Market spotlightState of the market
What is the current state of the luxury fashion market in your jurisdiction?
The luxury fashion industry in Spain plays a significant role in the European and global market, but a closer look reveals that this significance must in fact be seen from three different angles: from the brand side; from the manufacturing side; and from the consumer side.
In relation to the brands, Spanish companies are among the world leaders in fast-fashion (with Inditex - of Zara fame - or Mango being the most notable Spanish players) but they are not part of the select group of the world’s luxury brands. There are a number of well-known Spanish luxury brands, such as high-end leather and fashion group Loewe (part of French luxury group LVMH), but their significance in the global retail economy is largely outweighed by that of the low-cost fashion brands that have made Spain a global player.
From the perspective of manufacturing, many Spanish companies supply goods and products to the world’s leading luxury and fashion brands or act as manufacturer for other groups. While textile confection, traditionally important in Spain, has largely moved away to other regions over the last twenty years (northern Africa, Turkey, Asia), the manufacturing of other consumer goods for international fashion and luxury brands (notably: shoes and leatherwear, as well as cosmetics and perfumery) continues to be important for the Spanish industry.
On the consumption side, Spain is of course a large and growing market, which does not go unnoticed to any important fashion or luxury brand. All the international brands are present in Spain, through their own brick-and-mortar stores, third-party multibrand retail points of sale, or direct-to-consumer online sales. They see how the Spanish customer shows potential to spend more on luxury and fashion, particularly now that a long period of economic downturn has come to an end for a large part of the population. That said, investment bankers, advisers and retail experts all agree that we can still expect a ‘shake-up’ in the Spanish retail sector, as there continues to be excess capacity, particularly in large department stores and fast-fashion franchisee networks. There is an expectation that, even after many restructurings and closures, a further reduction and rationalisation of certain retail networks will be seen in the mid-term. This is particularly true for certain retailers offering low and mid-priced products, and is less relevant for the high-end luxury and fashion sector, which is more stable in Spain overall.
Manufacture and distributionManufacture 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 in the course of 2010 and 2011.
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.Distribution and agency agreements
What legal framework governs distribution and agency agreements for fashion goods?
As described above in relation to the various layers of the supply and distribution chain, 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.
As stated above, 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 described in question 2.
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.
What legal framework governs the launch of an online fashion marketplace or store?
When a company launches an online store in Spain, the following topics need to be considered:
- sales restrictions (what products are prohibited or subject to limitations in Spain? For example, does any age rating apply to the products? Does the product contain any prohibited fabrics or protected components?);
- pricing restrictions (are any of the products subject to particular pricing requirements that limit my commercial strategy? This is unlikely to be the case in fashion and luxury goods, but, for instance, books are subject to a fixed price regime in Spain);
- online payment means (what secured payment process do I want to offer to my customers, and do I want to offer instalment payment or consumer credit?);
- IP protection legislation (are the products, trademarks or domain names likely to infringe a third party’s rights in Spain?);
- waste and packaging requirements (is the type of packaging that I use, or the products that I sell, subject to specific requirements or obligations under waste and environmental rules in Spain?); and
- specific Spanish and regional requirements for advertising, promotional campaigns and marketing generally (publicity, peer reviews, pricing display, discount offers, contests and other promotional activities).
The main bodies of law that are relevant in this context are: the Spanish Consumer Protection Law (Act RDL 1/2007), the Spanish Law on General Terms and Conditions (Act 7/1998), the Retail Trade Law (Act 7/1996), the Information Society Services Law also referred to as the E-Commerce Law (Act 34/2002), the General Advertising Law (Act 34/1988), the Payment Services Law (Act RDL 19/2018), the Payment Terms egislation (Act 3/2004 and related rules), the Unfair Competition Law (Act 3/1991), the EU-wide General Data Protection Regulation 2016/679 and the related Spanish legislation (Act 3/2018), and the relevant IP, environmental and sector-specific regulatory legislation that may apply in each case.
In certain matters (eg, consumer protection, retail trade) the regional requirements - for instance, those that apply in the regions of Madrid or Catalonia - should also be taken into consideration in addition to the national legislation mentioned above, depending on the regions where products are offered or promoted.
Furthermore, soft-law regulations from self-regulatory bodies such as Autocontrol (which regulates advertising generally) and Confianza Online (which provides rules for e-commerce) are also expected to be taken into consideration by retailers.Sourcing and distribution
How does e-commerce implicate retailers’ sourcing and distribution arrangements (or other contractual arrangements) in your jurisdiction?
E-commerce in Spain is growing quickly, and the Spanish sourcing, distribution and logistics arrangements are adapting to it rapidly. That said, the evolution that can be seen in Spain is not different from what occurs in other European countries, nor is there any particularity - from a legal perspective - in fashion and luxury specifically, as compared to other industries in Spain.Terms and conditions
What special considerations would you take into account when drafting online terms and conditions for customers when launching an e-commerce website in your jurisdiction?
Most terms and conditions (T&C) that are used in other EU countries can normally easily be implemented in Spain, with few adaptations. This is because the legal expectations, as well as the specific requirements, for instance in consumer protection in Spain, are aligned with EU-wide requirements (notably, the EU Consumer Rights Directive 2011/83). In overall terms, a retailer launching an online point-of-sale in Spain can use T&C that are substantially similar to the ones it uses in its other markets in the EU, provided that they are translated into Spanish (and in Catalan if the Catalan market is also addressed) and contain clear and unequivocal language and do not provide for imbalanced or abusive clauses. Having said that, prior to the roll-out of any T&C in Spain, a review from the perspective of Spanish consumer law (notably Act RDL 1/2007) and the Law on General Terms and Conditions (Act 7/1998) is recommended.Tax
Are online sales taxed differently than sales in retail stores in your jurisdiction?
VAT applies to products sold online as it does on those sold offline. The general VAT rate is 21 per cent and there are no particularities for fashion.
Intellectual propertyDesign protection
Which IP rights are applicable to fashion designs? What rules and procedures apply to obtaining protection?
Different, overlapping IP rights can apply in Spain in relation to the design of fashion and luxury products with the most notable one being design rights. The fashion and luxury goods, however, are not governed by a special product-specific set of rules, and IP rights are governed by the same rules as those that apply to other goods in Spain.
What difficulties arise in obtaining IP protection for fashion goods?
The difficulties that may arise in Spain are not substantially different from those that companies may face in other jurisdictions. On the other hand, the legal issues relating to trademark protection, copyright and design rights, and ownership of works in Spain are similar to those that other industries face.Brand protection
How are luxury and fashion brands legally protected in your jurisdiction?
Brands can be protected and registered as trademarks before the Spanish Patents and Trademarks Office. Generally, any sign that allows to distinguish a product or service of an undertaking from those of another can be registered. In addition, brand owners can also register domain names containing their brand name (.es) and reserve a corporate name for their legal entity that includes the brand. Oppositions and prior reservations (legitimate or illegitimate) sometimes create difficulties in this process. A prior trademark, domain name and corporate name search is therefore advisable.Licensing
What rules, restrictions and best practices apply to IP licensing in the fashion industry?
There are no specific rules that apply to IP licensing in the fashion industry in Spain. The scope of the licence granted to a manufacturer, for example, will be critical but it will also be determined by whatever has been agreed on selective distribution (as referred to further in question 25).Enforcement
What options do rights holders have when enforcing their IP rights? Are there options for protecting IP rights through enforcement at the borders of your jurisdiction?
The enforcement system in Spain is robust and reliable. Part of the courts show a high degree of specialisation in IP and it is recommendable to seek advice from specialist IP lawyers. On the other hand, the law enforcement authorities have experience in handling copycat and counterfeit cases, including the freezing or seizure at ports or trade fairs.
Data privacy and securityLegislation
What data privacy and security laws are most relevant to fashion and luxury companies?
What challenges do data privacy and security laws present to luxury and fashion companies and their business models?
The increasingly sophisticated customers of retail brands generally and those of fashion and luxury companies in particular expect near-perfection not only in their customer experience but also in the handling of their personal data. Security and compliance in privacy therefore appear at the top of retailers’ executive agenda, but this is no different in the fashion luxury sector or in Spain than it is in other industries or EU countries.Innovative technologies
What data privacy and security concerns must luxury and fashion retailers consider when deploying innovative technologies in association with the marketing of goods and services to consumers?
Artificial intelligence, facial and biometric recognition and other high-tech tools increasingly appear in Spain, on the back-end as well as on the consumer facing aspects of the luxury and fashion retail experience. Data-driven technologies increasingly coexist with other tech aspects of the retail world.
While Spanish consumers (and manufacturers) were arguably somewhat slow to jump on this trend several years ago, currently Spanish companies and consumers are very much used to, and in fact expect, the latest technology and IoT in the supply chain and in customer experience. This often poses legal challenges, as these technologies do not always find an immediate fit in existing legislation (eg, complex data protection issues, privacy-by-design, data protection impact assessments, information obligations, customer consent requirements, payment and credit regulations, etc) but this is not specific to Spain or the fashion and luxury industry.Content personalisation and targeted advertising
What legal and regulatory challenges must luxury and fashion companies address to support personalisation of online content and targeted advertising based on data-driven inferences regarding consumer behaviour?
Overall, the challenges are not unique to the fashion and luxury industry and are not specific for Spain. Arguably, the one item that offers more sensitivity in this sector is the fact that luxury brands typically offer a customer experience that is very personalised. Detailed preference profiles and customisation, on the one hand, and consumers’ increasing mistrust of Big Data, offer high-end retailers specific legal challenges that require expert advice on data protection under the GDPR and Spanish privacy rules.
Advertising and marketingLaw and regulation
What laws, regulations and industry codes are applicable to advertising and marketing communications by luxury and fashion companies?
The fashion and luxury sector in Spain is subject to the advertising and marketing regulations that apply to consumer-facing companies generally (see question 8 for references to legislation and advertising soft law) in addition to the GDPR and Spanish privacy rules referred to above.
The only particularity in this industry is possibly that fashion companies are usually more engaged in ‘season sales’ promotions than other consumer goods sellers are. These season sales are subject to requirements that relate to price displays and advertising that are set out in the Spanish retail trade law (particularly articles 24 and following of Act 7/1996 and the related regional regulations), but while this was highly regulated in the past (with fixed periods within which season sales could be conducted, limited durations, etc), this was made more flexible as a result of legislative amendments in 2012 that aimed at giving Spanish retailers more freedom and competitiveness. The current legal framework offers, overall, flexibility and allows retailers to organise Christmas and summer sales, or even Black Friday promotions and other international retail trends, in a manner that is not subject to many rules or requirements - as long as consumers are given fair and clear information on the goods and prices offered.Online marketing and social media
What particular rules and regulations govern online marketing activities and how are such rules enforced?
The Spanish fashion and industry does not have specific online marketing rules, distinct from those that apply to retail generally.
That said, of particular interest for fashion and lifestyle companies is the fact that the Spanish Advertisers Association and the self-regulatory advertising body Autocontrol are developing a code of conduct around the use of social media influencers in the context of advertising and marketing, as a result of European industry recommendations. Autocontrol is also focusing on the effect of social media on advertising in its general advertising Code of Conduct, but these developments are still early-stage and are not ‘hard law’ and become only enforceable among members of Autocontrol.
For now, the only mandatory legislation that applies in this context is contained in the Spanish Information Society Services Law (E-commerce Law), the GDPR and Spanish privacy rules, the General Advertising Law, and the Unfair Competition Law (mentioned in question 8), with the practical effect being that the contents must be clearly identified as a commercial communication and that the advertiser must be identified.
Product regulation and consumer protectionProduct safety rules and standards
What product safety rules and standards apply to luxury and fashion goods?
In general, luxury and fashion goods do not have their own specific product safety legal regime. They fall under the EU General Product Safety Directive and other product-specific EU legislation that is not unique to Spain.Product liability
What regime governs product liability for luxury and fashion goods? Has there been any notable recent product liability litigation or enforcement action in the sector?
In Spain a consumer’s product liability claim for luxury or fashion goods is governed by the general regime applicable to all consumer goods, which does not discriminate between one sector and another. There have been no recent cases that are particularly notable in terms of product liability litigation or enforcement in Spain specifically.
M&A and competition issuesM&A and joint ventures
Are there any special considerations for M&A or joint venture transactions that companies should bear in mind when preparing, negotiating or entering into a deal in the luxury fashion industry?
The structuring and implementation of M&A and joint ventures in the Spanish luxury and fashion sector does not differ from what can be seen in similar transactions in the industry in other European countries. Possibly, the importance of store lease agreements for high-street retail networks in Spain may bring a buyer to structure a takeover of a retail business as a share acquisition rather than as an asset transfer (as the latter would imply an assignment of all contracts, including lease agreements, with the risk of rent increases pursuant to Spanish lease regulations). But we have seen both share deals and asset deals in the Spanish retail industry generally and the fashion and luxury sector in particular; there is therefore no ‘one size fits all’ approach for transactions in this industry.Competition
What competition law provisions are particularly relevant for the luxury and fashion industry?
The fashion and luxury sector has taken a prominent role in many high-profile competition law cases at a European level (such as the Court of Justice of the European Union ruling in the Coty case or the Pierre Fabre Dermo-Cosmétique matter) but these are not specific to Spain. They are EU-wide cases that have created precedent case law and have had a direct influence on how selective distribution, e-commerce and pricing should be conducted in the EU generally, including Spain.
On the other hand, the regulatory focus of some national governments (such as in the UK, France and Germany) on e-commerce, abuse of dominant position and pricing in the retail industry has not (yet) been as intense in Spain, where the national competition authorities and retail trade regulators have been less persistent than in other countries.
One interesting development for retail in Spain though, is that the legislator has removed the general prohibition to sell products below their acquisition cost. Until recently, Spanish retail trade legislation (Act 7/1996) allowed retailers to freely set the retail price of the products they sold, but they could never go below the ‘cost floor’ (ie, the amount that the retailer paid for acquiring the product) save in exceptional circumstances such as liquidation sales. This limited the pricing strategy of many large retailers. This general prohibition was lifted in 2018. Accordingly, selling below cost is now allowed except if it harms fair competition or is misleading to consumers.
Employment and labourManaging employment relationships
What employment law provisions should fashion companies be particularly aware of when managing relationships with employees? What are the usual contractual arrangements for these relationships?
The use of freelancers is not uncommon in the fashion industry, particularly in business segments where the use of self-employed workers is the norm (design, PR, imagery and photo shoots, etc). In most cases, however, these are ‘real’ freelancers who work at their own discretion and risk and do not act as quasi-employees under direct supervision of a fashion company. We therefore do not necessarily see a high risk of reclassification into employees in these specific cases.
On the other hand, fashion companies on all steps of the manufacturing and supply chain also often use interns and trainees. In Spain, the regulation of these positions is, however, not specific to the fashion industry (typically, an agreement must be signed with a university or school to allow its students to work at a company - and in the case of the fashion industry, this is often with design schools or industrial engineering institutes).
The one point which companies should pay attention to, however, is the ownership and assignment of any IP developments: if a brand works with freelancers or employees, it must ensure that any brands, designs, models, manufacturing processes or IT developments are clearly owned by the employer and not the individual. For employees, this is usually the case by operation of law (even if the employment contract is silent, Spanish employment and IP law provide that ownership of IP is for the employer) but for freelancers and self-employed workers, a specific IP assignment clause should be inserted in the contracts.Trade unions
Are there any special legal or regulatory considerations for fashion companies when dealing with trade unions or works councils?
There are no special rules in Spain relating to luxury and fashion companies and their relationships with trade unions or works councils. On this point this industry is subject to the same rules as other industry sectors in Spain (setting aside particularities of collective bargaining agreements that exist in certain manufacturing sectors; for example, textile manufacturing or fashion retail, at the level of the company, the province, the region or nationally - but this would relate to compensation, work categories, working time, and other granular aspects of work relations that are not relevant in the context of this chapter).Immigration
Are there any special immigration law considerations for fashion companies seeking to move staff across borders or hire and retain talent?
Update and trendsTrends and developments
What are the current trends and future prospects for the luxury fashion industry in your jurisdiction? Have there been any notable recent market, legal and or regulatory developments in the sector? What changes in law, regulation, or enforcement should luxury and fashion companies be preparing for?
No updates at this time.