Manufacture and distribution

Manufacture and supply chain

What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

Spanish professionals and companies are involved in every step of the creation and supply of fashion luxury goods, from design to development and manufacturing, to supply and logistics or fulfilment, on to wholesale (business-to-business) and retail distribution (business-to-consumer), offline and online. To the extent that they operate their business in the territory of Spain, EU and Spanish legislation applies to their activities. There is, however, no overarching legal framework that applies to all aspects of the supply chain or that applies exclusively to the fashion industry in Spain.

On the retail side, Spain has been a relative latecomer to the e-commerce world, but has caught up quickly after most of the world’s leading online retailers launched their local sites in Spain, most notably from 2010 onwards.

Spain’s contract law system is comparable to that of most continental European jurisdictions and offers a robust product liability regime and warranty protection against defects. In addition, on the regulatory side, the consumer protection and retail trade regulations are well developed and directly influenced by the applicable EU Directives, as are e-commerce rules and data protection requirements.

The one particularity of the Spanish legal system is that while contract law and civil law more generally are a matter of national (state-wide) law, the protection of consumers and, to some extent, the regulation of trade, are delegated to the Spanish regions. This implies that a retailer who, for instance, wants to launch a product or a promotion in the Spanish market, needs to take into account not only the national rules but also the specificities of the regional legislation in the territory where the products are offered.

On the manufacturing, supply and distribution side, a variety of contractual arrangements apply. We often see Spanish companies acting as:

  • suppliers of goods and raw materials to other manufacturers;
  • suppliers of manufacturing and tolling services to other brands;
  • distributors or agents for brands, in part or the whole of the Spanish market;
  • franchisees or master franchisees of brands in part or the whole of the Spanish territory;
  • franchisors of Spanish brands seeking international expansion, via third-party franchisees abroad;
  • suppliers of logistics, fulfilment and warehousing services in Spain; and
  • suppliers of ancillary support services in Spain (call centres, regional procurement or sales hubs, aftersales services, etc).

 

To the extent that the principle of ‘freedom to contract’ applies in Spanish contract law, each of these contractual arrangements can be tailor made and adjusted to the particular business need in each case. The only particularities that, in general terms, are worth pointing out in this context are:

  • the application of a specific Law on Commercial Agency (Act 12/1992) in the case of agents - this law offers protection to commercial agents in Spain, in line with the EU rules on commercial agency;
  • the absence of a specific distribution law in Spain (general rules of contract law apply, and, to a certain extent, the Law on Commercial Agency is applied by analogy in case of termination of the distributor);
  • the application of the rules on franchise contracts under Spanish law (Royal Decree 201/2010); these are, however, very basic and not as sophisticated as those that can be found in other jurisdictions;
  • specific legal and regulatory requirements that may apply for certain products (eg, cosmetics, jewellery, product labelling); and
  • the need for specific regulatory consents and permits in the industrial context (eg, for transportation and logistics, for most manufacturing processes, etc).

 

In the context of supply of goods specifically, typically the parties contractually opt for Spanish law in the choice-of-law clause, and exclude expressly international rules or conventions on trade and supply. That said, there is in principle no obstacle for the parties to choose the law of a country other than Spain under European and Spanish international private law rules.

Distribution and agency agreements

What legal framework governs distribution and agency agreements for fashion goods?

Spain is a country where agents and distributors have traditionally played an important role - particularly in the fashion business. International brands, including luxury fashion brands, heavily relied on commercial agents and wholesale distributors in Spain to cover the large market that Spain represents.

That said, it is expected that the role of commercial agents will reduce over time. After all, in a world where direct-to-store and direct-to-consumer is made much easier thanks to efficient online systems and low-cost logistics networks, many brands (and their financial backers) are starting to reconsider the use of agents, as their sales commissions represent a significant cost that in current times cannot always be justified.

We can therefore expect an increase in termination of agency agreements across Spain in the future, with the resulting discussions around end-of-contract compensation and related claims. A similar trend may appear in relation to distributors in Spain, particularly now that logistics across Europe has become so fluid.

There is a specific agency law in Spain (Act 12/1992) that mirrors to a large extent the EU legislation on agency protection. There is, however, no specific law on distribution relations (unlike other EU countries such as Belgium) and the contract with distributors is, therefore, regulated by general contract law.

What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

The Spanish fashion sector offers a whole array of contractual arrangements.

As parties are free to negotiate the terms of their collaboration, there may be in certain cases some variations on the typical contract structures (such as agency, distribution or franchise) and sometimes ‘hybrid’ contracts can be found, depending on the product or retail model at hand. But this is no different from what can be seen in other European jurisdictions - Spain does not offer any particularity in this regard.

While for more common fashion goods there are no specificities from a legal technical perspective in Spain (other than the fact that these products often rely on franchisee structures to allow for rapid store expansion), it is precisely the luxury brands - particularly jewellery, fashion, cosmetics and high-end perfumery - where the contractual environment is typically much more sophisticated and restricted. Selective distribution systems are often used in these cases. As in other EU jurisdictions, this system allows a supplier to have more control over the resale of its products, protecting its brand reputation and safeguarding quality and customer experience.

Import and export

Do any special import and export rules and restrictions apply to fashion goods?

No special rules apply in Spain for luxury and fashion goods specifically. As with other products, goods that come from outside the EU are subject to customs and import and export regulations. Goods that circulate within the EU benefit from much more flexibility, which has in turn prompted the appearance of EU-wide fulfilment centres from which various countries are served at the same time, as opposed to having a local fulfilment structure in each country.

It is worth mentioning that Spain has a large counterfeiting issue. Customs and IP lawyers, alongside law enforcement authorities, are often involved in freezing or seizing ‘pirate’ or counterfeit goods in Spanish ports and airports, in a constant battle against the ‘copycat industry’, which causes important losses for brands and manufacturers in Spain and Europe.

Corporate social responsibility and sustainability

What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

International standards and EU requirements apply in Spain. Operators in the Spanish fashion and luxury sector are subject to obligations that are similar to other countries, and large Spanish retail companies (particularly publicly traded ones such as Inditex or Cortefiel) have sophisticated policies in place for sustainable sourcing and corporate social responsibility more generally, in line with international expectations.

What occupational health and safety laws should fashion companies be aware of across their supply chains?

Depending on the segment of the fashion and luxury in which a company operates, health and safety issues can be important or not significant at all. Obviously, it is the manufacturing companies that face the highest challenges in complying with the high standard of health and safety expected under Spanish law, but this is not specific to the fashion industry and applies for all manufacturing sites across all industries in Spain. We therefore see no special requirements for the fashion and luxury industry specifically.

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4 February 2021