Contractual Negotiations in the Fashion Industry

The article 'Contractual Negotiations in the Fashion Industry' broadly encompasses the different types of agreements that need to be taken into consideration to ensure the proper functioning of the industry with reduced liability. Fashion is one of the factors for social and interpersonal relationships because it gives rise to an increase in intercultural understanding. It is therefore necessary to provide for such regulation under the relevant guidelines and measures. The important contracts which play a vital role in regulating the fashion industry will be discussed. 

Introduction

In the 21st century, people are fond of buying things related to fashion and this has greatly contributed to its rapid growth in a short time. Employment and a variety of career opportunities have been created as a result of growth in the sector, with innovative services and techniques also welcomed. This has again brought about the development and discovery of new ways in which these services can be delivered, where different contracts are to be drawn up for each channel.

Stage I: Making of the Product 

It's the foundational step of the process. In this case, we will look at the agreements that are needed to manufacture products like Manufacturing Agreements and Private Label White Label agreements.

Manufacturing Agreements

In a manufacturing agreement, there are two parties namely, the designer and the manufacturer. After agreeing to certain terms & conditions they form an agreement. In this case, the product designer demands to make goods such as clothing items, accessories, footwear, bags and other articles on his behalf from the manufacturer.

Clauses to be Included in Manufacturing Agreements 

• Product’s Quantity in total
• Mode of Transportation or Shipment: It includes the mode of transfer of the products to the designer from the manufacturer.
• Modes of Payment: It includes the existing amount to be paid.
• Delivery Dates: It describes the date of delivery of the product.
• Specifications of the Product: It includes factors such as quality, the external appearance of the product etc.
• Complete details of the Manufacturer.
• Intellectual Property (IP) Rights: Designers’ Ownership of the Intellectual Property.
• The Liability of both Parties Involved.

Private Label/ White Label Agreements 

In this type of agreement, the designer sells the products produced under their wing through Private Label and White Label Agreements. Manufacturers supply designers with their products, and the product is sold in its name by a company. This method reduces the costs of design, ensures time management and removes the burden from a designer's shoulders.

Clauses to be Inclined in Private Label /White Label Agreements

• Total Cost of the Product.
• Total Quantity of the Product.
• The assurance that the product is of good quality.
• A right to sell the product in respect of a particular trade mark.
•  The liability of both parties involved.

Stage II: Breaking the Product Out 

In the next phase, we shall assess the agreements which are needed to bring this product into the market. It includes agreements such as consignment agreements, dealership agreements, independent sales representation agreements etc.,

Consignment Agreement

Consignment agreements are contracts entered into by the designer and retailer in which the retailer for a certain period, authorizes the design to be placed on his/her market. They shall be returned to the designer's company if no sale is made by the retailer.

Clauses to be Included in Consignment Agreements 

• Term and Termination of the Agreement.
• The sale conditions for designer goods.
• Total percentage of profit each party is obligated to receive.
• Various Effects may arise due to the non-sale of designer Goods.

Showroom /Dealership Agreement 

A showroom and dealer agreement is a contract by which the showroom owner as well as the designer, are mutually bound. The designer's permission to exhibit his products in the showroom is granted by the dealer. The dealer owes the designer the responsibility to not only showcase his/her items but also to introduce the products to its buyers and sell them.

Clauses in Showroom Contract 

• Terms and Termination of the Agreement.
• Total Quantity of the Product
• The assurance that the product is of good quality.
• Medium of Payment.
• Policy about transportation or shipping.
• Information on the dates and methods of delivery.
• Specifications of the Product.
• Details of the Designer.
• Intellectual Property Rights
• The liability of both parties involved.

Independent Sales Representation Agreement  

A contract between the designer company and the sales representative whereby the designer company assigns the sales representative the task of listing its collection on the list of its customers shall constitute an independent sales representative agreement. A commission shall be paid to the sales representatives by the designer company. The representative shall have responsibility for obtaining orders and transmitting such information to the designer company.

Clauses to be included in Independent Sales Representation Agreement 

• Terms and Termination of the Agreement.
• Obligations are to be discharged on the part of the representative.
• Product Exclusivity.
• Products and Territories covered by the Representative.
• Representative’s Commission.
• Guarantee of the representative's percentage of orders.
• Showroom Tariff.

Stage III: Expanding the Brand 

In this stage, with the following agreements, i.e., Licensing Agreements, Joint Venture Contracts and Distribution Agreements, the fashion brand is expanded further. These agreements will safeguard the designer company's business and expand it.

Licensing Agreement 

A license agreement is a contractual arrangement between the design company and another party, which enables them to apply their trade mark only in certain areas for a specific period. It is generally used to improve geographic coverage and ensure a constant supply of products without making significant investments. Designers can avoid the attempt to establish new production facilities and gather a sales segment.

Clauses to be included in Licensing Agreement 

• Conditions & Termination of the Agreement.
• Assignment of Products.
• Clause Concerning Exclusivity.
• Channel of Sale.
• Royalty Payments.
• Purpose of Manufacturers
• Purpose of Retailers
• Purpose of Wholesalers
• Licensed Trademarks
• Intellectual Property Rights (IP) Rights
• The liability of both parties involved.

Joint Venture Agreements 

A Joint-venture agreement is an agreement between two companies where they agree to pool up their resources to incorporate a new company or for fulfilling an objective within a specific period. One such example is Bally-Reliance Brand Ltd.,

Clauses in Joint Venture Agreements 

• Terms and Termination of the Agreement
• Investments were made initially by both Parties.
• Classification of Products.
• Registered Trademarks and Licenses.
• Intellectual Property (IP) Rights.
• Renewal of the Agreements.
• Profit Division.
• Advertisement & Marketing.
• Rights of Audit

Distribution Agreements 

A distribution agreement shall be a contract to establish trading relations between distributors and retail outlets. Products of the Designer Company are collected and traded by a distributor with retailers. The contractual arrangements for distribution can be exclusive, nonexclusive, selective and sole.

Exclusive Distribution Agreements

The manufacturer shall allow only one distributor to sell the products to retail outlets by the exclusive distribution agreement.

Non-Exclusive Distribution Agreements 

The designer company shall permit multiple distributors to sell the products to retail outlets, under a nonexclusive distribution agreement.

Selective Distribution Agreement

The company allows distributors to resell to selected retail outlets under a selective distribution agreement. A luxury brand often uses this agreement.

Sole Distribution Agreement

A supplier shall designate one distributor in the geographical area as a sole distributor under a sole distribution agreement.

Consignment Contract 

It is a contract between the retailer and his agent whereby the retailer grants the right to sell, merchandise and to organize an exhibition for the sale of clothing or inventory. Here, the retailer is called the consignor and his agent is the consignee in the contract. The commission shall not be received until the goods have been sold by the consignee. The goods may be returned to the consignor if they are not sold.

Clauses in Consignment Contract 

• Preamble: In short, it describes the details and realities of the whole contract.
• Clause governing time duration
• Clause regulating the conditions of sale of products
• The percentage that each party would receive clause or Consignment fee clause
• Clause regulating payment option
• Liability for lost or damaged stock clause or Insurance Clause
• Effect on non-sale clause
• Minimum Price clause: The price below which the fashion products should not be sold
• Location and storage of stock during consignment clause
• Clause concerning expenses
• Modification/Amendment clause
• Clause governing Applicable laws

Franchise Contract in the Fashion Industry 

It is a contract in which one party grants the other, acting on behalf of the selling party, an obligation to open and operate that business. The person granting the right is referred to as a franchisor, while the second party can be described as a franchisee.

Clauses under Franchise Contracts in the Fashion Industry

• Preamble
  
• Franchise fee clause
• Clause concerning security deposit
• Royalties clause
• Mode of Payment clause
• Clause concerning confidentiality: It is a clause which imposes restrictions on the franchisee from disclosing the franchisor’s trade secrets.
• Clause Regulating Standards of Operations: It lays down a prescribed set of standards which needs to be adhered to and ensured by the franchisee effectively.
• Inspection clause: Right of the franchisor to inspect the premises at regular intervals
• Clause governing applicable laws
• Proper registrations by franchisor relating to licenses clause
• Advertising and Brand Promotion clause
• Training, supervision and support clause
• Use of trademark and intellectual property clause: It is one of the most important provisions, whereby a franchisor needs to register that mark and should have sole rights for its use.
• Duration of contract clause
• Clause concerning Renewal
• Clause concerning termination of the contract
• Dispute Resolution clause: It includes every alternative dispute resolution mechanism such as arbitration, mediation, conciliation
• Force Majeure clause: It lays down the conditions and measures which need to be followed if any of the parties fail to discharge their obligations due to unforeseen circumstances.

Fashion-Related Advertising and Promotional Contract 

This includes a contract to promote those products through different channels in exchange for advertising fees that shall be provided for by this Agreement concerning the designer, retailer and manufacturer of fashion products and an advertising agency.

Clauses under Fashion-Related Advertising and Promotional Contract

• Preamble
• Total time duration of the contract
• Scope of Work clause
• The schedule clause for the budget and payment
• Advertising fee/price clause
• Clause mentioning the consequences of delayed payment
• Clause regulating breach of contract
• The clause related to the termination of the contract
• Clause regulating dispute resolution mechanism
• The clause concerning Copyright strike: This ensures that all the required credits and information concerning their use of any products or services, which would prevent copyright infringements, are properly disclosed by an advertising agency.
• Clause concerning confidentiality
• Indemnity clause: They will be obliged to reimburse an advertising agency for their losses if the designer retailer or manufacturer is at risk of being financially hurt, or other similar situations and does not pay advertisement agencies as laid down in a contract.
• Terms and conditions clause

Conclusion

As we have already seen, there are different kinds of contracts in the field of fashion and a number of those contracts comprise certain equivalent clauses but also possess specific characteristics for their work. Particularly when protecting contracts against unforeseen or unexpected events which may render them unreputable or invalid, clauses such as separation, survival, dispute resolution, relevant legal provisions, and confidentiality shall be of the greatest importance. The inclusion of those provisions shall ensure that the contract stays in force and is deemed to be valid. Thus, these agreements certainly play a pivotal role in regulating the fashion industry.

References

[1] Contractual Negotiations In The Fashion Industry; Types Of Agreements And Licensing Agreement, Available Here

[2] Prachi Parekh, Contracts in Fashion Industry, Available Here

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