Suppliers supply and distributors distribute – a regular blog, December 2020

On Wednesday Sir Kier Starmer, Leader of the Opposition, said in Prime Minister’s questions that the collapse of Arcadia threatened to “rip the heart out” of high streets. He called upon the Prime Minister to bring forward a comprehensive plan to save retail jobs.

Coming after successive daily failures of Arcadia, Debenhams, Bonmarche, the comments are understandable. But alongside the retail jobs highlighted by Sir Kier, it is the case that suppliers have suffered a triple whammy this week.

Given previous history – and speculation (was JD Sports touted as a buyer of Debenhams in order to try and squeeze a higher offer from Frasers Group?) – it would be reasonable to ask why suppliers continued to supply to the A, D, B fallen. Various commercial reasons would be put forward and at the heart is the willingness to accept commercial risk.

But going forward even suppliers which are prepared to take commercial risk should consider:

  • retention of title
  • credit insurance
  • the use of pro formas

None are necessarily easy. The acceptance of any by fashion retailer reflects how keen it is to contract with a particular supplier.

Whilst credit insurance is dependent on the willingness of the credit insurer to accept risk, retention of title is dependent on:

  1. the terms used in the retention of title provision; and
  2. the proper incorporation of the retention of title provision into the sale contract.

Unfortunately, it is the case that in many instances retention of title provisions are poorly drafted or even when properly drafted are not incorporated into the sale contract.

For a supplier to be able to retain title as against a retailer, it is necessary:

  1. for the retention of title to be drafted to ensure that title to the goods, which are the subject of the sale contract, is clearly and expressly retained by the suppliers.
  2. For the retention of title clause not to extend to cover the resultant proceeds of sale of the goods. If it does then it will need to be registered as a charge at Companies House. However, this will create a problem if the retailer has already given a debenture to, for example, its bank. Also, suppliers will often forget to register at Companies House within the prescribed 21-day time limit after the contract is made. If the retention of title provision covers proceeds of sale and is not registered, the whole retention of title provision will be void – not just the element over the follow on proceeds.
  3. For the goods which are the subject of the retention of title provision to be marked so as to show that title in the goods remains with the supplier until payment for the goods is made by the retailer. Difficult in fashion retail. However, before going into store or online it is usual for the contract in which the retention of title provision is included to:
    • require the goods to be kept separate from other goods so as to make them more easily identifiable; and
    • allow the seller’s representative access to the warehouse where the goods are located so as to recover the goods.

But however well drafted the retention of title provision is, it will have the aerodynamic qualities of an anvil if it is not properly incorporated into the sale contract. Often retailers will have terms and conditions of purchase, one objective of which will be to ensure that the supplier is not able to retain title to the goods supplied! This situation is often referred to as the “battle of the forms”.

In some instances, the battle between supplier and retailer can become so complex that the supplier fails to win the battle as was the case a few years ago when, in success of years, Brantano twice went in to administration.

Going forward there are reasons to believe that more brands will look to sidestep retailers and engage in direct to consumer business. In this respect a paper published earlier this week entitled “DTC e-commerce: How consumer brands can get it right” by McKinsey & Company is well worth reading. Fashion brands prepared to invest (in their trade marks, website, and logistics) may find that DTC is more profitable than using retailers.

Finally given what has happened to the A, D, B fallen consideration should also be given to two other groups.

Brands with concessions in fashion retailers are a sort of supplier. The use of, for example, pro formas is not open to them. However, ringfenced bank accounts to hold the proceeds of sale through concession may be capable of being negotiated.

Employees also are suppliers – of their labour. The reintroduction on 1 December 2020 of Crown preferences (deferred in 2003) has put HM Revenue & Customs means that the Government is effectively favouring taxpayers over employees! Something with Sir Kier failed to raise…

This article was first published in Drapers.