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Retail Law Advisor

FTC Publishes Data Breach Response Guidelines

Posted in Retail, Security, Technology

cyberliabilityWhether resulting from a planned cyberattack or mere carelessness, data breaches are on the rise. In 2015, 781 data breaches were reported across the United States, with the average breach costing $3.8 million. In 2016, the total number of breaches is projected to increase, with the average cost per breach at $4 million, up 5% since last year and 29% since 2013. In fact, a Juniper study predicted that the aggregate annual cost of all data breaches will increase to $2.1 trillion globally by 2019.

Public outcry tends to focus on the failure of retailers and other organizations to protect sensitive consumer data such as credit card numbers and Social Security numbers. But cyberattacks can cause businesses to suffer significant costs beyond those associated with customer notification, credit monitoring, and legal expenses.  Additional costs can include increased insurance premiums, increased costs to borrow money, costs of operational disruption or destruction, lost value of customer relationships, lost value of contract revenue, devaluation of brand, and loss of intellectual property. According to a Ponemon Institute study titled “Cost of a Data Breach” sponsored by IBM, the likelihood of a material data breach involving 10,000 or more lost or stolen records in the next 24 months is at 26%. The average cost per record stolen that contains sensitive and confidential information is $158 and the average cost of a stolen record for the retail industry is $172.

The Federal Trade Commission (the “FTC”) has previously issued preventative guidance for businesses under the titles Protecting Personal Information and Start with Security. Recently, however, the FTC published Data Breach Response: A Guide for Business (the “Response Guidelines”), which is designed to help companies respond to and mitigate the effects of a data breach once it occurs.  The Response Guidelines organize post-breach actions into three categories of actions: (1) secure operations, (2) fix vulnerabilities, and (3) notify appropriate parties. The FTC first suggests that affected businesses secure their operations to prevent additional data losses. Specifically, the FTC proposes assembling a team of experts, including data forensics and legal counsel, securing physical areas that are related to the breach, taking affected equipment offline immediately, removing improperly posted information from the web, interviewing people who discovered the breach, and not destroying evidence.

Second, the FTC suggests fixing vulnerabilities. The FTC recommends, among other things, that companies think about their service providers and whether these service providers have taken appropriate steps to protect information and ensure future breaches do not occur, check their network segmentation, and work with forensics experts to review past practices and take remedial measures.

Finally, the FTC asks that organizations affected by a data breach notify appropriate parties. To do so, companies should initially determine the applicable legal requirements, such as federal regulations under the Health Insurance Portability and Accountability Act and the Gramm-Leach-Bliley Act, and then notify law enforcement and affected businesses and individuals. The Response Guidelines include a model breach notification letter for notifying people whose names and Social Security numbers have been stolen.

The FTC Response Guidelines are intended to help businesses recover after a data breach crisis. When it comes to the impacts of breaches, organizations that have followed the FTC’s Response Guidelines by instituting mitigating measures such as incident response plans, encryption, and employee training will face a lower cost per record lost than unprepared organizations. According to the Ponemon study, having and utilizing an incident response team following a data breach led to an average cost saving of $16 per record. Similarly, the use of encryption prior to a data breach saved $13 per stolen record, employee training saved $9 per stolen record, threat sharing saved $9 per stolen record, and appointing a chief information security officer saved $7 per stolen record. While data breaches may be inevitable, the FTC hopes its Response Guidelines will be useful to companies in responding to and mitigating the effects of a data breach.

Happy Thanksgiving!

Posted in Holiday, Retail

Thanksgiving-images-2014On behalf of all of us at Goulston & Storrs, we thank you for reading and subscribing to The Retail Law Advisor. There are many options when it comes to gathering information about the retail industry. We are grateful for the trust you have put in us as a resource for this changing industry.

Our wish for you and your families this Thanksgiving is evergreen. May the good things in life be yours in abundance, not only at Thanksgiving but throughout the coming year.

Warm Wishes,

The Retail Law Advisor editorial board

May your Days be Merry and Blue Laws Compliant

Posted in Compliance, Holiday, Retail, Retail Sales

"Black Friday" Marks Launch Of Holiday Shopping Season‘Tis the season to eat turkey, drink pumpkin-flavored lattes, and, of course, shop.  With Black Friday and the holiday season just around the corner, it is important for retailers to remember that Massachusetts has specific laws that restrict when and if businesses can operate on Sundays and holidays and that address employee compensation and scheduling for these days.  These laws are called “Blue Laws.”

In general, businesses are prohibited from operating on Sundays in Massachusetts.  There are fifty-five exemptions, however, that allow many businesses to operate despite this restriction.  Certain retailers are exempt and so are permitted to operate, but they may also be required to pay non-exempt employees one and one-half times their regular hourly rate and make working on Sundays voluntary.  These Sunday restrictions, exemptions, and requirements may also apply to certain holidays, such as New Year’s Day.  Other holidays are afforded even greater protections.  For example, on Christmas Day and Thanksgiving Day, certain retailers cannot operate without a local permit and approval by the Massachusetts Department of Labor Standards.  What’s more, when Christmas Day falls on a Sunday, as it does this year, certain retailers cannot operate at all.  The Attorney General’s Office is the entity responsible for enforcement of these laws and posts helpful compliance information on its website.

Depending on their goals, retailers may opt to close all of their stores nationwide for holidays like Thanksgiving Day, whereas others may choose to close only those stores that are subject to certain state restrictions, like Massachusetts’s Blue Laws.  All retailers, however, should check that they comply with all state and federal laws with respect to their business operations and employees this holiday season.

What Now? Post-Election Thoughts for the Retail Industry

Posted in Retail, Retail Sales

VotingElections are emotionally charged events and yesterday’s U.S. Presidential Election proved no exception.  Regardless of which way you voted, we now have a new President in Donald Trump. So, what does his election mean for retail sales?  No one can say for sure at this point, but we thought Forbes.com provided a compelling commentary. Here is a brief synopsis of the article:

  • Large purchases may be put on hold temporarily while consumers figure out what this election means for them personally and financially.
  • Retail stores may feel the burn of inflation and be forced to pass along cost increases.
  • A lengthy recession is a real possibility.

As we have seen in the past, the United States is an incredibly resilient country. As President Obama soothed the country last night, “no matter what happens, the sun will rise in the morning, and America will still be the greatest nation on earth.” We tend to agree. How new policies of the new administration on trade, the currency, tax and other issues will impact U.S. retailers remains to be seen.

Industry-Wide Confidence Shines Through At ICSC’s 2016 Law Conference

Posted in Retail

ICSCThe 2016 ICSC Law Conference was held last week at the Diplomat Resort in Hollywood, Florida.  Attendance was very strong this year, with over 1425 lawyers, paralegals, lease administrators, brokers and other retail real estate professionals attending. The strong participation seems to reflect wider confidence in our industry, with companies willing to send their teams to the Conference for both learning and networking. The overall tone of the Conference was very upbeat – with lots of conversation about new projects, redevelopment, new concepts and exciting changes in our industry.

Of particular note was the focus on the impact of the internet on bricks and mortar and the general changes resulting from the expanding and changing use of social media on the operations of landlords and tenants. There were seminars, workshops and roundtables to discuss the issues presented by omni channel retail. The discussions were lively as lawyers grappled with the impact of this rapidly changing segment of the business on leases and other documents, many of which were drafted long before the internet and omni channel retailing existed.

The evolution in technology affects not only issues pertaining to leases and other transactional documents, it also has accelerated the pace of transactions. The Law Conference has always presented the opportunity for real estate practitioners to meet one another in person. Never has this networking opportunity been more important. Deals often spawn a flurry of emails with leasing, property management, risk management, lease administration, all responding at the same time. While many believe this communication over email brings efficiency, there is no substitute for a personal relationship. Often, a phone call with someone you met at the Law Conference can help the parties find common ground on a difficult issue. Between the sessions, the opening reception, the first-timers and NextGen events and other networking opportunities, the Law Conference fostered many opportunities to put names, emails addresses and faces together.

The Conference also took a huge step forward in its use of technology, with a conference app, on line evaluations, and lots of activity on twitter! We look forward to next year’s conference October 25-28 in San Antonio, Texas!

Black Friday: May You Finally Shop in Peace

Posted in Retail, Retail Sales

"Black Friday" Marks Launch Of Holiday Shopping SeasonBlack Friday has traditionally been the day that retailers and consumers gleefully mark on their calendars. Since its inception in the late 1980s and early 1990s, Black Friday has been considered the blast-off point for the holiday season, ushering in bountiful sales as consumers fall for the frenzy of “door-buster” deals. This formerly one-day sales event transformed the holiday shopping landscape and begat an unprecedented form of retail hysteria never before seen. However, with holiday sales and promotions now seemingly foisted upon consumers as early as Halloween, Black Friday has all but lost its mantle as the most profitable retail sales day of the holiday season. What was once considered the kick-off to the holiday season has now been relegated to just another day in the retail calendar as more and more retailers vie for the almighty dollar earlier than before and shift their Black-Friday promotions to online platforms.

The erosion of Black Friday is due, in large part, to retailers launching their promotional sales (both online and in stores) well before the traditional Black Friday shopping day and to consumers’ omnichannel behavior. At one point in time, Black Friday promotions did not begin until the midnight following Thanksgiving; however, this all changed once major retail giants (e.g., Walmart, Macy’s and Overstock) began opening their doors on Thanksgiving day, causing other retailers to follow their lead just to keep up. The advent of Cyber Monday, Black Friday weekends, Amazon’s 12 Days of Deals and Overstock’s Black Friday “sneak-peek” sale (which began earlier this month) has also diluted the value of Black Friday and has given rise to an ever-evolving (and extended) holiday shopping season, one where retailers cannot bank on Black Friday being the golden calf of the holiday shopping season. Ironically, retailers’ relentless desire for more holiday profits by offering Black-Friday type markdowns many weeks prior to Black Friday has led to sales fatigue and has fostered a belief among consumers that sales are a dime a dozen, which has diminished consumers’ urgency to make purchases on this particular day.

The convenience of mobile shopping and e-commerce has also contributed to the demise of Black Friday. For many consumers, the thought of standing in long lines while fending off other consumers for “must-have” items is equivalent to a no-holds barred UFC event and sends chills up their spines. Many consumers have chosen to abandon the traditional Black Friday shopping marathon for the comfort of in-home purchases from their mobile devices or computers. Although big promotions like Black Friday admittedly generate buzz among consumers, Black Friday discounts over the last few years have not piqued shoppers’ interest enough to curtail the recent slide in retailers’ in-store profit margins. With all of the hype surrounding Black Friday, consumers expect bargain basement prices yet many consumers are left underwhelmed by the sales prices offered in stores. Mobile technology plays a major role in this shift towards e-commerce, since consumers can easily comparison-shop from their couch and avoid the anxiety-inducing in-store experience. As the mobile shopping experience improves with time, the notion of a one-day in store-sale may fade into oblivion.

Black Friday and all of the hoopla surrounding it may not be what it once was, but that’s okay, because what we have today is a more fluid shopping experience that allows consumers to shop online or in-store on their own terms and, most importantly, in peace. Retailers that embrace this fundamental transformation in consumers’ holiday-shopping behavior, and strike a balance between the online and in-store experience, will emerge as the true winners of the holiday season.

Paid Celebrity Endorsements in Social Media: The FTC Is Watching

Posted in Retail, Retail Sales

Relationships-BossHow much trust do you place in celebrities who endorse products on social media platforms such as Instagram, Snapchat, Facebook, Twitter, and YouTube?  Do you stop to consider whether they are compensated for their efforts and, if so, how much? Studies have shown, for example, that influencers who have 50,000 – 500,000 followers on Instagram or Snapchat might charge $1,000 per post while those with three to seven million followers might charge up to $75,000 per endorsement.

As the marketing power of television wanes, social media platforms have become the preferred destination for many companies to invest their marketing budgets. Creative celebrity endorsements, such as Justin Bieber’s promotion of Calvin Klein, have resulted in major payoffs for savvy brands. Since these social media endorsements can be easy money for the celebrities, the sincerity of the endorsements is questionable.

Concerns about deceptive use of endorsements and testimonials in advertising are nothing new. The Federal Trade Commission (“FTC”) issued its revised Endorsement Guides in 2009, and in 2015 provided answers to some frequently asked questions about the Endorsement Guides (“FAQs”). The FAQs include many questions arising in the context of social media. As a general matter, an endorsement should disclose any connection between the endorser and the marketer that consumers would not expect and that would affect how consumers evaluate the endorsement. Such a connection would exist if the endorser has been paid or given something of value to promote the product. We have previously blogged about the dangers of fraud in online reviews, such as when employees or freelancers are paid to give positive reviews. The dramatic increase in the use of social media for marketing purposes is drawing increased scrutiny from the FTC.

According to a recent Bloomberg interview with Michael Ostheimer, a deputy in the FTC’s Ad Practices Division, the FTC is planning to get tougher on influencer marketing. One challenge of ensuring sufficient disclosures is the limited space or time available in social media such as Twitter and Snapchat. As explained in its FAQs, the FTC does not mandate the specific wording of disclosures but requires that they be clear and conspicuous. Thus, starting a tweet with “Ad:” or “#ad” would likely be effective, whereas burying disclosures in footnotes, in blocks of text people are unlikely to read, or in hyperlinked sources would not.  As Ostheimer stated, “If consumers don’t read the words, then there is no effective disclosure. … The real test is, did consumers read it and comprehend it.” The same concept applies in video and audio disclosures.

Although the FTC has not ruled out going after celebrities and other endorsers, its primary focus will be on advertisers, their ad agencies and their public relations firms. Therefore, to minimize their exposure, advertisers should instruct their social media influencers in how to disclose their connections, should monitor compliance, and should follow up if they find questionable practices.

The Power of Pop-ups: From Fad to Retail Mainstay

Posted in Landlords, Pop-up Retail, Real Estate, Restaurants, Retail, Retail Sales

Pop-up-stores-here-to-stayPop-up stores or “flash retail” have graduated from passing trend to popular practice. Historically utilized for the sale of seasonal products (think temporary stores that only sell Halloween costumes), the pop-up has evolved into an attractive option for retailers of all shapes, sizes and experience. Smaller, emerging companies have jumped on the pop-up as an affordable, low risk option to introduce new brands and test new markets, but the benefits have caught the eye of even the biggest and most sophisticated of retailers. Just this month Amazon announced that it would be opening 100 pop-up stores in U.S. malls to promote its hardware devices. Their goal?To use the pop-up as a means of reaching consumers on multiple access points to inspire them to shop more online.

The advantages for retailers are diverse. Temporary by design, pop-ups provide retailers with an opportunity to roll out a new brand without the cost associated with a long-term lease. There’s also an inherent buzz generated by the idea of a new product line that will only be available temporarily. Bostonians recently witnessed this frenzy with Kanye West’s Back Bay pop-up introducing his new clothing line. Shoppers camped out overnight and lined the city blocks in Boston’s Back Bay to see and purchase Kanye’s new “Pablo” apparel. Uniqlo, a Japanese retailer that deals primarily in casual wear, recently used a pop-up concept in Faneuil Hall as a means of introducing their brand before opening more permanent locations in malls in Natick and Chestnut Hill.

Restaurants have also taken great advantage of the pop-up. Eateries such as Gather, Commonwealth and Juliet have hosted specialty pop-ups where ramen, sushi, tacos and other tasty treats are served for just a few nights or by invitation. Boston’s South End based restaurant “Wink and Nod” took the pop-up concept one step further by inviting budding restaurant groups to run their restaurant kitchen every 6 months in the hopes of giving new chefs a chance to showcase their talents. As Deborah Byrnes of Retail Resource Inc. noted, the pop-up restaurant concept embraced by Wink and Nod is “a great way to get investors.”

The pop-up may be an attractive option for many retailers, but the role they play for landlords is more complicated. On one hand, pop-ups can quickly fill vacancies, often with the possibility of tenants converting to long-term leases. Often, pop-ups do not require much by way of build-out or financial investment by the landlord. Landlords need to realize that this kind of short term occupancy does not require a lease with the same complexity as that for a 10 year deal. Rents tend to be lower for pop-ups, and they are a short-term solution to vacancies that most landlords would prefer filled with long-term, creditworthy tenants. Some landlords may consider that, on a short-term basis, some rent is better than none, and “lights on” is better than a dark store. Pop-ups also allow landlords to fill a vacancy while simultaneously marketing the space to long-term occupants. Pop-ups can also bring in local tenants and new concepts, and the buzz generated by a new brand can put a shopping center on the map.

The pop-up has changed dramatically from the days of Halloween masks and holiday calendars. Today’s pop-up stores are highly adaptable and impactful, allowing retailers and landlords the flexibility to foster new and creative concepts in a constantly evolving market. Time will tell, but the pop-up may have evolved from being a trend to a common practice here to stay.

Retailers: Embrace Virtual Reality Now (But Also Be Careful)!

Posted in Retail, Retail Sales, Technology

virtual realityWe’ve previously addressed the hype that it is only a matter of time until brick and mortar retail succumbs to its online competitors. While we concluded that brick and mortal retail is not in danger of immediate extinction, such retailers cannot ignore that today’s culture requires the incorporation of technology into almost every aspect of the business. In fact, one recent study provides that almost three-fourths of “successful” organizations surveyed indicate that they have made investments in improved marketing technologies, including technologies that enable the organizations to create more personalized experiences for their customers. One of the most exciting – and possibly “game changing” – pieces of technology in the market today is virtual reality (“VR”).

What is VR? Simply put, VR is exactly what it sounds like. The user of a VR headset is placed into a three-dimensional, simulated reality that offers 360-degree views and, usually, interaction with the virtual environment. This technology has the potential to open numerous avenues for retailers to personalize the customer experience. Of course, VR is only as good as the retailers that choose to embrace it. Luckily for those consumers that are waiting for VR to hit the mainstream, some of the biggest retailers are already adopting the new technology. For example, eBay Australia has recently partnered with a large retailer to create, what they call, the world’s first VR department store. Using “eBay Sight Search,” shoppers can browse and select products by simply gazing at the item using the VR headset. A representative of eBay explained that they are not intending to replicate the ecommerce experience in a virtual environment; rather, they are “taking the best elements of traditional retail and expanding on them to improve browsing, selection, personalization and efficiency.” Creating a VR store is only the beginning.  Take, for example, the partnership between Kantar Retail, a leading retail and shopping consultant, and SensoMotoric Instruments, a developer of computer vision applications. The two companies recently partnered to incorporate eye-tracking technology into a VR headset. The VR headset tracks how consumers react to signage, displays, products and packaging. Such data could provide extremely valuable insight on the efficiency of marketing techniques utilized by retailers.

Even brick and mortar retailers are turning to VR to improve the customer experience. For instance, consumers often have trouble visualizing how furniture sitting in a showroom will fit into their living space. Technology developed by Cimagine allows consumers to actually see how the furniture would look if it were placed in their home. VR technology can also have a broader impact on how brick and mortar retailers market their brand.  Tommy Hilfiger shoppers have the ability to wear VR headsets in the store that will provide an inside look into the company’s fashion shows, which in turn influences how those consumers view their shopping experience.

It seems clear that, in the coming years, the retail experience will be influenced by VR. However, retailers that welcome VR must also be weary of the legal environment that is still developing along with the technology. Currently, when VR developers incorporate music, photographs, brand names or logos into a virtual experience, traditional trademark and copyright laws apply. This means that retailers utilizing VR will need to pay close attention to the details of the virtual realities that they create in order to market their brands and avoid intellectual property disputes. The reproduction of another individual’s music in a VR experience , for example, may not seem like a big deal (after all, it’s in a virtual reality), but it could constitute copyright infringement.

While the utilization of VR alone will certainly not determine whether certain retailers are successful or not, the willingness of retailers to adapt to consumers’ ever increasing technological expectations may ultimately determine which retailers continue to thrive. And, of course, all utilizers of VR, including retailers, will have to learn to navigate the evolving legal environment surrounding VR technology.

Food For Thought: How Delivery-Only Food Service Is Impacting Retail Real Estate

Posted in Real Estate, Restaurants, Retail, Retail Sales, Technology

forks_86449_imageToday’s consumer is a tricky one – she is impatient and demanding.  She requires excellent service in the blink of an eye (or perhaps, more appropriately, in the swipe of a finger), and likes to eat meals made with high quality ingredients. Celebrity chefs have taken note. Chefs like David Chang, the man behind the Momofuku restaurant group, have used their name and business savvy to meld technology and food to promote delivery-only food service, a new twist on the traditional “fast food” concept.

Delivery-only food services, made possible by skillfully designed smart phone apps and masterful algorithms, have sprung up in cities like New York and San Francisco to cater primarily to busy Millennials who may not have time to leave their office for lunch or cook dinner at night. These consumers also tend to be at least semi-health conscious and do not want to break the bank to enjoy a quality meal.

Both Maple and Ando are delivery-only food services in New York City that enable consumers to order from daily offerings through an app on their smartphone. Ando is a delivery service co-founded by David Chang and Expa, a startup lab created by Uber cofounder Garrett Camp. Chang oversees the food (which consists of versions of the meals he would serve in his restaurants), Expa develops the technology and UberRush delivers the food.  Currently, Ando delivers only to Midtown East. The priciest item on the menu is $12. Chang is also an investor in Maple, another delivery-service app that delivers food below 42nd Street in Manhattan. Customers place their order through the Maple app or website, and software keeps tabs on its progress so they can track their order. Maple preps its food in an old factory in Brooklyn and performs final assembly at several distribution centers throughout the city. Each distribution center delivers only to customers located within a five-minute bike ride from the distribution center.  This system ensures that food arrives hot and in 30 minutes or less. Lunch is $12 and dinner is $15, inclusive of tip, tax and delivery.

The delivery-only food service industry is still in its early stages. However, to couch potatoes’ delight, as technology evolves to make food delivery even faster and more cost effective, more entrepreneurs are likely to enter the marketplace for their share of the pie, which could in turn impact the retail real estate industry. With no foot traffic, delivery-only food service companies require neither storefront space nor a prime location to attract their customers. Moreover, with no in-house dining, these companies can spend less on design and décor and instead focus on their technology and marketing strategy. Although a Maple kitchen is roughly the same size as a typical Chipotle (about 2,000 – 3,000 square feet), Maple avoids the premium that Chipotle must pay for prime retail locations. Maple hopes that its technology and business model will enable it to serve more customers than your typical fast-food chain but with far fewer physical locations.

Another newcomer, Umi Kitchen, eliminates the need for real estate altogether. Celebrity chef Danny Meyer’s oldest daughter has teamed up with Khalil Tawil and Derek Goffrid to create an app that allows users to choose a home-cooked meal from a selection of ever-changing daily options. The meal is then cooked in the chef’s own home and delivered to the customer by Postmates, a third-party delivery service.

As delivery-only food service becomes more popular, the food industry will once again need to adjust to a technology-driven world. Grocery stores have already been impacted by companies like Amazon, Peapod and Fresh Direct, which enable customers to do their food shopping online, and are now competing with companies like Blue Apron, Munchery and Hello Fresh, which allow customers to order semi-prepared meals that the customer is able to whip up at home, requiring minimal skill but providing the feel of cooking. Even traditional fast-food industry stakeholders are incorporating technology into their delivery operations. For example, Dominos now allows its customers to order a pizza simply by tweeting #EasyOrder or a pizza emoji to @Dominos and to confirm the order by sending a thumbs-up emoji via a smartphone, Samsung SmartTV, Pebble and Android Wear smartwatches or Ford Sync car. The Domino’s Anyware program has brought new meaning to the phrase “Get the door, its Dominos.” A common link between these companies is their use of technology to enable their customers to be more sedentary. And if the customer does not need to leave his or her office or home to shop, cook or pickup meals, then the location of the grocery store or restaurant becomes much less important.

Delivery-only food services are changing the types of space restaurateurs search for, since in this delivery-only niche, technology, quality and efficiency may be more important than where the kitchen is located or what the kitchen looks like. Perhaps soon, the old mantra “location, location, location” may no longer hold as much weight as before.