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Retail Law Advisor

ICSC’s New England Idea Exchange Draws a Crowd to Talk Shop

Posted in Retail

ICSCThe Hynes Convention Center hosted the ICSC New England Deal Making Conference in Boston last week from July 19 through July 21. ICSC announced that attendance was at an all-time high of about 1,200 people. The conference kicked-off with several social activities, including the golf tournament, the new sporting clays event and the retailer fun run. Feedback on all events was very positive.

The show’s first day sessions were interesting and diverse – ranging from public/private projects, current issues facing capital markets and the retailer runway. The Next Gen Committee held a real estate version of the classic gameshow – Jeopardy – with host Josh “Alex Trebek” Levy of Waterstone quizzing the contestants on all things retail. After lively interactions from the contestants, Lori McWeeney of Blackline Retail Group was crowned the Jeopardy champion. The keynote speaker at the lunch was Stephen Karp, Chairman of New England Development. In his remarks, Steve highlighted the vast changes in our industry – as his company has moved from enclosed mall development to mixed use urban projects to outlet development. His broad experience brought an interesting perspective to the conference, especially for the younger participants in the audience.

The deal making session was crowded and busy – particularly in the morning. The energy was positive and the meetings were reported to be productive. As is generally the case in the summer, attendance started to dwindle as the day progressed. Attendance at The Wilder Companies after-conference party that wraps up the show was strong and, overall, feedback on the two day show as positive. Attendees were happy to see the show moved back to the typical Tuesday through Thursday schedule, after the experiment last year with the Wednesday through Friday schedule. ICSC seemed to be signaling their commitment to maintaining the New England show as a major attraction for all sections of the retail industry.

The Implications of Trademark Infringement Decisions: Aw “Chucks”

Posted in Intellectual Property, Retail, Retail Sales

imagesThere is a growing population of fashionistas and #sneakerheads skyrocketing the sales of fashion retailers and traditional sneaker companies, such as @Nike and @Converse. Forbes contends that sneakerheads represent approximately 5% of the $22 billion dollar sneaker market in the U.S., which works out to roughly $1.1 billion dollars. Sneakerheads have an undeniable economic impact on the sneaker industry causing major sneaker companies to vie for their brand loyalty at every turn; thus, it should come as no surprise that these manufacturers have recently been embroiled in litigation to protect their trademarked brands and standing within the sneaker community.

A recent sneaker war – resulting in a seminal trademark infringement case– between Converse and a number of brands concluded this July and is expected to have a number of trickle down effects on the retail industry at large. By way of background, in October 2014, Converse filed a lawsuit against 30 companies, including Skechers and New Balance, alleging infringement of Converse’s iconic sneaker’s bumper toe, striped midsole and toe cap. The case hinged on whether the Chuck Taylor bumper toe, striped midsole and toe cap had acquired “secondary meaning” within the retail market. In layman’s terms, Converse needed to prove that these sneaker-elements were distinctive and prompted an association in the consumers’ minds between the element(s) and the manufacturer. A number of companies, in a measure to maintain their brands’ fashion integrity, opted to acknowledge their copycat designs and settle out of court, including Ralph Lauren, H&M, and Aldo. Skechers and New Balance, however, decided to press on with the case, and ultimately, correctly read the tea leaves. In the decision handed down by the U.S. Internal Trade Commission, the judge ruled that Converse didn’t have a common law trademark in the midsole, the bumper element nor the toe cap, and that the shoe design was not distinctive enough to acquire secondary meaning or iconic status.

The implications of this decision will not only reverberate throughout the halls of the fashion industry, as major retailers now seek to devise strategies to protect their innovative designs, but also the retail real estate market where more and more established, cutting edge brands will presumably seek restrictive covenants in their leases to thwart competition in order to survive in this ever evolving retail climate. A major takeaway from this decision is that retail brands will have an increasingly difficult task proving a trademark infringement claim because very few designs are wholly original. Given the uphill battle of establishing trademark infringement, obtaining restrictive covenants in leases may be the next legal approach for retail brands looking to protect certain designs and uses for the sake of their long term business interests.

Distinctions between fashion brands, especially sneaker brands, has become blurry as many retailers now sell items that are eerily similar to each other (e.g. New Balance’s “PF-Flyer” and Converse’s Chuck Taylor). Plus, proving trademark infringement is a difficult feat as this recent decision bears out. Therefore, landlords and developers of major shopping centers should keep this decision in mind and anticipate that major retailers will seek broader and more extensive exclusive protections in the hope of safeguarding their brands’ identity and signature elements.

RETAIL 2020: Future Ready – Innovate to Succeed

Posted in Retail, Retail Sales

Goulston Retail 2020In late June, members of the local and national retail community convened at Goulston & Storrs’ Boston office to participate in an interactive panel discussion billed as RETAIL 2020: Future Ready. Panelists included Ben Fischman, the Executive Director of M. Gemi, a designer and retailer of Italian hand-made footwear; Nicki Hines, a Partner at GCD Consultants, a retail real estate consulting firm; and Mark Roberts, the Senior Vice President of Leasing for WS Development, a developer and manager of shopping centers and mixed-use developments. David Rabinowitz of Goulston & Storrs moderated the panel discussion.

The discussion touched on four main topics:  (1) trends in e-commerce and omnichannel marketing; (2) struggling and disappearing department stores; (3) the future of shopping malls; and (4) the influence of Millennials. Omnichannel received the most airtime and generated an animated discussion. Mr. Fischman emphasized the “need to be where the customers are.” He argued that if retailers are innovative and customer-centric, they can succeed in either the brick & mortar or e-commerce environment. Ms. Hines said that teams need to work together to achieve a “click & mortar” model and that “it is all about customer experience.” From the landlord perspective, Mr. Roberts observed that landlords can help retailers to succeed by providing complementary support, such as social media promotions and unique physical environments that include food and entertainment together with other retail stores.

The discussion then shifted to the ongoing debate between landlords and tenants regarding the metrics used to calculate percentage rent charged for physical retail locations. As more and more sales shift on-line, it becomes more difficult to connect those sales to a shopper’s use of particular retail locations even though such sales often result directly from visiting a store. With regard to setting percentage rent formulas, Ms. Hines noted that all of the metrics are changing and that brick & mortar and on-line sales need to be combined, with lessons from one environment being applied to the other.

As the panelists worked their way through the remaining topics, they kept returning to the same core theme: innovation is the key to success in retail. Shoppers have the power, and it is essential to create a retail experience that appeals to their needs and desires. Retailers that continually innovate to meet evolving customer demands will be able to succeed, while those that do not keep pace will likely fail. Thus, just as not all department stores and shopping malls are doomed, not all e-commerce sites will thrive. It is a matter of adjusting to the demands of Millennials and other customers.

A Closer Look into the Growth of E-Commerce Sales

Posted in Retail, Retail Sales

Cart and ComputerIt is widely known that e-commerce sales have been growing and shifting sales from traditional brick-and-mortar establishments. As noted below, overall e-commerce sales in fact still account for a relatively modest percentage of total retail sales. That said, the percentage of e-commerce sales related to total retail sales continues to grow, and is especially pronounced in certain retail sectors. It is interesting to examine how and where that growth is taking place.

Every year since the first quarter of 2007, increases in e-commerce sales outpaced the overall growth of retail sales. This held true even during the third quarter of 2008 through the third quarter of 2009, when the decreases in e-commerce sales were not as great as the overall decrease in retail sales.

The Census Bureau of the Department of Commerce defines e-commerce sales as sales of goods and services where the buyer places an order, or the price and terms of the sale are negotiated over an internet, mobile device, extranet, Electronic Data Interchange network, electronic mail, or other comparable system, whether or not payment is made online. By that measure, in the first quarter of 2016, e-commerce sales represented 7.8% of total U.S. retail sales. If items that are not typically purchased online such as automobiles and fuel are excluded from the calculation, in the first quarter of 2016 e-commerce sales represented 11.2% of total U.S. retail sales. While total retail sales for the first quarter of 2016 were up 2.2% from the first quarter 2015, e-commerce sales were up 15.2% in the same period.

The two industries with the greatest percentage of e-commerce sales are apparel and computers and consumer electronic products. While e-commerce sales of computers and consumer electronics have traditionally outpaced sales of apparel, in 2015 online purchases of clothing and accessories eclipsed sales of computers and consumer electronics for the first time. Companies’ return policies, including free shipping and ease of returns, are thought to help bolster clothing sales. However, the data does not take into account consumers buying clothing in multiple sizes and returning items that do not fit. 

Although online sales of food and beverage and office supplies are growing at the smallest rate, those sales grew 15.2% and 15.1% over the previous year in 2013.

While online sales by smaller and larger companies are both growing, in 2015 there were several categories in which the online sales by smaller companies grew by a greater percentage than online sales by the largest 500 companies. Those categories are Apparel/Accessories, Automotive Parts, Accessories, Computers/Electronics, Food/Drug, Jewelry, Mass Merchant, Office Supplies and Sporting Goods. As a result, the growth of online sales by smaller companies outpaced the growth of online sales by larger retailers. 

E-commerce sales in the U.S. for 2016 are forecasted to exceed $550 billion. Furniture and home décor and handmade products are two retail categories that are expected to see increased e-commerce footprints. Furniture and home décor, which has traditionally not trended towards e-commerce in the same manner other industries have, began to see increasing e-commerce sales in 2015. These sales have most likely been bolstered by updated technology and graphics allowing multiple ways to view furniture as well as free delivery and easy return policies. Amazon recently launched “Amazon Handmade” and Etsy went public in April of 2015 giving sellers of handmade products and crafts an ability to increase their e-commerce footprint.

The brick-and-mortar divisions of retailers are fighting back against the increase in e-commerce sales as a percentage of total sales with enhanced omnichannel retail strategies, such as making retail stores more interactive and increasing connectivity to mobile devices and applications. As they say, if you can’t beat them, join them.

Set Pickup Location: Uber Is Coming to Retail

Posted in Retail, Retail Sales

NowOn-demand delivery services, such as Uber and its competitors Lyft and Postmates, are increasingly taking steps that have the potential to offer a counterpunch to online retailers such as Amazon and may shake up the brick and mortar retail industry in a big way.

UberRush: On-Demand Delivery Service Could Compete with Amazon

Uber is rolling out a platform, UberRush, to connect retailers with their customers, aiming to provide the sort of seamless, on-demand service to deliver goods that it currently uses to deliver passengers. Once a retailer signs up for the new UberRush service its customers can make purchases remotely via an app or website and rely on Uber’s network of on-demand drivers to make same-day or scheduled deliveries of those purchases. For brick-and-mortar retailers UberRush is a possible response to Amazon’s rapid delivery services. With Amazon’s next-day – and in some markets same-day – delivery option drastically reducing customers’ waiting time for online purchases and increasing convenience, there is growing evidence that the online retail behemoth is beginning to have a meaningful effect on brick and mortar retailers.

Amazon sweetened its rapid delivery service by waiving shipping fees for a one-time $99 subscription. Brick-and-mortar retailers could do something similar by offering reduced delivery costs for customers with subscriptions. For its part, Uber has shown some willingness to discount prices for certain types of trips where it can expect volume usage and seems to be in the market for partners.

On-Demand Food Delivery Is Already a Mature Market

On-demand delivery for certain types of brick-and-mortar outlets is not a new concept: customers have been ordering food for delivery as long as pizzerias have existed.  In many urban areas there is an already-crowded market of food ordering or delivery services that serve multiple food vendors, such as Grubhub, Doordash, Seamless, Foodler, Postmates, and, yes, even Uber. Likewise, on-demand grocery delivery services such as Instacart (which, like Uber, relies on individuals using personal vehicles) and Peapod (which uses dedicated delivery drivers) allow customers to shop from home for same-day and scheduled grocery delivery. Even grocery leader Wal-Mart is dipping its toe in on-demand grocery services.

The experiences of restaurants and grocers and the growing market-share of Amazon suggests a shift in customers’ expectations about their retail experience. Customers want the option to be able to skip the shopping trip and have goods and food delivered to them at home or at work. UberRush and similar services offer brick and mortar retailers a low-capital solution to provide same-day delivery services customers are seeking.

Technology continues to shape retail, and on-demand mobility applications may be the next frontier for brick-and-mortar retailers – at least until the drones arrive.

To Brexit or Not to Brexit? Our Observations on UK Retail

Posted in Real Estate, Retail

British flagOur Retail team just returned from a week in London where we met with the firm’s UK-based retail clients and other retail industry professionals. The biggest topic of conversation centered around Brexit.

On June 23rd, Britain will hold an historic referendum on whether the country will leave the European Union, which is often referred to as Brexit. There is a long history behind the relationship between Britain and the European Union and this is not the first time that a break has been considered. Most of the retail professionals we spoke with are against Britain leaving the EU because of the anticipated negative impact it would have on the UK’s economy, at least during the three or four years following the exit. Those in favor of Britain leaving the EU are nonetheless concerned about the ability of citizens of other EU countries to freely emigrate to the UK which, as the argument goes, takes jobs away from UK citizens and exacerbates security concerns. The bottom line is that there is uncertainty on both sides of the issue, resulting in a pause in commercial transactions pending the outcome of this vote.

Is there any good news? Amazingly, despite these concerns, it certainly seems that the everyday business of retail in London is moving along fairly well. Although there are always exceptions, such as the recent collapses of retailers BHS and Austin Reed, we happily found the streets and stores bustling and the mood to be positive overall. The iconic Hamleys toy store on Regent Street was bursting at the seams with young and old alike, and the beautifully merchandised The White Company store in Covent Garden was filled with many shoppers. And, there is no doubt that London retains its preeminent role as the mecca for international retailers.

We would be remiss if we didn’t make note of the many questions we were asked repeatedly about the upcoming U.S. presidential election. Many of the clients we spoke with have a very favorable view of President Obama, but they were perplexed, if not nervous, by our current presidential campaign and its possible outcomes.

Only time will truly tell what the effects of the Brexit vote will be, but in the interim, we will continue to monitor the situation and guide retailers through whatever impacts may be headed their way.

Are Prohibited Uses Prohibiting Opportunity?

Posted in Landlords, Leasing, Retail, Tenant

Outlet ShoppingDespite how it may sometimes seem when in the throes of negotiating a lease between a shopping center landlord and a retail tenant, the overarching goals of the two parties are aligned. Both parties want the tenant to be successful and want the landlord’s shopping center to be active and vibrant, filled with “hot” tenants and many shoppers. Landlords will sometimes agree – typically in connection with the lease to an anchor or box tenant – that certain uses shall be prohibited at the center, which “prohibited uses” will then restrict the use of space at the shopping center by other prospective tenants. The standard list of prohibited uses was solidified years ago and today remains more or less uniform. These prohibited uses generally fit into at least one of three categories: (1) uses that would pose a threat to the health and/or safety of shopping center occupants, (2) uses that are regarded as improper (e.g., the sale of pornography, tattoo parlors and so-called head shops), or (3) uses that monopolize parking spaces for use by consumers who are not (historically) there to shop (e.g., movie theaters, bowling alleys and health clubs, to name a few examples relevant to this post). While the basic list of prohibited uses that has been used for decades is still being used in anchor tenant leases today, one need only look around at the newest retail centers – whether a part of an urban mixed-use development or a suburban lifestyle center – to see that the list (in particular, the prohibited uses related to parking) no longer reflects the realities of today’s centers and therefore needs some updating.

At Bisnow’s Boston Retail 2016 event last week, several movers and shakers in the Boston retail scene contemplated the latest trends in retail, including strategies for brick and mortar retailers to coexist and thrive in the omni-channel age. During that conversation, Deborah Byrnes, President of Retail Resource, Inc. keenly observed that “the Internet is isolating.” The antidote: create an experience for consumers to draw them out of their isolation and into society… and while they’re there taking in an experience, they’ll likely do a little shopping too. Take, for example, Boston’s new Seaport Square – an urban retail/office/residential development that is currently in the later stages of development. Seaport Square is being anchored by operators of three traditionally prohibited uses: Kings (a bowling alley), Equinox (a health club) and a 10-auditorium ShowPlace Icon Theatre. This development epitomizes the sea change in retail models, where experience providers are now viewed as important suppliers of consumers to a development’s retailers, as opposed to merely parking hogs.

In addition, medical uses have historically been viewed negatively by retailers. But it has become apparent that certain medical services, such as minute clinics, community health centers and providers of medical supplies to consumers, bring consumers to retail centers on a consistent basis all day long. “Medical retail” provides a steady supply of foot traffic to the surrounding retail and restaurant space, which only benefits a shopping center. Similarly, Pilates, yoga and spin studios, where members spend around an hour or so in a class, but which are “health clubs” and, thus, traditional prohibited uses, are becoming increasingly popular tenants as a result of their ability to bring consumers to, and symbiotic relationship with, retail. Who doesn’t want a reward – whether in the form of a smoothie from the anchor grocer or a new outfit, maybe even one size down as a result of hard work, from the anchor department store – after a good workout?

A critical review of the once tried and true prohibited uses list, in light of the evolution of retail centers, tends to suggest that certain historically prohibited uses should be rotated off the list to facilitate the shared goal of retailers and landlords that the centers in which they are operating remain fresh, lively and full of consumers involved in, and not isolated from, society.

Retailers’ On-Call Scheduling Practices Under Scrutiny in Eight States and D.C.

Posted in Employment, Retail

time-management-tipsOn April 12, 2016, New York Attorney General Eric Schneiderman sent letters to fifteen retailers requesting information regarding their use of “on-call shifts” in scheduling employees. The letters were similar to those letters sent by the New York Attorney General in April, 2015 with a critical difference – the Attorneys General from California, Connecticut, the District of Columbia, Illinois, Maryland, Massachusetts, Minnesota, and Rhode Island also signed on, committing to investigate the same retailers’ scheduling practices in their own jurisdictions.

On-call scheduling (or Just-In-Time scheduling) is a labor practice in which employees’ work hours are closely linked to consumer demand. Employees are required to contact employers the day of a shift to determine whether they are required to show up for work or stay home without pay, leave work before completing their scheduled hours if the store is slow, and make themselves available for last-minute shifts. This blog has been reporting on the increasing public awareness of and growing public concern over the unpredictability and uncertainty that on-call scheduling can create in the lives of workers (see posts on 9/17/2014 and 1/13/2016). According to a 2014 report, researchers from the University of Chicago found that 41 percent of 26- to 32-year-olds with hourly work received their work schedules a week or less in advance.

The letters from the Attorneys General state that “unpredictable work schedules take a toll on employees. Without the security of a definite work schedule, workers who must be ‘on call’ have difficulty making reliable childcare and elder-care arrangements, encounter obstacles in pursuing an education,” and interfere with workers’ ability to supplement their income with second jobs. The letters cite the New York state reporting pay law, 12 NYCRR 142-2.3, which requires that “an employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours or the number of hours in the regularly scheduled shift, whichever is less, at the basic hourly wage.” Although Maryland, Minnesota, and Illinois don’t currently have reporting pay laws, those Attorneys General signed onto the letters to express concern about the impact of on-call scheduling on hourly workers and their families according to CBS News.

The information requests were sent to Aeropostale, American Eagle Outfitters, BCBG Max Azria, Carter’s, Coach, David’s Tea, Forever 21, Justice, Pacific Sunwear of California, Payless Shoesource, Tilly’s, Van’s, Uniqlo, Walt Disney Co., and Zumiez. In 2015, as a result of a similar inquiry by the New York Attorney General, brands including Abercrombie & Fitch, Gap, J.Crew, Urban Outfitters, Pier 1 Imports, and L Brands (parent company of Bath & Body Works and Victoria’s Secret) all agreed to end the practice of assigning on-call shifts.  In their letter, the Attorneys General cite the conversion of these businesses to other scheduling methods designed to address unexpected absences and unanticipated business volume as evidence that on-call scheduling is not a business necessity. According to the Wall Street Journal, Coach, Forever 21, Payless Shoesource, and Uniqlo have stated that their companies don’t engage in on-call scheduling, and American Eagle ceased the use of on-call shifts in their stores in November 2015.

The Newly Enacted Defend Trade Secrets Act: What Retailers Should Know

Posted in Intellectual Property, Retail

Laptop Magnifying glassOn May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (the DTSA), creating the first Federal civil cause of action for misappropriation of trade secrets. The DTSA overlaps substantially with, and does not preempt, the trade secret acts already existing at the state level and adds an additional, powerful tool for protecting trade secrets in federal court that may have been previously unavailable to trade secret owners. Unlike state trade secret laws, the DTSA applies only to interstate and foreign commerce.

Retailers seeking to enhance the protection of their trade secrets should be aware of some of the very important facets of the DTSA and take steps now to avail themselves of the advantages the DTSA offers.

Forms of Relief

There is a three-year statute of limitations for a claim brought under the DTSA commencing on the date misappropriation is either actually discovered or by the exercise of reasonable diligence should have been discovered. The DTSA cannot be applied retroactively, meaning the DTSA cannot be used for claims of misappropriation occurring before May 11, 2016, even when the act of misappropriation is discovered after May 11, 2016.

To many retailers, injunctive relief preventing disclosure of trade secret information is most important. Monetary relief is also available, including actual damages, damages from unjust enrichment, or a reasonable royalty derived from sales of products or services utilizing the misappropriated information. For willful or malicious misappropriation, double damages and attorneys’ fees may also be available.

Perhaps the most significant remedy available under the DTSA is an ex parte order authorizing law enforcement to seize property without notice to the defendant. In “extraordinary circumstances,” a court may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret.” The DTSA sets forth very specific and strict guidelines necessary for the issuance of what is often considered a drastic remedy. This remedy may be particularly powerful when, for example, a former employee downloaded trade secret information intending to disclose it to a competitor.

Preventing Misappropriation by Former Employees

Retailers, like many employers, may utilize the DTSA to prevent the disclosure of trade secret information by former employees to competitors through the above forms of relief. However, to gain the benefit of double damages and attorneys’ fees for misappropriation by an employee, contractor or consultant, the governing agreement must include an express written whistleblower immunity notification advising employees, contractors or consultants of their right to immunity for disclosing trade secret information in confidence to a government authority in order to report a violation of law. The inclusion of such a provision only applies to agreements entered into on or after May 11, 2016. To be clear, the DTSA does not mandate that all agreements contain such a provision, only that the employer may not be entitled to the benefit of these enhanced damages and attorneys’ fees if such a provision is not included.

The DTSA expressly rejects the inevitable disclosure doctrine. In practical terms, this means that the basis for relief cannot rest on the assumption that the former employee’s knowledge of the trade secret will be passed on to his or her new employer. Instead, injunctive relief that would prevent or restrict future employment by a former employee must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”

Things to Be Doing Now to Take Advantage of the DTSA
  • Audit internal measures and procedures for protecting potential trade secret information, including reviewing and implementing non-disclosure agreements and security protocols, and confirming exactly who has access to such information.
  • Review and revise form employment, contractor and consultant agreements to include whistleblower immunity provisions so the benefits of enhanced damages and attorneys’ fees for misappropriation may be available.
  • Consider the availability of ex parte seizure orders in extreme cases where flight, destruction of evidence, or imminent disclosure of the trade secret by the wrongdoer are of serious concern.
  • In each potential case, consider the advantages of being in state versus federal court, as the federal courts have original, but not exclusive, jurisdiction to hear claims brought under the DTSA.