Fashion Contracts 101: Part 2 of 3

Now that we have you repeating the mantra “get it in writing!” in your sleep, it is only fitting that TFLG reinforce those neural connections with a few more associations. In this second installment of Fashion Contracts 101 we address the complex task of “brand expansion.” Here, we guide you through the types of agreements you will need to understand to intelligently capture new markets.

Brand expansion is about bringing your unique goods to new markets. In the fashion business, success is dependent upon who gets there first. As companies rush to be the first to market, however, they inevitably enter into a few agreements that they later regret. Problems such as shipment delays and lost inventory from unreliable partners are just a few of the issues that often arise. But who wants to think about the worst case scenario when they are about to see their hard work finally pay off? Not many, but guess who does? Lawyers. This is where knowledgeable legal counsel comes in handy.

This second installment of Fashion Contracts 101 introduces you to a few agreements that will help you grow and protect your brand, namely: License Agreements, Private Label/White Label Agreements, Distribution Agreements, and Joint Venture Agreements.

GETTING IT OUT FURTHER (EXPANSION AGREEMENTS):

License Agreement ­

This is a contract between a fashion company and another party whereby the fashion company grants the other party the right to use its trademark on a class of products within a specified territory for a specified time period. “A fashion company can use a license arrangement to cost­effectively extend its product range and its geographic reach, without the significant capital investment required to build new manufacturing facilities and distribution and sales forces.” A License Agreement often includes the following terms: duration of the agreement, product classifications, exclusivity, territories, channels, reserved channels, quality control, upfront fee, royalty payments, manufacturers to be used, retailers to be used, wholesalers to be used, inspection of manufacturing facilities, trademarks licensed & ownership of intellectual property, and licensor’s right to terminate.

Private Label/White Label Agreement

These types of agreements are found under the broader licensing umbrella. Here, a company manufactures products or accessories and sells it to another brand under a private label or white label agreement. This allows larger brands to leverage their name and gives smaller brands the opportunity to sell their goods to a bigger market. For example, the sunglass manufacturer Luxottica enters into white label/private label agreements with numerous sunglass brands. Luxottica is known as the industry leader in manufacturing sunglasses yet instead of selling them under its own name, it sells its designs to major fashion brands. But Private Label/White Label agreements are not unique to fashion. Retailers in many industries form relationships under these agreements. A well­known company that uses Private/White Labeling is the wholesale giant Costco with its in­house brand Kirkland. Kirkland engages companies to manufacture products for Costco and Costco in turn sells those products at a lower price point than name­brand competitors.

Distribution Agreement ­

This is a contract between a fashion company and a distributor whereby the distributor purchases products from the fashion company at wholesale prices and then distributes those products to retail stores. A Distribution Agreement often includes the following terms: territories, channels, reserved channels, product classifications, exclusivity, trademarks licensed & ownership of intellectual property, duration of the agreement, terms of sale of the products, royalty payments, delivery terms, obligations of the distributor, and the fashion company’s right to terminate.

Joint Venture Agreement ­

This is a contract between two companies to create a new entity to which both contribute their expertise and goodwill. Both companies invest in the new entity and share in the revenues, expenses, and assets. A Joint Venture Agreement often includes the following terms: initial investments, product classification(s), trademarks licensed & ownership of intellectual property, territories, channels, reserved channels, division of royalties, term, quality control, marketing & promotions, and audit rights.

Need help trying to figure out whether you should expand for your brand? Contact TFLG within the next 5 days for a free consultation. Feel free to fill out the firm’s client intake questionnaire in the Contact section on the website.