As spring comes into bloom, brands should begin planning and preparing for the not-so-far-off holiday season. Right now, a brand has approximately six months to strengthen its presence in ecommerce marketplaces until the holiday shopping season begins. In addition to monitoring listings and sending cease-and-desist letters, a brand can take proactive measures to limit the likelihood that products are resold in ecommerce channels. One such way to do so is by implementing different terms of sale for sales to end-consumers, distributors or business partners.
Developing Efficient and Effecting Solutions
To be proactive, first you must recognize the issue and develop an efficient and effective solution. But your products may still end up in ecommerce channels without your authorization through a variety of ways. For example, a distributor may decide to liquidate its inventory of your products to other businesses as part of a restructuring, as a pivot in business plan or to simply clear space for newer inventory. Or, unscrupulous businesses may acquire used or returned inventory at a discounted rate but resell the products as new. In both instances, the products end up on ecommerce marketplaces such as Amazon or Walmart, and importantly, these unauthorized sales reduce profits, damage your brand and reputation and ultimately harm your customers.
To prevent this on the front end, brands should conduct thorough due diligence into their distributors and bulk purchasers. Beyond simple background checks and business reports, you should inquire as to the purchaser’s reputation in the industry as well as its financial wherewithal.
Brands Should Utilize Contracts With Distributors
Additionally, brands should enter into contracts with all of their distributors that are aimed at stopping unauthorized product diversion to ecommerce marketplaces and allow the brand to go on the offensive, if needed. These contracts should include certain provisions that not only prohibit sales to parties that may sell the products in ecommerce channels but also provisions that account for damages related to the unauthorized resale. This provision should be able to account for any discounts given to the buyer in relation to the retail price, any additional advertising that could be necessary if the products make their way into ecommerce without authorization and your brand’s necessary enforcement efforts, such as attorneys’ fees.
Brands should also consider including provisions that provide for a first right of buy-back, limit the authority to sell the products in bulk during financial distress or create obligations for any successor entity. These concerns can also be addressed through various representations, warranties and covenants in the sales and distribution contracts.
To discuss what you can do for your brand to prepare it to have a profitable holiday season, or if you are facing issues related to unauthorized resellers, contact Kyle Stroup (KDS@kjk.com; 216. 736.7231) or another member of KJK’s Ecommerce Practice Group.