Supplier Area Agreements in Retail: Key Considerations

1. 2012 IDI Conference - Venice Fabio BortolottiContracts whereby a supplier is granted an area within a department store, shopping mall or other similar organization. A general overview

2. Agreements which grant the supplier an exclusive area within a retail organization (“distributor”) • The distributor can be: • a department store • a shopping mall/commercial center • a factory outlet center • an airport • The area granted may be: • a section of the store • an individual shop • a space within the store: corner/espace démonstration

3. Various terms used in practice • Concession agreement • Corner • Shop-in-shop • Agreement for the management of a department (“affidamento in gestione di reparto”) • Contrat de démonstration • Contrat de vente à condition/Consignment agreement

4. The area granted to the supplier “commercial” issues • Where? Near to which competitors? • Right of the distributor to change location? • Is the supplier free to decide the fit-out (design, decoration)? • Who carries out and/or pays the fit-out? • Maintenance and upgrading

5. The area granted to the supplier “legal” issues • Lease of the area or lease of a business activity? • How to avoid rules on commercial lease contracts or how to comply if avoiding them is impossible? • Possible administrative constraints on supplier: need for a license for retail sales.

6. The consideration for the use of the area • Annual/monthly fee? • Percentage calculated on turnover? • Paid annually/monthly • Deducted by the distributor from sums cashed • Fixed fee + percentage • Minimum guaranteed amount + percentage

7. Who manages the area • The Supplier sells with his own personnel through his own cash registers. • The Supplier sells with his own personnel through the distributor’s cash registers. • The Supplier uses his own personnel for offering the products, but these are sold by the distributor through its cash registers. • The products are sold by the personnel of the distributor. • Parties may agree that employees of the distributor must follow indications/training by the supplier.

8. Issues regarding the supplier’s personnel • Exclusive responsibility of the supplier for his personnel. • Obligation to comply with al rules of the store. • Full coverage of opening hours. • Labour law problems: risk that supplier’s employees pretend to be employees of the distributor. • Problems arising when the supplier does not have a subsidiary in the distributor’s country.

9. Passing of the products from the supplier to consumer • The supplier sells directly to the consumer (through his own cash registers or through those of the distributor). • The supplier puts the goods at the distributor’s disposal on a consignment basis and the distributor sells them to the consumer. Two alternative solutions: • Conditional sale: goods are sold to the distributor when the distributor (re)sells them to the consumer. • Distributor acting as commission agent: the distributor sells the goods of the supplier in his own name but on behalf of the supplier. • The distributor purchases the goods and resells them (with or without right to return unsold goods).

10. Determining the price to consumers Possible antitrust problems • The supplier sells in his own name: • no problem. • The distributor resells the goods: • prohibition of resale price maintenance. • The distributor sells in his own name but on behalf of the supplier: • price fixing admissible, provided he is to be qualified as “true” agent (in case of EU antitrust).

11. Term and termination • Long termcontracts (one to fiveyears). • Contracts for an undeterminedperiod with right to terminate observing a period of notice. • Right to earlytermination in case of breach.

12. Thank you for your kind attention!