Contracts/Agreements (hereinafter mentioned as "Agreements") make it to the
top of the list when it comes to the effective functioning of a business, no
matter what the industry is. The fashion industry has evolved tremendously in
such a short span of time. The industry is home to numerous employees and
contributes significantly to a nation's economy.
This article shall focus upon the various Agreements which ensure smooth
functioning of the industry with minimum liability. Divided into three stages,
we will look at the most important facets of contracts which play a vital role
in administering the fashion business.
Licensing is the activity of negotiating with another party to gain and use
rights, in this case, intellectual property rights, in exchange for a price (a
fee or royalty). A trademark owner (the licensor) and another party (the
licensee) often enter into a licensing agreement in which the licensor allows
the licensee to use its trademark in commerce.
Simply expressed, a license gives the licensee access to the property without
transferring ownership. Licensing allows fashion brands to grow, complement and
reinforce their brands, expand into new areas, and improve their image.
Stage I: Making of the Product
This is the initial stage. Here we will take a look at the Agreements that are
necessary for the manufacturing of the products i.e. Manufacturing Agreements
and Private Label/ White Label Agreements.
- Manufacturing Agreements:
A manufacturing agreement is contracted between two parties, the designer
and the manufacturer. Here, the product designer demands the creation of the
goods (clothing items, accessories, footwear, bags, etc.) on his/her behalf
from the manufacturer.
The Manufacturing Agreement must include the following clauses:
- Quantity of the Product.
- Shipment: How will the products be shipped to the designer by the manufacturer.
- Modes of Payment: What shall be the outstanding amount and how will the payment
be made.
- Dates of Delivery: When will the product be delivered?
- Product Specifications: Maintaining the quality of the product.
- Details about the manufacturer.
- Intellectual Property (IP) Rights: Designers ownership of the intellectual
property.
- Liability of both the Parties.
- Private Label/ White Label Agreements
Under Private Label/White Label (A.G. Paphitis & Co.) Agreements the designer
sells products manufactured under their brand. The manufacturing companies
provide the designers with their product, the company on the other hand markets
the product as their own. This method minimizes the designing cost, manages
time, and lifts off the burden from the designer's head. A very popular example
of a Private Label (Lamb) is AmazonBasics. It is an in-house brand of Amazon
which includes a variety of products ranging from electronics to house goods at
a much cheaper cost than other competitive brands.
The Private Label/White Label Agreements must include the following clauses:
- Price of the Product.
- Quantity of the Product.
- An assurance of the quality of the product.
- Right of selling the product under a specified trademark.
- Liability of both the parties.
Stage II: Breaking the Product Out
Under the second stage, we will look at the Agreements necessary for the product
to reach the market i.e Consignment Agreement, Showroom Agreement, and
Independent Sales Representation Agreement.
-
Consignment Agreement
A Consignment Agreement (Practical Law Commercial) is a contract between the
designer and the retailer where the former consents to the latter to sell the
design at his/her marketplace for a particular period of time. If the goods are
not sold by the retailer they are returned to the designer company.
The Consignment Agreement must include the following clauses:
- Term and Termination of the Agreement.
- Terms of Sale for the Designer Goods.
- Percentage/Profit Percentage each party tends to receive.
- Effect of non-sale on the Designer Goods.
- Showroom/Dealership Agreement
A Showroom/Dealership Agreement is a contract between the owner of the showroom
and the designer. The dealer grants the designer permission to showcase his/her
products at their showroom. The dealer owes the designer the responsibility to
not only showcase his/her items but also to introduce the products to its buyers
and sell them.
A Showroom/Dealership Agreement must include the following clauses:
- Term and Termination of the Agreement.
- Quantity and Quality Assurance of the Products.
- Modes of Payment.
- Shipping Policy.
- Dates and Methods of Delivery.
- Specifications of the Product(s).
- Details of the Designer.
- Intellectual Property Rights
- Liability of both the Parties.
- Independent Sales Representation Agreement
An Independent Sales Representative (also known as Sales Rep Agreement)
Agreement (Guillermo and Kolson, 178) is a contract between the designer company
and a sales representative where the company assigns the representative to
display their collection to the list of his/her customers. The representative is
obligated to take orders and pass the details to the designer company.
Representatives are offered a commission on the sales by the designer company.
This Agreement is quite similar to the Showroom Agreement.
The Sales Rep Agreement must include the following clauses:
- Term and Termination of the Agreement.
- Representative's Obligations.
- Exclusivity of the Products.
- Products and Territories covered by the Representative.
- Commission of the Representative.
- Guaranteed Percentage of Orders by the Representative.
- Showroom Tariff.
Stage III: Expanding the Brand
The third stage is where we expand our fashion brand with the following
agreements i.e Licensing Agreement, Joint Venture (JV) Agreement and
Distribution Agreements. These agreements will safeguard and widen the business
of the designer company.
- Licensing Agreement
A Licensing Agreement is a contract between the designer company and a second
party where the company permits the use of the trademark within a specified
territory for a limited period. This process is generally used to increase
territorial reach and ensure a constant supply of products without investing a
huge amount of funds. The designer companies can avoid the struggle of building
new manufacturing units and gathering the sales segment.
A Licensing Agreement must include the following clauses:
- Term and Termination of the Agreement.
- Assignment of Products.
- Clause of Exclusivity.
- Channel of Sale.
- Royalty Payments.
- Use of Manufacturers
- Use of Retailers
- Use of Wholesalers
- Licensed Trademarks
- Intellectual Property Rights (IP) Rights
- Liability of both the Parties.
- Joint Venture (JV) Agreements
A Joint Venture (JV) Agreement is a contract between two companies where both
come together to create a fresh establishment with their competence.
Bally-Reliance Brand Limited (RBL), Karl Lagerfeld-Cover Story, Raghvendra
Rathore-Reliance Brand Limited (RBL), Shantanu & Nikhil-Aditya Birla Fashion &
Retail Limited (ABFRL) are a few of numerous JV's (Vogue Business) running in
India. In a JV, both the brands invest and share the revenue plus profits.
A Joint Venture (JV) Agreement must include the following clauses:
- Term and Termination of the Agreement
- Initial Investments by both the Parties.
- Classification of Products.
- Registered Trademarks and Licenses.
- Intellectual Property (IP) Rights.
- Renewal of the Agreements.
- Profit Division.
- Advertisement & Marketing.
- Rights of Audit
- Distribution Agreements
A Distribution Agreement is a contract that is used to build trading relations
between the distributor and retail outlets. The distributor collects the
products from the designer company and trades them with the retail houses. The
Distribution Agreements can be Exclusive, Non-Exclusive, Selective and Sole.
- Exclusive Distribution Agreement
Under the Exclusive Distribution Agreement, the manufacturer allows only one
distributor to trade the products with the retail outlets.
- Non-Exclusive Distribution Agreement
Under the Non-Exclusive Distribution Agreement, the designer company authorises
multiple distributors to resell the products to the retail houses.
- Selective Distribution Agreement
Under the Selective Distribution Agreement, the company permits the distributors
to resell to selected retail houses. This agreement is often used by luxury
brands.
- Sole Distribution Agreement
Under the Sole Distribution Agreement, the supplier appoints one distributor as
their sole distributor within a geographical area.
Consignment Contract:
This is a contract between a retailer and his agent
wherein the retailer grants the right to sell, merchandise, conduct an
exhibition for sale of the fashion apparel or inventory. Here, the retailer is
called as consignor and his agent as consignee in the whole contract.
Clauses In Consignment Contract:
- Preamble: It depicts the details and facts of whole contract in short
- Duration clause
- Terms of sale of products clause
- Percentage that each party would receive clause or Consignment fee clause
- Payment options clause
- Liability for lost or damaged stock clause or Insurance Clause
- Effect on non-sale clause
- Minimum Price clause: the price below which the fashion products should not be
sold
- Location and storage of stock during consignment clause
- Expenses clause
- Modification/Amendment clause
- Applicable law clause
Showroom Rent Contract:
It is a contract between the shop owner or showroom
owner and the designer of fashion products for renting out the shop space to
sell his stock. It is a type of a rent contract between these parties wherein
the shop owner grants his shop to the designer against periodical payments of
rent for the letting.
Clauses In Showroom Rent Contract:
- Preamble
- Duration clause
- Expenses clause
- Terms of the rent payment clause
- Applicable law clause
- Dispute Resolution clause: In which court to refer the dispute in is included in
it.
- Terms of letting clause: for example, whether the showroom will be furnished or
not
- Payment of taxation clause
- Breach of contract clause
- Liability for damage to the showroom clause
- Security deposit clause: the amount of deposit to be given by the designer to
the owner for rent
- Modification/Variation clause
- Termination clause: it also includes notice period to be given to each other
Franchise Contract In Fashion Industry:
This is a contract wherein one party
grants the authority to other to open and operate the business in the name of
the selling party. The party granting such a right is called as a franchisor and
other party is termed as a franchisee. We find many franchises in fashion
industry such as Being Human,Fittin, Choupette, Duke, lenskart.com, Bombay
dyeing, etc.
Clauses Under Franchise Contract In Fashion Industry:
- Preamble
- Franchise fee clause
- Security Deposit clause
- Royalties clause
- Mode of Payment clause
- Confidentiality clause: wherein the franchisee agrees not to disclose
franchisor's trade secrets
- Standards of Operations clause: wherein fixed set of standards have been set and
the franchisee needs to follow them accurately
- Inspection clause: Right of franchisor to inspect the premises at regular
intervals
- Applicable laws clause
- Proper registrations by franchisor relating to licenses clause
- Advertising and Brand Promotion clause
- Training, supervision and support clause
- Use of trademark and intellectual property clause: This is one of the most
important clauses wherein the franchisor needs to have registered the trademark
and should have exclusive rights for use of such a trademark
- Duration of contract clause
- Renewal clause
- Termination of contract clause
- Dispute Resolution clause: for example, arbitration, mediation, conciliation
- Force Majeure clause: Wherein any of the parties fails to perform their
functions due to unforeseen circumstances, then what should be done.
Fashion Related Advertising And Promotional Contract:
It includes a contract
between a designer/retailer/manufacturer of fashion products and an advertising
and marketing agency for promoting these products through various channels in
exchange of an advertising fee.
Conclusion:
Thus, as we saw above these were some of the different types of contracts under
the fashion Industry and some of which though contains similar clauses but are
also specialised as per their work. Some clauses such as severability,
survivability, dispute resolution, applicable governing laws, confidentiality
clause, force majeure clause are amongst the most important clauses which
safeguards the contract against uncertain or unforeseen events that can make the
contract disputable or void.
Inserting these clauses ensures that the contract remains in force and is termed
to be valid. The non-disclosure clause also ensures that the valuable trade
secrets are not revealed by the parties to the contract and the survivability
clause exists even after the parties have finished dealing or performing as per
the contract and if such a term is breached, the consequences need to be faced
by the defaulting party as per the provisions in that effect in the respective
contract.
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