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Retail Law Advisor

Amazon Go: Let’s Get (More) Physical

Posted in Retail, Retail Sales

omnichannelWe recently noted that among the latest e-tail trends is the expansion of once exclusively online retail operations into physical store locations. In-store sales continue to dominate over online sales, with the U.S. Census Bureau reporting that online sales in the third quarter of 2016 accounted for only about 7.7% of all retail sales (which was true also for the first quarter of 2016). Breaking the comparison down into categories of sales, online purchases comprise only 4% of all food and beverage sales. This may be due, in part, to the fact that 80% of all Americans live within close (less than 2.5 miles) proximity to a supermarket. Whatever the reason, Amazon is paying attention and its confidence in the staying power of brick and mortar food shops is evidenced by its latest venture – Amazon Go.

Amazon Go locations (currently just one location – in Seattle, of course) will offer prepared foods, beverages and other grocery items to customers. The difference? No need to check out and, thus, no lines. Amazon’s so-called “Just Walk Out Technology” – a combination of computer vision, sensor fusion and deep learning, apparently similar to the technology used in self-driving cars – enables customers, who gain access to the store (through electronic turnstiles similar to those used in many subway stations) through use of an app, to select what they want and simply walk out of the store. Customers are charged based on what they pick up off the shelf (the price will be adjusted down for any items that are put back) without the need to wait in line to make a purchase with a cashier. No cashiers means substantially fewer employees, though someone will have to be there to restock the shelves and answer the inevitable questions about the process. And there will also be chefs on-site preparing many of the meals and snacks offered at the store. The first and only Amazon Go location is currently open exclusively to Amazon employees – it is housed within the ground floor of one of Amazon’s Seattle office towers – but Amazon plans to open the store to the public in early 2017. Presumably, Amazon will rollout additional stores after it irons out the kinks at the Seattle location.

Time will tell whether other retailers will similarly move in the direction of technology-based (as opposed to salesperson-based) sales, and what the overall impact on retail, as well as employment rates, will be. In discussing whether Amazon is destroying retail or merely reshaping it, Forbes recently took the position that the latter is the case and boldly stated that “Amazon is doing more than most store-based retailers to try to define what a store should truly be in the future.” The ultimate success of Amazon Go, not to mention the ability of other retailers to afford to purchase and implement technology similar to Amazon’s patented Just Walk Out Technology, will determine whether this latest Amazon endeavor will actually reshape retail or if it is only a fad. Regardless of its long-term implications, we think it’s pretty cool [cue the Jetsons theme song].

Mobile Payments: Exciting but Unknown

Posted in Restaurants, Retail, Retail Sales, Security, Technology

apple payMobile payment options are no longer the wave of the future. They are already here. It was projected that there would be almost 450 million mobile payment users worldwide by the end of 2016. These users generated $60 billion in mobile payment sales in 2016 alone.  Certain studies project that by the year 2020, 90 percent of mobile phone users will make a mobile payment, and those mobile payments will account for over $500 billion in sales in 2020. These numbers are significant. If retailers do not already offer a mobile payment option, they could miss out on a major source of revenue.

Retailers can offer their customers a mobile payment option in a variety of ways. Some stores have launched a payment feature within their own mobile application (e.g., CVS, Kohl’s and Wal-Mart). Other stores rely on already-established third-party payment platforms such as Apple Pay and PayPal. Regardless of the method, offering a mobile payment option provides certain advantages to both merchants and consumers, such as providing a faster checkout experience, developing loyalty through rewards programs, and allowing merchants to gain a better understanding of their customers’ purchasing habits.

These potential advantages suggest that the use of mobile payments will only continue to grow. One area of mobile payments that experts expect to expand in 2017 is “contactless” or “proximity” transactions – i.e., transactions that will be completed by tapping a card against a machine or using a digital wallet to pay for a productBloomberg Technology has noted that, according to certain studies, by 2019, “the total value of transactions made by tapping a phone on an in-store terminal will reach $210 billion, up from $8.7 billion in 2015.” Because of the nature of the retail environment, retailers can expect to receive the majority of that revenue. One study shows that, in 2015, 61 percent of all “proximity mobile” payments in the United States took place in the retail environment.

Further, not only will the number of mobile payment users continue to grow, mobile payment technology will continue to evolve. Google recently announced a new mobile payment application that uses Bluetooth or Wi-Fi to allow the user to make a payment without even taking their smartphone out of their pocket or purse. Other tech companies are focusing on developing technology that will allow consumers to use their clothing and accessories to make purchases.

These trends all lead to the same conclusion. Within the next few years, consumers will expect their retailers to provide them with a mobile payment option of one sort or another. In response, retailers will, and in fact have already started to, race to develop and implement the most efficient and profitable mobile payment option available. However, this race to provide a mobile payment option as quickly as possible has resulted in a “fragmented marketplace with different technology types and business models.” The lack of consistency among stakeholders has complicated the already difficult task of regulating the mobile payment industry, which in turn has opened the door for possible failures or weaknesses, such as fraud and lack of security over consumers’ personal information.

The bottom line is that retailers must adapt by providing their customers with the mobile payment option that best suits the needs of both the retailer and their customers. However, in doing so, retailers must also acknowledge that the mobile payment industry is still developing and that there is not yet an established global regulatory framework that will protect them from potential failures or weaknesses. As a result, retailers should proceed cautiously and should take proactive measures to avoid failures and weaknesses in their mobile payment options.

Happy New Year to the Retail Industry!

Posted in Holiday

new-year-2016-imagesAs we welcome 2017, we wish to recognize our Retail Law Advisor readers and subscribers as we begin our 5th year of blogging this January. Because of you, we proudly mark this milestone with the blog’s inclusion on the ABA Journal’s Blawg 100 list. This list of blogs, created through a nomination process across thirteen categories, is a sought-after award for legal bloggers. We enthusiastically continue our commitment to providing the retail industry with a top-notch resource for trending topics and important updates relevant to your businesses.

We wish you a happy and successful New Year!

Warmest Wishes,
The Retail Law Advisor editorial board

Coming to a Retailer Near You: Made in USA Labeling Requirements

Posted in Regulatory, Retail, Retail Sales

dreamstimefree_17461Patriotism is a hot topic in the United States. One study shows 51% of American consumers will pay higher prices to buy American made products. Not surprisingly, manufacturers actively promote products with the red, white and blue labels proudly proclaiming “Made in USA” to capture those consumers. In fact, some iconic American brands such as Ford, Kraft and GE, are working to get more of their products made in America. There is a lot of pride among American consumers evidenced by spending habits for the products carrying the promise that they were made on home turf. Much was made during the presidential campaign about Donald Trump’s products and whether or not they are manufactured in the US or abroad.

But how do we know the validity of the “Made in USA” promise? Since the 1990s, there have been standards in place for labeling products “Made in USA” to address concerns that manufacturers could overstate the extent to which they meet the requirements. The Federal Trade Commission (FTC), the party responsible for preventing deception and unfairness in the marketplace, states that products must be assembled or ‘substantially transformed’ in the United States and must only contain ‘negligible foreign content’. While the Commission does not pre-approve advertising or labeling claims, it does not mean companies can skirt responsibility.  Any consumer can make a complaint to the FTC that a brand is engaging in deceptive advertising practices through mislabeling products. We see increased enforcement activity by the FTC, but with the upcoming transition from the Obama administration to the Trump administration, there are additional enforcement uncertainties.

Ultimately, the question for manufacturers and retailers is: Will the “Made in USA” label mean more than ever over the next four years?  Time will tell, but if that is the case, it is important for businesses to understand how to meet the standards for the “Made in USA” label, including how state laws regulate American manufacturing. What to do?  For starters, companies should consider ways to keep careful tabs on what goes into their products and consult with legal counsel on how to keep the labels legally compliant.

A Tale of Two Conventions: MAPIC and ICSC New York

Posted in Retail

globe_10767872Autumn has been a busy time for our Retail, Restaurant and Consumer team, with our attendance at two major industry events each attracting thousands of attendees. Interestingly, both events recorded their largest attendance numbers to date, and given Brexit and the results of the U.S. presidential election there was much fodder for discussion. Here’s what we learned:

For the sixth year in a row, a contingent from Goulston & Storrs attended the annual MAPIC (le marché international professionnel de l’implantation commerciale et de la distribution) conference in Cannes, France in late November. Over 9,000 attendees convened in Cannes for three days of exhibition, presentations and networking events. We noticed the presence of more retailers this year, including start-up retailers, and an increase in attendance by service providers (mostly technology based vendors). We also noticed the presence of more U.S. based retail owners/developers, including our client WS Development. WS Development, along with representatives from The Lansco Corporation, Marvin Traub and Millman Executive Search, joined our panel entitled “USA Retail: Strategies for Successfully Bringing Your Brand to the States.” A lively discussion as always, we leveraged the group’s collective decades of experience in counseling retailers on their USA expansion plans and covered everything from location, talent acquisition, and the continued effects of omnichannel and the sharing economy.

As anticipated, the first question we were asked on the exhibition floor was about the results of the U.S. presidential election. Many attendees seemed knowledgeable of our election process (including the purpose of the Electoral College). Most were also surprised by the results and many were shocked with the tone and demeanor of the campaign.

The second most-discussed topic was Brexit and its impact on London and the rest of the UK, Europe and the U.S. Many of the Brits we spoke with said that, if the vote were held today, they think the vote would be to remain in the EU. Many noticed that, after a pause following the Brexit vote, business activity is picking up in London. They see more leasing activity, including the payment of key money by retailers wanting to secure prime locations. A major mall operator in and around London, for example, has two malls opening soon and their executives seemed optimistic about the success of these projects and retail in general in the UK. Historically, London has served as a spring board for European retailers before they enter the U.S. Italian, German, Spanish and other European retailers first open stores in London before they expand to the U.S. There was some thinking that, as a result of Brexit, these retailers may opt to skip London and come directly to the U.S.

Many of the people that we spoke with were very concerned with the surge in nationalism across the globe, first with Brexit and now with President-Elect Trump. Many believe that Germany may emerge as the defender of what many consider Western values – global trade, open borders and an inclusive social agenda. Spain appears to be having a financial resurgence. Our colleagues at the Manubens law firm, which is based in Barcelona, sent a large contingent of lawyers to the conference, and noted the positive change in Spain in the last ten years. The Brits we spoke with believe that many in Europe will view London as a good place to invest in real estate. They also believed that London will not lose its place as the financial center of Europe. The Germans, French and other Europeans we spoke with also thought that London is a desirable place to invest in real estate. However, some think that the financial center for Europe will move from London to Frankfurt, Madrid or Barcelona. Conversely, a recent article in the Financial Times (November 18, 2016) suggested that the U.S. might be the beneficiary of Brexit speculating that the European financial center will migrate to Manhattan because Manhattan already has the infrastructure in place to support the financial institutions and will become even more attractive to these institutions if President-Elect Trump is successful in relaxing current banking regulations as he has suggested.

Speaking of Manhattan, with the Trump Tower just a few blocks away, Goulston & Storrs also attended the annual ICSC New York conference in early December.

Record attendance of over 10,000 sparked a good mood overall, and one poll by an exhibitor showed that most respondents expected the economy to be even better in 2017. Deals are being done, and a surprising number of retailers are focused on growth. There are more vacant spaces in New York City than in past years resulting, in part, from landlords’ expectations that they can continue to achieve record setting rents for retail space. However, there appears to be a growing realization that these “record” rents can no longer be justified, and there is some optimism that a market correction is underway, which will lead to new stores being able open in these vacant spaces. Many also note that, in more conventional suburban shopping centers and malls, traditional retailers are decreasing the size of their stores as they focus on, and reap some of the benefits of, eCommerce. On the other hand, eCommerce retailers are realizing that they need to open old fashioned brick and mortar stores in order to grow and prosper, and these retailers are taking excess space in many urban and suburban retail projects.

As far as the U.S. election is concerned, no one we spoke with at the NY ICSC thought that their businesses would be threatened by the results of the election. On the contrary, most thought their businesses would see better days ahead. The election was not the main topic of conversation as it was at MAPIC, and we associate that with the tendency of most Americans (even New Yorkers) preferring to shy away from having public discussions about politics.

Interestingly, as the New York ICSC gets bigger, people in our industry are wondering about the ICSC’s objectives for the New York ICSC. Does it continue to be a larger version of itself as primarily a deal making conference perhaps eclipsing RECon one day, or does it become more of a networking conference, like the ICSC OAC, with an international bent like MAPIC? Those C-suite executives with whom we spoke prefer the later.

The Retail Law Advisor team will report on all of these and other developments as we continue to travel to future industry events.

Blockchain – The Future of Real Estate?

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

BlockchainBitcoin and blockchain technology have been gaining publicity in recent years, and although they are primarily known for their use as a digital payment system, there are also promising uses in many areas where trust, cost and efficiency can be improved, including real estate.

So what is blockchain, exactly?

Blockchain is a distributed ledger system that maintains a continuously growing record of transactions, or blocks, where each block is linked to a previous block and cannot be altered or reversed once it is added to the chain, and which does not require a central administrator to guarantee the veracity of any transaction. It is essentially a technological solution to the issue of trust in a record or transaction. Blockchain is the underlying technology behind bitcoin, which is a digital token that allows one party to pay another anywhere in the world for goods and services, in some ways like cash. Just like a dollar bill, a bitcoin, once used, permanently passes to another person and cannot be reused or unilaterally withdrawn. With a dollar bill, this is because the bill physically passes to another party; with a bitcoin, this is because the transaction is etched in the public ledger and cannot be undone. Blockchain technology eliminates situations akin to receiving a blank check where there is no value in the underlying account or paying a seller for land that he does not own. Furthermore, because the transaction itself is secure, the cost of the transaction can be significantly lower when compared to traditional payment methods such as credit card payments, international remittances, or any situation where there is a third party guarantor.

The real estate industry is taking notice of these potential benefits. Real estate startups such as RealtyShares are accepting bitcoin as payment to lower transaction fees and to open the investment to international investors who often have to deal with complicated traditional structured instruments. Beyond using bitcoin as a payment method, the two major areas in real estate where some foresee bitcoin or blockchain being useful would be in searching for and establishing chain of title for property and in escrow functions for exchanges of value.

The current state of recording title or ownership of real estate is antiquated, fragmented and disorganized. For the most part, each individual county in the United States retains its own registry of title information that is usually difficult to search and closed off from other registries. There is tremendous potential benefit in attaching a chain of title to bitcoin or other distributed ledger system that can slowly expand to include all fifty states or even other types of property, such as fixtures, which are also filed according to a similar fragmented system. Of course, each county registry likely wants to maintain control over its own office and geographic area rather than cede control to a public ledger. Since title companies already maintain their own databases, it may be likely that title companies, rather than governmental bodies, begin to maintain a parallel blockchain database of title transfers which can exist for a transitional period of time until the county recording system becomes obsolete. Moreover, as certainty of title increases, the title company’s risk in providing title coverage decreases, and costs for title premiums should decrease as well. Startups such as Ubitquity are attempting to use blockchain to solve some of these very issues. The Cook County Recorder’s office, in partnership with blockchain real estate startup Velox.re, is also testing the use of the bitcoin blockchain for transferring and tracking title transfers, a system for filing liens, compatibility between a blockchain and a traditional, centralized system, and the prevention of fraud. This is significant not only because Cook County is the first registry in the country to test blockchain technology, but also because it is testing the use of public bitcoin blockchain (as opposed to a separate private blockchain). It will be interesting to see whether a working blockchain title system emerges from the private or public sector first.

Another area where blockchain would be useful is in verifying transactions. Currently, real estate transactions commonly use an escrow agent, perhaps the title company, broker, or other trusted neutral third party, to hold funds prior to closing. This third party must be trusted to safeguard the funds and to release them to the correct party once both parties agree or according to a set list of conditions if they do not. Blockchain technology may allow for multisignature transactions where once all required parties sign, or once verifiable conditions are met, funds release automatically.

There are numerous and complex concerns related to the use of blockchain technology in real estate, including questions of its actual security implications and ability to reflect the nuances of complicated transactions. However, the enormous potential of this technology demands careful monitoring and we will continue to do so.

On October 6, 2016, Goulston & Storrs sponsored MIT’s Real Disruption Conference on Real Estate Blockchain discussing the potential uses of blockchain in real estate transactions. Michael Casey, senior advisor at MIT Media Lab and blockchain expert, moderated the panel, which consisted of Avi Spielman, the author of Blockchain: Digitally Rebuilding the Real Estate Industry; Dan Doney, CEO of Securrency, and Christian Saucier, CTO of Ubitquity. Goulston & Storrs also hosted Dan Doney at its Real Estate Group Meeting on December 6, 2016 for a more in-depth discussion with our real estate attorneys.

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.