Legal challenges in a multichannel world

Supply Chain 2014-2015

In-house legal counsels at the UK’s leading re­tailers face myriad pressing challenges when it comes to their supply chain. From strictly policing data protection laws and controlling com­plex transport systems, to ensuring there are no blind spots in multiple supply chain networks that crisscross the world, they play a crucial role in the smooth and lawful running of a retail business.

As published in Retail Week & DWF Supply Chain: Trends and Innovations in Retail 2014-15 report 

In a bid to expose the vital ways in-house legal professionals are directly influencing retailers’ strategy and bottom-line, Retail Week carried out in-depth interviews with some of the UK’s most prominent legal counsels. What transpired was an illuminating insight into the foremost press­ing challenges facing in-house legal teams in to-day’s demanding multichannel, cross-border retail landscape.

Data protection

In 2014’s hyper-connected retailing world, cyber security vulnerabilities can be exploited at any number of points where information is exchanged or stored, providing multiple opportunities for risk to be introduced.

For the UK’s foremost retailers, this means one of the most burning issues to tackle head on is data protection, with high profile data leaks from large retailers hitting the headlines on a seemingly regular basis. Although many of these leaks focus on personal and financial data, which is generally something shared between customer and retailer rather than across the supply chain, its effect can be felt throughout. “The increase in regulation around data and security is one of the biggest legal challenges we face,” says one in-house legal counsel for a large grocer.

As customers share more of their personal and financial data with retailers through various dif­ferent channels, data protection considerations are only going to increase for legal counsels working at large retailers. Retailers need to be able to show they under­stand the issue and take it seriously, but with a climate that’s changing so quickly this is far from easy.

“Having good applications, systems, processes and culture all helps improve data protection,” says one counsel. “The challenge is for someone not working in a data-focused business to reiterate the importance of good data practices to employ­ees. We’re always working to become more secure too, and we learn from our mistakes.”

Staff training is one way retailers can show they take the issue seriously, and bringing in a voluntary code of conduct around data protection might be another.

International challenges

The proliferation of UK retailers overseas, and mounting international expansion ambitions, provides another complex set of challenges for supply chain directors and legal counsels alike. From avoiding international sanctions and stay­ing abreast of legislative updates in the markets the supply chain is active in, to monitoring ethical trading, there are a wide range of considerations retailers need to think about.

“When considering our growing international business, each market is different and we need to consider how to record our agreements from a con­tractual perspective,” says one legal counsel. “In many markets we work with franchise partners, or as part of a joint venture, which comes with its own challenges.”

Despite the challenges, working with a fran­chise partner in international markets brings a wealth of benefits for retailers, not least the local legislative insights and understanding franchise partners can provide.

“Ultimately the legality of the products is down to our supply chain partners,” says the legal coun­sel for a large fashion retailer. “These organisations are big and organised in their own right, and help us keep up to date with legislative changes and sanctions. Part of this is managing the proper flow of information both ways.”

Some retailers use independent monitor­ing systems to assess their international supply chains, which give retailers a framework on which to evaluate their supply chain and also allow them to take appropriate action if there is a problem. “We require all our suppliers to get FedEx accredita­tion,” says the legal counsel for a large grocer. “They use a red/amber/green system for check­ing suppliers. Three or four small things can raise an amber warning, while one large problem can make a supplier red instantly. We find it useful to use an independent system.”

Transport controls

One area where in-house legal teams very often play a big part is in negotiating the long term distribution and warehousing contracts with UK suppliers.

“They are some of the most important contracts you can ever deal with working at a retailer. If you get them wrong and the relationship doesn’t work they can be life-threatening for a retailer. If they don’t get the product into a store in time for Christ­mas because whoever is meant to be transporting it there isn’t doing it right, it can be very serious.”

The vital nature of these contracts also means retailers will often involve external legal firms. “Because they are such important contracts, and because of the amount of money spent on them over three, four or five years, you would tend to involve external lawyers that work with yourself because you know the business, and they bring specific expertise.”

When transporting products, the onus of responsibility for those goods is often incor­porated into the contract too, but much tighter controls in this area are needed. In addition, as warehouses’ footprints increase, retailers also need to develop more sophisticated ways of keeping track of their products within these huge spaces.

“We’re working on developing a way of iden­tifying when an order is complete, and also keep­ing track of stock in our warehouses. Goods can go missing, particularly in the extremely large spaces, and we are using technology to not only identify what is in the warehouse but all the other critical information about products too.”

Challenges for the future

As the retail environment continues to change at such a fast pace, the challenges facing retailers and their in-house legal teams are also developing. One in-house counsel pointed to the increase in brand collaborations as something legal teams need to focus on with growing frequency.

Another of the challenges legal counsels face is the fast pace of change in retail companies and their supply chains. The proliferation of click and collect, next day and even same day delivery, and increased customer expectations have all served to put pressure on retailers and their supply chains to improve their offering considerably in a short space of time.

As an in-house legal counsel at a large fashion retailer puts it: “The biggest challenge we face is the pace of change. Our strategy of reducing over 100 warehouses and distribution centres into just a few very large ones is part of this strategy,” he says.

The practicalities of increasing a retail opera­tion on this scale is just one of the considerations for in-house legal councils, especially when more and more companies are attempting to create dis­tribution hubs from which multichannel orders can be fulfilled.

“Even with an in-house team that is five peo­ple strong we need help with the operation and ownership of distribution centres in terms of tracking and shipping,” continues the fashion retailer.

As a result of recent high profile supply chain scandals including horsemeat and the Bangla­desh factory collapse, some retailers are look­ing at reducing the volume of their suppliers to ensure they know those they are working with extremely well and to avoid any blind spots in the supply chain. “Consolidating our supply chain has led to some interesting conversations,” says one in-house counsel at a grocer.

Behind all of the challenges, scandals, op­portunities and future growth prospects lies a similar, simple message though; know your supply chain.

Watch out for our next blog post which will look at customer focus and the era of multichannel.

If you have any questions or would like more information, please contact Hilary Ross Partner & Head of Retail, Food & Hospitality sector.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Hilary Ross

Executive Partner (London) - Head of Retail, Food & Hospitality

Recognised by The Lawyer as one of the UK’s Top 100 lawyers, I advise clients on compliance and challenges across the EU in relation to products, systems and safety.

Dominic Watkins

Partner - Head of Food Group

I am Head of DWF’s internationally renowned food sector group as well as being Head of Regulatory in London.

Ed Meikle

Partner - Head of Retail Group

I advise on all aspects of intellectual property law, especially advising businesses in retail, food, sport and consumer products on the development, commercialisation and protection of their brands and technology.