Live legal issues: Retail 2017-18

Person carrying a blue and red shopping bags Print publication

30/11/2017

Walker Morris’ Head of Commercial Dispute Resolution and retail sector specialist Gwendoline Davies looks towards 2018 and highlights her top 5 legal issues for retailers.

What are the key legal issues for retailers looking to 2018?

Data protection and privacy

Retailers are building increasingly sophisticated profiles of consumers to deliver specifically targeted advertising, as well as developing new and varied ways for customers to shop and pay, but are they aware of the data protection and privacy implications of doing so, particularly in light of the numerous changes to the data protection legislation which will come into force in the next 12 to 18 months?

2018 will see the General Data Protection Regulation (GDPR), the first major overhaul of the data protection rules in over 20 years, come into force on 25 May 2018. The rules on electronic marketing and cookies will also be updated by the draft ePrivacy Regulation (which is also intended to come into force on 25 May but this will depend on how quickly it progresses through the EU’s legislative process).  We are also still awaiting clarification on what arrangements will be put into place to ensure that data transfers between the UK and the EU continue unhindered following Brexit.

With maximum fines under GDPR and the draft ePrivacy Regulation increasing to the greater of €20 million and 4% of global annual turnover, data protection compliance should now be a recurring item on the boardroom agenda.

However, data protection and privacy are more than just compliance issues for retail businesses. As the results of a recent survey by the Information Commissioner’s Office (ICO) show, with just 20% of the UK public having trust and confidence in companies and organisations storing their personal information, data protection is also a key element of brand management and building customer trust. As the media is filled with reports of high profile data breaches (such as Uber paying hackers £75,000 to conceal a breach which affected 57 million drivers and passengers) and the ICO having already issued fines totalling £2 million this financial year to firms who have broken the rules on direct marketing, it is perhaps easy to understand why the UK public feels this way.

The new rules provide retailers with the perfect opportunity to review and improve the way they manage data whilst ensuring that they maximise the potential of their data assets. This will require retail businesses to ensure that they are transparent with consumers about the personal data they collect and how they use it; that they provide consumers with the opportunity to opt-in what marketing they receive and how they receive it and respect those preferences; that they are able to reassure consumers that their data is safe and properly protected; and that they are able to respond promptly to individuals exercising their subject access and other rights under GDPR.

Strengthening customer relationships by developing customer trust through responsible data management practices can only be a good thing in a world where reputation matters.

Investigations

The retail environment today is perhaps more closely regulated than ever before. As such, investigations – and in particular knowing how to deal with them if you are a subject – are an increasingly common concern.

The Competition and Markets Authority’s investigations into Coty/Procter & Gamble and Tesco/Booker; the Tesco accounting probe; and the ITV/Guardian inquiry into hygiene standards at supermarket chicken-supplier, 2 Sisters, are just three recent examples of the types of investigations that can be targeted towards retailers. The impact of any such investigation on a retail business can be significant.

How businesses and employees respond to investigations, including how well they understand and protect their legal rights (such as privilege and confidentiality) and their tangible and intangible assets and brand; how effectively and efficiently they manage/retain/disclose their data and documents; and how they communicate internally with colleagues, externally with customers and shareholders/investors and with the investigation itself, can make all the difference.

Staff training, comprehensive and up-to-date policies and co-ordinated, cross-business communications strategies are all essential tools to assist a retailer’s effective response to any investigation.

Employment and Pensions

There have been a number of recent employment and pensions changes that will be on retailers’ radars.

The Employment Appeal Tribunal’s decision in the case of Dudley Metropolitan Council v Willetts means that employers are now required to include regular voluntary overtime in statutory holiday pay calculations. As we enter the holiday season this decision becomes particularly relevant [1].

National Minimum Wage compliance continues to be high on the agenda with a number of well-known high street retailers falling foul of the regulations due to payroll errors and miscalculations rather than a deliberate intention not to pay. Pay averaging systems may lead to NMW breaches (as we saw in the case of John Lewis).  It is essential that all hours worked are recorded and that payroll systems are error-proof [2].

The abolition of Employment Tribunal fees earlier this year means that retailers are more vulnerable to claims generally and, in particular, wages claims.

From the pensions perspective, many larger retailers still have their legacy defined benefit pension schemes.  These schemes are required to pay an annual levy to the Pension Protection Fund (PPF), the pensions lifeboat which takes on the underfunded defined benefit schemes of failed employers. One way in which schemes have sought to reduce their PPF levy is to put in a contingent asset.  For the 2018/19 levy year, trustees certifying or recertifying a guarantee which is likely to result in a PPF levy reduction of £100k or more will need to obtain a guarantor strength report.  In addition, the PPF is consulting on changes to its standard form contingent asset documentation.  All new contingent assets for the 2018/19 levy year will need to be on the new documentation (although existing assets do not need to be re-executed).

The high street

For all the time and resources devoted to online shopping in its various forms, there undoubtedly remains a very significant emphasis on a high street presence. Even if shoppers increasingly complete their transactions at their screens or on a mobile device, many retailers maintain that browsing and trying are still an essential piece of the retail experience.  The look, feel and location of a retailer’s store is also an invaluable statement of its brand and status.  Research by Retail Assist in 2016 confirmed that over a third of customers were using and would continue to use ‘click and collect’ as their delivery method of choice.  That merging of online and physical retailing has been found not only to contribute to sales uplifts during peak trading periods, but it offers the opportunity for upselling, with ‘collecting’ customers also spending an average additional £27 per trip in store.  The benefits of bricks and mortar stores, however, (not to mention the real estate devoted to warehousing, deliveries and office-space), bring with them issues which retails will continue to face in 2017-18.

In the run-up to the Christmas period, retail landlords, tenants and managing agents should check out our top tips for the festive season.  In addition, whilst ‘Black Friday’, ‘Cyber Monday’ and now the remainder of the Christmas shopping period will mean profit and progress for many retail businesses, it will not stave off financial difficulties, or even insolvency, for all struggling tenants.  It is likely that, as the New Year dawns (and Brexit uncertainties continue to bite), the high street will suffer as a result.

In the short to medium term, therefore, investors, landlords, tenants and guarantors should be prepared for dealing with the arrears, dilapidations, lease break and forfeiture issues which may follow. Where high street operations and investment do remain essential, retailers should consider how to mitigate the impact of any post-Christmas/pre-Brexit blues on the business overall.

Brexit

Retailers will, no doubt, be well aware of the general commercial issues that are already associated with Brexit, not least the staffing and products-on-shelves ‘gaps’ that are starting to appear. To date, retailers have worked hard to keep prices down despite the depreciation of the pound, but that cannot continue indefinitely and cracks are beginning to show.  Going forward, a key question will be how well retailer’s contractual arrangements – with manufacturers, distributors, suppliers, employees and consumers – can weather any changes or disputes that may arise as a result.

For example, where goods are imported from, and exported to, the EU, do contracts allow sufficient flexibility in pricing mechanisms to accommodate an increase in input costs? Apart from the commercial downside to passing rising costs on to consumers, retailers should ensure that they comply with the provisions of the Consumer Rights Act 2015 and the Consumer Protection from Unfair Trading Regulations 2008 (as amended), as well as OFT/CMA guidance on unfair terms, when considering how best to react to market changes.  Similarly, might commercial, economic or regulatory changes mean that some contracts are no longer desirable or commercially viable; or could Brexit constitute a ‘force majeure’ or ‘material adverse change’ event?  If so, what contractual termination provisions are in place, and what effect would contract termination have on the business overall?

It is simply not possible in this briefing to address all of the issues that Brexit might raise for retailers, but a comprehensive review of contractual relationships, arrangements and options will help retailers to react robustly, whatever Brexit might bring.

Walker Morris advice and assistance

We have highlighted just 5 ‘umbrella’ issues for retailers in 2017-18. Retailers need to be aware of whether issues such as these become a fundamental threat to their businesses and take appropriate advice and steps if necessary.  Walker Morris’ varied and specialist sector experience means that we are well equipped to provide tailored expert assistance in these and any other areas of concern and opportunity – whatever the coming months may bring for your business.

Our Retail Team is recognised by independent guides to the profession as one of the leading such teams nationally. Our multi-disciplinary team excels at providing both UK and international retailers, including a wide range of household names, with added value support on a broad range of issues. Many members of the team have in-house experience, which provides us with an insight into the pressures that retail clients face on a day-to-day basis. The Team has a clear focus on the sector and we have invested in talented, specialist lawyers who offer our clients an unrivalled wealth of legal experience coupled with practical commercial advice.

For further advice, assistance or training on any retail-related or commercial dispute resolution issues, please do not hesitate to contact Gwendoline Davies or any member of Walker Morris’ retail sector team.

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[1] See our more detailed briefing.
[2] https://www.walkermorris.co.uk/publications/employment-briefing-may-2017/staff-underpayments-john-lewis-lead-revision-2016-17-pre-tax-profits/

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