advantageous for landlords who hope to rent space that is temporarily being carried without rental income.
From the perspective of tenant counsel, however, there can be difficulties. Because the whole point of the exercise is to offer customers a temporary retail experience at minimal financial exposure, the client is seeking to avoid expending large sums on legal fees. If the client concludes that there is very little financial risk due to the short-term commitment, there can be a tendency to ask for minimal or even no involvement by counsel.
Complicating matters, the landlord is also looking to minimize legal fees, with similar pressures on its counsel to hold down fees. The attorney for the landlord will therefore often send its standard lease form with only minimal modifications to tailor the lease to the pop-up concept. Because standard form commercial leases typically impose maximum liabilities on the tenant (which is contrary to the pop-up concept, at least from the tenant’s point of view), the tenant’s lawyer may well find it difficult to deliver a fair lease at the right price.
As an example, the lease form from landlord might provide that, in the event of fire damage, the landlord has a substantial time to rebuild. That makes no sense for a pop-up store. The draft lease may also provide for tenant to make all sorts of repairs to the premises, often including building systems. That is hardly an expectation of the tenant when signing a lease for temporary space. Compliance with law can prove tricky under the best of circumstances. Even a long-term tenant must protect itself from expenditures in case the premises need to be brought up to code. Although the pop-up tenant must of course comply with applicable law, it likely will not want to be responsible for any expense to the pop-up due to deficiencies in the building or the leased premises. The date of delivery of the leased premises is also an issue. A landlord typically wants a grace period if it is late in delivery. For a pop-up tenant, for whom every day of a short-term rental will likely count, any delay in delivery could spoil everything.
Fighting out the applicable clauses concept-by-concept and line-by-line with the landlord’s attorney cannot lead to satisfaction for anyone due to time constraints and the desire to keep down legal fees. In my experience, the best way to handle the problem is to put in an “omnibus” clause such as:
Notwithstanding anything in this Lease to the contrary, the parties agree that Landlord shall be responsible for all repairs, ventilation, utility lines, maintenance and compliance with laws regarding building repairs that commercially reasonable parties would expect a landlord to perform, taking into consideration the length of this lease and the demised premises’ use as a “pop-up” store, and all other provisions of the lease (including, without limitation, casualty, condemnation, access to premises for improvements, failure to timely deliver possession, and use of existing facilities such as electrical wiring and meters) shall be deemed so modified in the light of the same reasonable expectations. No “To Let” or “For Sale” signs shall be permitted at the Premises.
Credit: Steven J. Rabinowitz
Steve is counsel in Phillips Nizer’s Real Estate Law practice.