Chapter 6: Selling and Buying – Commercial Agreements in Fashion
Donald L. Kreindler
Summary adapted from Chapter 6 of "Fashion Law: A Guide for Designers, Fashion Executives and Attorneys" edited by Guillermo C. Jimenez and Barbara Kolsun (Fairchild Books, 2010).
Fashion companies – manufacturers of branded fashion and apparel items – commonly enter into three kinds of commercial transactions: 1) sales to retailers, 2) purchases from factories, and 3) sales representation agreements.
In the U.S.A., the sale of tangible goods between merchants triggers the application of the Uniform Commercial Code (the "UCC"). The UCC is sometimes referred to as a "sales code" or "sales law." It is crucial for fashion companies to understand the basic provisions of the UCC, as UCC rules apply to the fashion company's sales to its retailers. For example, the UCC places a strict responsibility on buyers (in this context, fashion retailers) to promptly inspect delivered goods and to notify sellers (the fashion companies) of any contractual breaches which may justify rejection of the goods or issuance of a "chargeback."
"Chargeback" refers to a business practice, common in the fashion industry, under which the retailer exercises a contractual right to a percentage discount if the fashion company has breached the contract, for example, by late delivery. Chargebacks have become a subject of controversy in the fashion industry, with some fashion companies claiming that retailers make excessive and unfair use of chargeback provisions.
Disputes over chargebacks were part of the motivation for the formation of the Vendors Coalition for Equitable Retailer Practices (VCERP). VCERP has issued a statement calling for more balanced provisions in the contracts between fashion vendors and retailers.
Most major fashion retailers use a handbook entitled the Vendor's Compliance Manual (or a similar title), which sets forth the requirements to which vendors must conform. Since these conditions are often so favorable to the retailer that they may be onerous for the vendor, the vendor should consider replying to a purchase order with its own confirmation asserting minimum legal protections. In the event of a dispute, the fashion company's confirmation may allow it to prevail over the provisions in the Vendor's Compliance Manual.
Fashion companies, although commonly referred to in industry parlance as "manufacturers," generally subcontract the actual fabrication of apparel items to foreign factories. It is recommended that the fashion company insist upon dispute resolution by arbitration in the U.S.A. under the rules of a respected arbitration institution, such as the American Arbitration Association.
Author details:
Donald L. Kreindler
Phillips Nizer
666 Fifth Avenue – 28th Floor
New York, New York
Summary by: Guillermo Jimenez
