Introducing agents, distributors and franchising
Franchising, licensing, distribution or agency relationships can help you break into new markets or diversify into new products.
It's common for fashion brands to diversify from clothing and footwear into perfumes, sunglasses and cosmetics but different products have different methods of manufacture and routes to market.
Each of these options relies on a solid contract which is easy to understand and enforce.
There are two fundamental keys to making these arrangements a success.
Take time to meet, learn and understand whether the proposed partner is the right fit
Put the right contracts in place to protect you if anything goes wrong in the future.
What is franchising?
Broadly speaking franchising means licensing your brand and business to a third party who builds their own version of your business in a particular market but ultimately is accountable to you.
Franchising can be a win-win:
entrepreneurial individuals get the opportunity to start and run what is effectively their own business without having to spend the time developing their own brand
the fashion brand has the opportunity to quickly expand into new markets
Franchising is most commonly associated with bricks and mortar stores but it is becoming easier in the online environment. For example, it can be helpful if there are a lot of orders in a particular geographic region and you need to meet the demand quickly.
The main risk of setting up a franchise is that if you choose the wrong franchise partner, it can cause permanent damage to your brand. If they alienate your clientele. Consequently quality control and regular audits are essential.
What are distributors?
Distributors help you to break into new markets. They can offer comfort to distributors who are investing in your brand whilst at the same time enabling quick and comprehensive entry into new markets. The distribution agreement can be segmented by product (e.g. sunglasses) and geographic area (e.g. Scandinavia). It is important that issues such as marketing spend and quality control are carefully set out in the agreement.
You also need to bear in mind the risks of competition law (known as anti-trust law in the US). “Exclusivity” and “anti-competitive behaviour” share a very porous border. You don't want to end up on the wrong side. If you have a large share of the market you need to be particularly careful and make sure you obtain legal advice on the competition law risks associated with any new business strategies.
What are commercial agents?
Commercial agents are an alternative (or supplemental) means of scaling a fashion business.
An agent is essentially an individual or business which is authorised to act on behalf of a fashion brand. If you have authorised an agent, they can enter into contracts which bind your business, potentially without your knowledge. So you need to make sure you trust them before starting an agency relationship.
An agency relationship can be created without a physical contract simply on the basis of “a course of dealing.” In other words if you treat someone like they are an agent, even if you do not call them one, they can be treated as an agent in the eyes of the law.
Agents are highly regulated by EU law - they have a dedicated Directive. The EU rules which govern agency agreements are particularly onerous in terms of the calculation of commission (i.e. the agent’s fee) and termination of an agency relationship.
This means that an agent can be in a very powerful position. If you delegate them too much authority, they can potentially run many aspects of your business without your knowledge or permission.