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Retail Law Advisor

Capturing the Millennial Market

Posted in Retail, Retail sales

The Boston Consulting Group reports that Millennials – people between the ages of 16 and 34 – are now the largest generational group in America (79 million) even exceeding the Boomer generation (76 million). Currently, Millennials make up 21% of consumer discretionary purchases (1.3 trillion dollars in direct buying power), and they wield a large (and intentional) influence on other generations as well. Capturing the Millennial market is anyone’s game at this point, since Millennials are currently in a transitional and exploratory time of life, but the window of opportunity to connect with this generation is fleeting. Forward-thinking retailers who connect and build brand loyalty with this generation now will be well-positioned in ten years when Millennials enter their peak spending years.

So, how do you reach Millennials? Advertising through traditional mass media sources (television, newspapers, and radio) often misses Millennials because, as the Wall Street Journal reports, they don’t receive their news and entertainment from these sources. For the most part, Millennials prefer time-shifted television (via Netflix, Amazon Prime, Hulu Plus, or DVR) over live television, rely on blogs, online publications, and social networking posts to access news and current events, and listen to music on their phones or subscribe to online streaming sources such as Spotify or Pandora. Furthermore, Millennials are aware that companies are mining their personal data and preferences, and they are resentful when marketing comes across as fake, forced, condescending, or irrelevant.

Here are a few tips about how to re-shape advertising, mall experiences, and brand loyalty to reach the Millennial market.

Advertising:
  1. Have Millennials come to you. – Create humorous, clever or challenging advertisements that Millennials will re-post for you and spread through their social networks, like these popular YouTube advertisements that went viral. Offer rewards for Millennials who share or promote your product on their social networking sites through “elite” membership status or discounts.
  2. Advertise to Millennials online where they already are. – Although this can be challenging because Millennials quickly abandon and adopt new media platforms (goodbye Facebook, hello Instagram, Snapchat, and Vine), the rewards are worth the effort.
  3. Avoid retailer-specific “apps” for mobile devices. – Millenials only actively use an average of ten apps regularly, and store-specific apps won’t be one of them. Save marketing dollars for a more effective advertising tool.
Mall Experience:
  1. Serve groups of shoppers. – Millennials shop in groups and consider the opinions of others more than other generations. Retailers should provide roomier store lay-outs and appealing places for companions to lounge, charge their phones, and offer advice to the shopper.
  2. Make way for men. – Male Millennials spend twice as much on apparel per year than men of previous generations, and this difference is consistent among all ethnic groups, incomes, and household types.
  3. Employ fashionable, knowledgeable sales assistants. – Millennials value sales associates who are trendy, wear store merchandise, and are able to offer fashion advice significantly more than their non-Millennial counterparts (45% of Millennials vs. 22% of non-Millennials).
  4. Integrate online and in-store shopping experiences. – Millennials will comparison shop, check prices, and research products while in the mall, so retailers should accept this and accommodate Millennials’ desire to incorporate their online habits with their retail shopping. Some retailers may even want to incorporate easy processes for picking up or returning online purchases or arranging at-home delivery.
Brand Loyalty:
  1. Articulate an authentic higher purpose. – Millennials want to know an organization’s mission, and they want do business with companies who believe what they believe. They would rather purchase a product (even at a higher price) if they know their dollar is doing something meaningful. Some recent advertising campaigns by Always – “Like a Girl” and Nike – “Lace Up, Save Lives” highlight brands communicating their beliefs.
  2. Interactive Marketing. – Brands must interact with consumers and allow them to be a part of the marketing with opportunities for user reviews or letting consumers vote on advertisements by providing an “unlike” button. Also, Millennials will “crowd-source” – tap into the collective intelligence of the public or one’s peer group – before making a purchase, so retailers should be prepared for that and monitor their online presence.
  3. Don’t slow Millennials down. – Provide loyalty rewards without a sign-in and offer easy promotional code entry. If it takes too long to buy a product, Millennials will abort before making a purchase.

Members of the Millennial generation are entering their peak earning and spending years, and retailers have an opportunity now to shape the shopping experience of Millennials to capture their share of the market.

Massachusetts Court Provides Helpful Guidance to Retailers on Attorney-Client Privilege with Outside Consultants

Posted in Liability, Retail

Attorney-client privilege refers to the legal rule that prevents communications between a lawyer and a client from being used in court. Courts have tended to keep the circle of the privilege fairly small. As a result, unintended waiver of the privilege, especially in the era of modern technology, is a risk. One way that the privilege is often inadvertently waived is through the inclusion of outside parties in communications with attorneys, or by disclosing attorney-client privileged communications to outside parties after the fact. Courts have held that these types of disclosures can waive the privilege. This results in otherwise confidential communications falling into the hands of an opposing party, as has happened to leading retailers.

A recent Massachusetts court decision provides helpful guidance to retailers who work with independent contractors such as brokers, project managers and public relations consultants. In some cases, these contractors may be involved in matters that become the subject of litigation. When that happens, the issue of protecting attorney-client privilege communications can be presented. Retailers must be aware that the inclusion of independent contractors in communications with the retailer’s attorneys or the disclosure of attorney-client communications to those third parties could potentially destroy the attorney-client protection and allow that information to be used in litigation. The recent Massachusetts case follows a line of court cases where courts have held that certain consultants can be included in communications with attorneys without breaking the attorney-client privilege. But the case also highlights the fact that this exception is a narrow one and parties need to proceed with caution when involving any non-employees in communications with a company attorney.

When an attorney represents a company, the privilege generally protects communications between the lawyer and the employees of the company. The recent Massachusetts ruling held that the attorney-client privilege could also extend to individuals who, while not technically “employees” of the company, serve as the “functional equivalent” of employees. The case addressed the question of whether the inclusion of a real estate broker, who was not an employee of the company, on e-mails with the company’s lawyer waived the attorney-client privilege. Following a leading federal court precedent, the court ruled that, in the particular circumstances of the case, the broker was the “functional equivalent” of an employee, and the privilege was not waived by including him on e-mails.

While the decision appropriately recognizes the complex realities of the modern business world, the court was careful to limit the scope of its ruling. The broker in question had served as the company’s exclusive leasing agent and real estate advisor for a number of years and had become “a key decision leader” for senior management. In the court’s view, it was critical that the broker had a “close, long-standing, pivotal role in the business transactions of the client company.” The court added, “Not all (or even many)” such consultants would meet the “functional equivalent” test. Therefore, the decision expands the scope of the privilege in Massachusetts, but also serves as a cautionary tale.

There is no guaranteed method for ensuring that a court will consider communications with a consultant to be covered by the attorney-client privilege. The decision will depend upon the role of the particular consultant within the company. However, businesses can take steps to bolster the assertion that a consultant’s communications should be covered. Those steps might include adding appropriate language to the consulting contract indicating that the consultant will assist the client in legal matters and interface with the client’s attorneys. Companies might also add language to their legal engagement letters, specifically identifying any consultants who may be necessary in communications with the attorney and stating that the parties will regard communications with those consultants as privileged. Companies should proceed with caution in this area, and seek specific guidance from their attorneys before routinely copying consultants on e-mails and other confidential communications.

A Study of Suburban Mall Redevelopment: the White Flint Mall

Posted in Development, Real Estate, Retail

A year ago we reported on the planned redevelopment of the 37-year old, 850,000 square foot, indoor shopping mall in White Flint, Maryland. The mall’s planned redevelopment into a 5.2 million square foot, walkable, mixed-use destination with access to an existing station stop on the Metro’s Red Line appeared to be part of a trend of mall conversions in the DC metro area.

However, shortly after the entitlements process for the redevelopment got underway, White Flint, L.P., the owners of the White Flint Mall (“White Flint”), faced its first serious legal challenge: Lord & Taylor, an anchor tenant, filed suit in federal court and sought to block White Flint’s redevelopment plans. Lord & Taylor alleged that the mall redevelopment violated a reciprocal easement agreement among the mall owner and the White Flint Mall’s anchor tenants and sought an injunction that could block the mall redevelopment for decades. Since our post last summer, White Flint has received some initially favorable results in its challenge from Lord & Taylor and has faced down additional opposition from another tenant thanks to sophisticated lease provisions.

Injunction Denied, Redevelopment Plans Continuing, Lord & Taylor Now Seeks Damages

So far, White Flint has successfully fended off Lord & Taylor’s attempt to stop the mall conversion. In December 2013, a federal judge sided with White Flint and ordered a denial of Lord & Taylor’s request to halt demolition of the mall. Lord & Taylor subsequently appealed that order to the Fourth Circuit Court of Appeals, and with demolition of the mall underway, Lord & Taylor sought a temporary injunction pending appeal. In March 2014, in another win for White Flint, a panel of judges from the Fourth Circuit denied Lord & Taylor’s temporary injunction request. However, the matter of the denied permanent injunction remains before the Fourth Circuit. Following its unsuccessful attempt to halt the mall redevelopment via injunction, in May 2014, Lord & Taylor amended its complaint and seeks an unspecified amount in money damages.

Sophisticated Understanding of Lease Advances White Flint’s Plans Despite Tenant Opposition

White Flint’s redevelopment plans received a strong boost in July of this year when a dispute with a tenant revealed that landlord-favorable lease terms gave the landlord considerable flexibility. Following Lord & Taylor’s suit, Dave & Busters, another mall tenant opposing the redevelopment plans, sued White Flint, alleging that the redevelopment plans violated the lease between the mall owner and the arcade-themed restaurant. White Flint responded that Dave & Busters, which opened at the mall in 1995 under a 35-year lease term, was in violation of the so-called radius restriction clause of its lease. (A radius-restriction clause prevents a chain retailer or restaurant from opening another store within a certain distance.) When its plans for the redevelopment were coming together in 2012, White Flint pointed out to Dave & Busters that another Dave & Busters location had opened in 2006 within the restricted area and that as a result the tenant was in violation of its lease. This violation proved to be the leverage White Flint needed to get Dave & Busters out of its space so that the redevelopment could proceed. When Dave & Busters sued and argued that the redevelopment violated the lease, White Flint raised the radius restriction violation. A federal judge agreed with White Flint, and ordered Dave & Busters to vacate its space within 30 days.

The plans for the White Flint Mall are an example of a mall owner responding to the changing retail landscape. White Flint’s experience with Dave & Busters illustrates that a landlord can find leverage through careful scrutiny of seemingly unrelated landlord-favorable lease provisions. Understanding these key points of leverage with anchor tenants and in-line tenants may become an essential component of refreshing or redeveloping decades-old suburban single-use malls.

Amazon Breaks Into the Top 10 Retailer List

Posted in Retail

Over the past decade, consumers have shifted their shopping habits from the “real” world (i.e. brick-and-mortar stores) to shopping virtually. Now for the first time ever, Amazon.com, the largest online-only retailer, ranks among the top 10 largest retailers in the United States. STORES, the publisher that compiles the annual report that looks at the combined in-store and online sales of retailers, stated that “the impact this Seattle-based behemoth has had on the changing face of retail is unmistakable.” Amazon is the only top ten retailer (a list that includes Wal-Mart, Costco, Target, Home Depot, Walgreens, CVS, Lowe’s and Kroger) to see double digit annual growth.

Amazon, whose U.S. retail sales rose 27.2% to $43.96 billion in 2013, wasn’t the only e-retailer to see significant annual growth. Overall, e-commerce grew 17% last year. Online sales helped boost or salvage overall sales for several traditional brick-and-mortar stores. For example, Best Buy’s overall sales fell 1.2%; however, it saw a 20% increase in online sales. Wal-Mart and Nordstrom both reported declining in-store sales, but saw an overall sales increase due to increases in online purchases. Companies who saw some of the biggest declines in annual sales were those that experts consider as having weak online presences.

According to Kantar Retail Chief Knowledge Officer Bryan Gildenberg, “Amazon’s rise into the top 10 is symbolic of a shift in U.S. retail towards a genuinely multichannel future. Retailers that command the Top 100 in the future will have an in-depth knowledge of their shoppers across their physical and digital touch-points, and they’ll all have to fend off Amazon’s game changing economic and operating model.”

Retailers have long fretted over the threat that e-commerce poses to their businesses. In an age where consumers rely more and more on their smart phones and tablets to make every day purchases, rather than driving to the nearest mall, it is becoming more and more important for traditional brick-and-mortar retailers to create strong online presences.

Sharing The Art and Science of Updating REAs

Posted in Development, Real Estate, Retail

Thirty to fifty years ago, regional mall development was a new frontier in retail real estate. Developers were often individual entrepreneurs who started in the business by developing small strip centers and then moving up to more complicated retail developments, such as enclosed malls, typically anchored by department stores. Reciprocal Easement Agreements (REAs) were developed to govern parties’ activities and protect their investments in this new shopping regime.

Much has changed since those early days of mall development. Confronted with the reality that many of these original REAs will be expiring in the near future, Developers and anchor REA parties are considering the benefits of updating their original REAs with a simpler form of REA that contemplates and addresses periodic redevelopment, a potential mix of uses of the shopping center, and updated technology and codes.

Goulston & Storrs Director and retail lawyer David J. Rabinowitz worked with Kathleen Dempsey Boyle of Pircher, Nichols & Meeks and Brad Syverson of JC Penney to publish an article for the American Bar Association’s Probate & Property. This publication covers the broad topics that must be addressed in today’s REAs, and strategies for building agreements that meet the strategic business interests of all parties to the development. We share this article directly with our Retail Law Advisor readership, as it is a topic we consider to be timely and helpful to the industry.

Internet Sales Tax Update: Senate Introduces Marketplace and Internet Tax Fairness Act

Posted in Retail, Retail sales, Tax

Senators Enzi, Durbin, Alexander, Heitkamp, Collins and Pryor introduced the Marketplace and Internet Tax Fairness Act (MITFA) and the retail industry is listening!

Two of the largest retail industry trade groups in the U.S., the Retail Industry Leaders Association and National Retail Federation, urged Congress to pass a combined version of two bills. Essentially, the MIFTA legislation combines the previously introduced Marketplace Fairness Act (with several technical changes) and a 10-year extension of the Internet Tax Freedom Act, which provides a moratorium on state and local taxation on internet access.

The new bill would allow states to collect sales/use tax on internet retailers with gross sales over $1 million per year. This legislative vehicle follows on the 2013 Senate vote of 69-27 for Marketplace Fairness Act of 2013.

According to the ICSC shopping center trade association, the new legislation provides states the authority to enforce existing sales and use tax laws, if they choose to do so, by adopting one of the following options:

  • Streamlined Sales and Use Tax Agreement (SSUTA): Allows any state that is a member of SSUTA to require remote retailers to collect state and local sales and use taxes.
  • Alternative Minimum Simplification Requirements: States that are not SSUTA members may require remote retailers to collect state and local sales and use taxes if they adopt minimum simplification requirements as outlined in the bill.

Small Seller Exception: The legislation would prohibit states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes.

We are tracking future developments and will report more in future posts, so please stay tuned!

The Future of Retail Checkout

Posted in Privacy, Retail

We’ve recently reported on a number of technological innovations which have changed the way consumers shop, including interactive “shoppable windows” which bridge the gap between online shopping and bricks-and-mortar retail, and new shopping technologies which integrate the shopping experience into the consumer’s lifestyle, allowing customers to scan a quick-response code directly from a television screen and purchase an item seen on a television show or commercial. The latest development in this realm is a new trend in shopping technology that seeks to transform the way consumers pay for items in traditional brick-and-mortar stores.

Many of the significant changes in retail check-out have focused on having the consumer do more of the work. Gone are the days of a general store clerk retrieving items requested by a customer, packaging them and accepting payment from the customer. For the better part of a century, the grocery-store model has been the norm – modern shoppers gather items themselves from customer-accessible shelves and take them to a centralized check-out clerk. Many grocery stores and drug stores have built upon that model by implementing self-check-out technology. Some grocery chains even use “intelligent” carts which can tally a customer’s total as items are added to the cart and even track movement and offer promotions as a customer approaches an item.

The next transformation in retail check-out is coming in the form of a network of sensors placed inside stores which will allow retailers to recognize customers via their smartphones or other devices when they walk through the door and have their preferred payment information at the ready. With inexpensive sensors affixed to the store’s merchandise, customers will have the ability to walk away with their selected merchandise and be billed automatically, completely sidestepping the traditional check-out process.

This type of technology will seem somewhat familiar to Apple shoppers, who for the past couple of years have been able to scan barcodes on items in Apple stores and pay for them using the “EasyPay” feature on the Apple Store app, avoiding the in-person check-out model altogether. Similarly, some restaurants, including Chili’s, Applebee’s and Buffalo Wild Wings, are already using tablets to transform the check-out experience. Diners can browse menus, place orders and check themselves out all using a table-mounted device, without ever interacting with a server.

While these futuristic check-out models have the potential to transform the check-out process and bring added convenience to the traditional retail experience, they also could cause privacy concerns. Retailers will need to gain the trust of consumers who may not be used to having their personal information exchanged across networks in real-time. Retail strategists have recommended that retailers avoid a “stalker” mentality and instead adopt a “butler” mentality. A stalker is perceived as surreptitiously trying to get as much information about you as possible, while a butler waits subtly in the wings looking for opportunities to make your life easier. If retailers are successful in adopting the “butler” mentality, the traditional check-out process could go the way of the old-fashioned general store clerk.

Take Cover: Protecting a Brand in the New Era of Generic Top-Level Domains

Posted in Intellectual Property, Retail, Technology

The rollout of new generic Top-Level Domains (gTLDs) is now well underway, and approximately 300 new gTLD strings have become available. A full, up to date list of gTLD strings can be found on ICANN’s web site. Some notable additions include: .shoes, .clothing, .organic, .global, .software, .market, .space, .autos, .luxe, .discount, .cheap, .exchange, .capital, .webcam, .trade, .bid, .bar, .club, .pics, .buzz, .menu and .cheap.

With the rapid expansion of available domains, trademark holders need to decide how to balance proactive and reactive strategies to protect their brands online. As we discussed in a previous blog post, proactive strategies could include registering trademarks with ICANN’s Trademark Clearinghouse (TMCH) and then registering second level domain names within the new gTLDs to keep those names from being used by cybersquatters and competitors. Alternatively, a reactive strategy could involve watching for gTLD abuse and then using the Uniform Rapid Suspension service or the courts to address the most harmful cases. Recently, however, five main players have emerged as the major owners and/or guardians of gTLDs, each offering a different package of rights protection mechanisms.

Donuts

Perhaps the most influential of the gTLD giants, Donuts currently controls 139 gTLDs. Notably, Donuts has pioneered the recent trend of offering Domains Protected Marks List (DPML) protection to trademark owners who have registered their mark with the TMCH. In short, Donuts allows trademark owners to block the registration of domain names under any of Donuts’s gTLDs if those domain names comprise or contain an exact match of the trademark. The cost of a blocking request is significantly lower than defensively registering the same domain name under each gTLD. The initial blocking period ranges from 5 to 10 years with an option to renew annually in 1 to 10 year increments. Additionally, Donuts has adopted Architelos’s NameSentry anti-abuse technology to reduce malicious use of gTLDs. The DPML system does not apply retroactively, however, so retailers wishing to take advantage of the system’s protections would be wise to register sooner rather than later. For a full list of gTLDs controlled by Donuts, visit its site.

Rightside Registry

Rightside Registry is almost identical to Donuts in its protective mechanisms, employing a DPML for exact matches and strings containing an exact match of trademarks registered with ICANN’s TMCH and excluding some premium domain names. Like Donuts, Rightside also recently adopted NameSentry. A full list of Rightside’s gTLD portfolio can be found here.

Minds + Machines

Minds + Machines takes a similar approach to Rightside and Donuts by providing a blocking system called Minds + Machines Protected Marks List (MPML). Unlike its two competitors, however, MPML allows blocking for higher priced premium domain names. Additionally, MPML is cheaper than both Rightside’s and Donuts’s DPML. Like DPML, MPML applies to exact TMCH matches and variations. It is likely that Minds + Machines will be implementing NameSentry as well. For a full list of Minds + Machines’s gTLD portfolio, visit its site.

Famous Four Media

In contrast to registries employing DPML-type blocking systems and NameSentry, Famous Four Media (FFM) has focused on engaging industry stakeholders and facilitating reports of abuse. To this end, FFM has created Governance Councils for its individual gTLDs where participating industry stakeholders protect their interests by monitoring abuse and recommending best practices for that gTLD. Governance Councils will be responsible for collaborating with relevant international organizations in implementing abuse monitoring and prevention systems best suited for individual gTLDs. Additionally, FFM Governance Councils have implemented Abuse Prevention and Mitigation (APM) Seal reporting systems; APM web sites provide detailed guidance for reporting abuse. Although FFM registries do not enable individual retailers to preemptively protect themselves from cybersquatting like DPML-type blocking does, APM Seals will presumably facilitate active reporting of abusive practices. A complete listing of active governance councils can be found here, and FFM’s gTLD portfolio may be found here.

Uniregistry

Uniregistry seems to offer the most limited protection of the five main gTLD players, relying primarily on abuse reporting through its web site. Domain owners would be required to independently police for gTLD abuse and proactively report that abuse to Uniregistry. For a complete listing of Uniregistry’s gTLDs, visit its site.

So long as registries take different approaches to gTLD protection and management, retailers and other brand owners should familiarize themselves with the different defensive measures offered by each registry in order to make the most cost-effective decisions to protect their brands online. To this end, a few caveats should be considered when planning brand management under the new gTLD system. First, the DPML systems offered by Donuts, Rightside Registry, and Minds+Machines will not protect against typosquatting. For example, if you registered the trademark “examples” with the TMCH, DPML systems would not protect against the registration of “xamples.” Second, DPML systems may not be enforceable by ICANN unless the registry has locked them in as a Public Interest Commitment (PIC) for that specific gTLD application. Donuts, for its part, has included such a PIC in each of its gTLD applications, but brand owners should still check for PICs with the registry in question before relying on a DPML system. Finally, brand owners should be aware of registry systems such as FFM and Uniregistry that may require them to take a more active role in policing their brand under certain gTLDs.

To summarize, brand owners should consider the following steps as they develop their marketing strategy: (1) register key trademarks with the TMCH (which generally requires registration with a trademark authority such as the U.S. Patent and Trademark Office) to take advantage of sunrise periods and DPML/MPML blocking systems; (2) monitor the list of new gTLDs as they become available and take advantage of sunrise or land rush periods to register domain names of particular value; (3) register key trademarks with DPML/MPML lists; and (4) monitor steps taken by brand-relevant gTLD governance councils.

Happy 4th of July

Posted in Holiday, Retail

During this week, we pause to proudly celebrate freedom and love for our country. We will resume providing timely information about issues that may be facing the retail industry and your business next week.

Thank you for subscribing to our retail blog. Happy Fourth of July!

Warm Wishes, The Retail Law Advisor editorial board