Retail Agreements 101: The Basics

What is a Retail Agreement?

A retail agreement is a broad term that encompasses any type of agreement associated with the sale of consumable goods by a manufacturer to a retailer for resale in a retail environment. While this general definition encompasses a number of different types of agreements with various names and purposes, typically the most prevalent are the contracts and/or agreements associated with those vendors supplying products to large chain or mass retailers such as grocery, drug, and convenience chains, department stores, home centers, beauticians, hair dressers and similar businesses. Many consumer products manufacturers have these supply agreements with large chains or mass retailers for those chains to resell the manufacturer’s product in its retail facilities. While the practice has steadily grown in popularity for many years, today retailing is often the primary or sole method of distribution for many consumer products manufacturers.
Retail agreements can be employed in a number of ways with the most prevalent being either consignment, "sale or return," or simply as an agreement for outright sale to the retailer. Manufacturer consignment arrangements have often been performed on an informal basis. The retailer will take from the manufacturer a limited amount of product and return whatever product is unsold at the end of a set period. The risk is placed solely on the manufacturer. However, more recently manufacturers have begun requiring the retailer to pay for either the entire amount of the order, or even just for the cost of any product not sold, with an agreement to refund payment or issue a credit for product that is returned . A more formalized retail agreement is now often used in connection with sales involving chain or mass retailers of grocery, drug, convenience and/or department store products. These types of retail agreements are generally referred to as "sale or return" contracts. Under a typical retail agreement, the manufacturer has the option to classify its entire shipment to the retailer as freight-allowed. If shipped freight-allowed, the retailer pays no shipping, but must pay a stated amount per case as a contribution toward freight. If the manufacturer holds to a traditional practice, freight is not included. Instead the manufacturer should be able to show that it "freight allowed" policy is actually limited to non-consumer or industrial applications and designed to eliminate incoming freight charges with respect to government agencies or educational institutions or other similar entities that would require such a price benefit. If these terms are agreed to, then 30 days or more may be required for freight payments.
Combining the vendor and retailer fee is often used by some grocery suppliers. In this approach, each vendor being charged a fixed dollar amount, or a percentage of the invoice amount. While less common, this type of arrangement has been utilized in retail agreements as a sales incentive. In practice, in addition to being limited to certain industries providing products used or consumed (and not for resale) in companies serving general business markets, such fees are sometimes based on what is called "effective sales," a calculation made by adding anticipated tonnage to "freight accrued" and then deducting actual freight charges.

Essential elements of Retail Agreements

Common components of a retail agreement include:
Terms and Conditions. This defines the type of retailing within the scope of the Agreement i.e. door to door selling by sales representatives or mail order selling.
Payment Term. Description of the products in accordance with the means of payment in a detail sufficient to avoid any confusion. A description of the procedure upon acceptance of the Agency Agreement by the parties. Also include a clause that the manufacturer may immediately terminate the Agreement upon non-payment, insolvency proceedings against the Distributor, liquidation or bankruptcy proceeding of the Distributor.
Delivery of the goods. Stipulation of the period within which the goods must be delivered. A timeline for delivery is important as the Agreement may not be terminated without cause in most cases.
Return policy. The return policy is an important part of any retail agreement. A return policy is the policy a retailer follows when customers return items they have purchased. The policy entails how returns are processed and under what circumstances returns are accepted by retailers. The return policy should clearly state if and when returned items are exchanged for new items or refunded for original amounts.

Different Types Of Retail Agreements

The first type of retail agreement is the "exclusive" arrangement where an owner will grant to the retailer not only a license to sell the particular product, but also a contractual right to be the only retailer in a particular territory (i.e., the exclusive right to sell the product in a certain area). This arrangement will normally also grant the retailer exclusive right to purchase the product from the owner or manufacturer. This category is probably the most common for general retailers and, if the territory in question is large enough, is the most beneficial form of agreement (for reasons which are not clear in the economy at the moment).
A category of exclusive agreements is a "franchise". A franchise is a special kind of exclusive agreement in which the owner agrees to allow the retailer to sell a particular product in exchange for payment (usually a percentage of sales). The retail store will often carry a brand name, and the franchisor can exercise a fair amount of control over its operations. Examples of franchises include McDonald’s restaurants, Hertz Car Rental agencies, and any privately owned Radisson hotel.
The other category of agreement is an "exclusive distributorship", which is a type of exclusive agreement whereby the retailer is granted the exclusive right to sell the product of the owner, but the owner is still permitted to sell the same product (e.g., an exclusive distributor/distributorship agreement for Coca Cola would not give both parties to the agreement the right to sell Coke, but it would allow each of them the right to sell Pepsi, Coca Cola’s biggest American rival).
The third category of retail agreements is the "non-exclusive" agreement, where the owner simply allows the retailer to sell the product without any other rights or benefits. This is the least favorable arrangement for the retailer, but sometimes the retailer is prepared to make certain concessions in exchange for the right to sell the product in their stores. For example, a department store may pay a nominal fee for the right to sell books in their stores, even if that same right could be obtained for free at a local mall in exchange for other concessions (such as foot traffic and a captive audience).

Legal Aspects of Retail Agreements

The legal considerations when entering into a retail agreement depend not only on what type of supplier you are, but also whether the agreement is an exclusive supplier agreement, a co-branding agreement, a distribution or franchise agreement or another type of retail agreement. We discuss some of these considerations in turn.
Compliance with Consumer Protection Legislation
Parties should be familiar with the Competition Act, RSC 1985, c 19, as amended (the "Competition Act") and applicable provincial consumer protection legislation. Some of the more important aspects are reviewed below. The Competition Act prohibits false or misleading representations to the public, including advertising elements relating to product performance, efficacy or benefit. Generally speaking, if a representation is made and the matter is considered material, an adequate and reasonable basis for the claim must exist at the time the claim is made. The Act also prohibits the making of a representation to a consumer in respect of a product or misleading practice that addresses the availability of a particular product or supply, unless the person making the representation or engaging in the practice, as the case may be, has reasonable grounds for believing that the product is available for supply as represented or that the supply is being offered as represented.
Co-branding Agreements
If the retail agreement co-brands the brand of a supplier of products with the brand of the retailer, the supplier’s rights to its brand will be restricted. Grant of the right to use the supplier’s brand is not synonymous with the transfer of ownership to the brand nor is it tantamount to the grant of an exclusive license. Accordingly, both the supplier’s and retailer’s branding efforts should be considered.
Exclusive Supplier Agreements
Exclusive supplier agreements restrict the ability of the supplier to sell its products to other retailers. In this context, the parties should be aware of section 76 of the Competition Act which requires suppliers to provide any retailer in Canada fair and equitable access to supply so the retailer can offer a reasonable choice between the products of competing suppliers. Failure to satisfy this requirement may be considered a refusal to supply in violation of the Competition Act.
Conciliation / Arbitration Dispute Resolution Mechanisms
The agreement should provide a means for resolution of disputes, whether through conciliation or arbitration, before litigation becomes necessary. Where conciliation is unsuccessful and forced to go to arbitration, an experienced arbitrator with industry knowledge should be selected.

How to Write a Retail Agreement

Best practices for crafting a title insurance retail agreement include certain aspirational qualities that are less about the letter of the law than they are about satisfying the interests of both parties and fostering established relationships. Clarity, specificity and foreseeability fall within that category. The best retail agreements clearly explain each party’s rights and obligations as to the customers, the title insurance policy and each other, in detail. It is specific as to how each party can use the title insurance policy and any marks or other identifying features related thereto, where and how customers are to pay for the policy, if payments are required and, if so, for how long. It also is specific as to how the title insurance policy should be described to customers, how much the customer should be paid for the retail policy, where to send remittance as to such payment, and what should occur if the customer fails to pay and/or stops using the services of the retail agent and/or the title insurance company . In other words, in addition to being clear, the best retail agreements are specific enough to give guidance to each party as to their respective rights, as well as potential pitfalls to avoid.
The law firm or title insurance company that has drafted the best agreement also has been "foreseeable." Even the best agreements may not be modern and may violate the letter of the law, but may still provide protection for the parties. For example, if a title insurance retail agreement comprises an outdated format from another jurisdiction terminating at an arbitrary date, it may not protect a title insurance company from its former customers because the courts may enforce any loophole. If a title insurance retail agreement does not allow for a wind down of services that would be agreeable to the title insurance company as well as the retail agent, it can facilitate a nasty breakup.
A long-lasting relationship begins with a sampling of what is to come. By setting the right tone, emphasizing the importance of communication and establishing expectations, the parties are more likely to be invested in trying to work out the inevitable disagreements that will arise.

Issues Faced In Retail Agreements

While retail agreements may appear comprehensive and binding upon execution, they can lead to numerous problems down the line if not properly structured. Some of the common pitfalls for businesses include: Contract enforcement with respect to the terms set forth in the retail agreement. Oftentimes, a party may not be held to a contractual obligation if it is not properly defined in the agreement. A business may need to pursue litigation to enforce or defend a contract if the terms are not clear or are otherwise ambiguous. Dispute between the parties regarding the terms of the retail agreement. In any contract, a disagreement between the parties relating to the terms of the contract may arise in the future. Proper drafting and legal review may prevent expensive litigation or arbitration down the line. Unwillingness of the parties to renegotiate the terms of the existing retail agreement. Changes in circumstances may require revision of an existing retail agreement. This could include changes in the cost of goods or other applicable fees charged. The party out of line with market rates or the benchmark may be unwilling to renegotiate their pricing. While there may be little recourse in court, parties are encouraged to act reasonably and include mechanisms in the agreement to reduce conflict when possible.

Future Outlook on Retail Agreements

As technology rapidly advances, the way businesses operate with one another is evolving in tandem. The retail space has had to evolve rapidly in the past decade and this has affected not only the way businesses deal with each other but also how contracts themselves are structured. As technology has enabled businesses to become more flexible and agile, retailers have had to be less rigid and more open to new ways of doing business. This has been reflected in the contracts that are used and in particular the growth of on-line agreements, like alle-bulle.com.
New technologies are emerging all the time that are disrupting old ways of doing business. The recent explosion of AI has been a disruptive force in the labour market and it will continue to be a growing presence in the economy. While the long term impacts of AI are difficult to forecast , it is likely that some businesses will need to recalculate how they structure supply chains, customer relationships and partnerships.
The rise of big data presents both opportunities and challenges that will need to be carefully navigated. Data analytics offers retailers the opportunity to capture and use information about customers that were previously unavailable: this in turn raises concerns about privacy and data governance, especially given updating of European privacy laws. As consumers increasingly demand more transparency about how businesses handle their data, retailer agreements will need to be crafted to show compliance and guide data use within the business. Innovative agreements will likely become much more elaborate as technologies evolve to keep pace with new developments.