Welcome to our three-part series on retail contract terms. As a retail lawyer, I’ve read and reviewed more retail contracts than I can count – from supply terms, to distribution agreements, to procurement terms. These contracts are the building blocks of your business, so it is essential that you do not overlook key issues that might come up in the future.
This series takes some of the key contracts from retail businesses and focuses on the three key aspects that tend to be overlooked by retailers in the haste to ‘get the deal done’ and get the products to market.
Supply term contracts should be drafted as legally binding agreements between you and a supplier that focus on their supply of goods to you and the apportionment of risk. They also include the “rules” of your relationship such as delivery, payment terms and quality control. Today we will look at the Top 3 Supply Term Contract Oversights:
- Ownership of intellectual property – Sometimes it’s easy to assume that you will own all of the IP involved in manufacturing your goods. However, some suppliers, who work collaboratively with retailers may assume that they will retain ownership of the IP that they bring to the table. Make sure your agreement spells out who will own what IP and if any IP is developed in the course of manufacturing your product who will own it at the end of the day.
- Rejected goods and samples – It’s not uncommon that retailers will engage a manufacturer to supply goods, only to find that excess or rejected stock ends up being sold through back channels, eBay or other unacceptable means. This can cheapen your brand and result in sub-par stock reaching the market. Make sure your contract addresses what your manufacturers must do with stock that you reject or which is oversupplied.
- Payment terms and Quality – You may wonder why these two fall into one item together. It isn’t uncommon to see a retailer pay upfront for all of the merchandise, only to find that on receipt there are quality or fulfilment issues. Where possible, it’s a great idea to withhold some portion of the final payment until you have had an opportunity to check the quality of the goods and accuracy of the order. This can be done either offshore via an agent or once goods reach your shipping destination.
I hope these tips have been helpful, they are just three of many aspects that I take into consideration when negotiating supply terms with my clients. Stay tuned for our next edition when we consider the top three aspects that are often overlooked in procurement contracts.