Tahir's Tips: Retail Agreements for Concession & Lease

One of the anomalies of business in the digital age has been the continued success of bricks-and-mortar stores in the fashion industry. The in-store experience is a crucial part of the customer journey, even the design and operation of a store reflects directly on a brand’s image.

Victoria Beckham recently opened her first physical store in London with considerable effort being made to create an in-store experience that was in tune with her values. According to the Guardian, Beckham’s architect, Farshid Moussavi was used because his “modern, angular aesthetic reflects the same qualities as Beckham’s fashion line” and during designing the space, he “carefully considered every detail of the shop.” We are seeing fashion brands like Orlebar Brown, Rapha and Bonobos who were solely online stores now opening up physical presences.

Therefore a key decision for brands is whether a permanent retail store can be justified or whether an alternative strategy – for example an in-store concession – is more necessary. Here we look at some key factors to consider when entering a concession agreement or lease.

Concessions:

A concession is a contract or licence given by a host store to a brand (“the concessionaire”) to occupy and trade in the store.

Concessions are generally regarded as a promotional space for short periods – a Christmas concession is a classic example. The owner of the concession pays a fixed sum or a percentage of the revenue to the owner of the space in which the concession is located.

Generally speaking, a concession is used as a starting point from which to test the market as to appetite for goods or to achieve exposure that would not be possible from fixed retail premises.

Care and consideration needs to be given when negotiating the terms of any concession issues such as:

1. Concessionaires should be aware that the store might not allow them to sell certain items or advertise the concession without their consent.

2. Most host stores will want to give prior approval for the concessionaire’s displays. In order to avoid unnecessary costs, hosts should provide the concessionaire with guidelines for what they deem acceptable. Alternatively, the host may take responsibility for fitting out the concession itself.

3. Concessionaires should ensure they are granted use of the necessary store facilities and services such as electricity, rubbish collection and toilets.

4. Concessionaires should consider how the concession store staff would be employed. If the store will provide the staff, concessionaires should ensure the staff is familiar with their brand.

5. Brands should avoid entering exclusivity agreements where doing so will stunt the brand's opportunity for growth.

6. It is normal that the host will require the concessionaire to provide an indemnity against actions arising as a result of their products or actions of their staff. This means adequate insurance cover is vital.

Retail Premises:

If a brand wants to maintain its own store the options available are to either purchase premises or lease the premises. Purchasing involves a large upfront investment that may be burdensome for a new brand, while a lease may offer flexibility to the occupant to come out of the premises. However, there are usually strict terms for determining lease arrangements – sometimes with financial consequences.

Care and consideration needs to be given when negotiating the terms of any lease, for example:

1. The level of rent and what is affordable. Capping the level of rent means that the rent remains fixed throughout the term that gives the occupier certainty.

2. A retail landlord could also seek a “turnover rent” based on the turnover of the shop.

3. Looking at whether additional service charges and maintenance charges are payable and negotiating a cap to limit the occupant’s  exposure.

4. The occupant will be required to maintain the premises to a good standard and therefore consideration must be given to limit the repairing obligations by way of a Schedule of Condition which records the state of the premises at the commencement of the Lease so that the occupant will not be required to put the premises back into any better state of condition than they were at commencement.

5. Break clauses are important for smaller brands as if for any reason the outlet/shop premises is no longer a viable expense, the occupant would want the ability to come out of the tenancy.

6. Most landlords will look for a rent deposit – this could create a cash flow issue for the occupant.

7. The occupant may need to fit the premises out, therefore may want to consider negotiating a rent free period whilst it does the fit out works, to limit its costs.

For more information on Industry  member, Tahir  visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email tbasheer@sheridans.co.uk or telephone 020 7079 0103.