Retail Brands – Getting maximum benefit from monetising the brand whilst managing the risks

Written on 11 Jul 2016

In the world of retail the Brand is absolutely crucial. It is the greatest intangible asset of the retailer. The Brand is much more than a registered trademark: it encapsulates all the values and messages about the business for customers. It is essential for any retailer to understand the genuine value proposition encapsulated by the Brand, and to keep that up to date. Brands need to be refreshed whilst remaining true to their core principles. The brand message must be integrated through every aspect of the organisation, from top to bottom, including:

  • overall business objectives;
  • store locations;
  • store layout and lighting;
  • catering (even the style of food offered);
  • what stock is chosen to be made available;
  • new products and services development; 
  • the digital ambitions and activities of the business; 
  • communications with customers;
  • how staff are treated; 
  • how suppliers and business partners are treated. 

Get any of the above significantly wrong and the Brand can be damaged, possibly irreversibly.

In this article we explore the benefits of licensing or franchising your Brand, the need to monitor your Brand in either situation, how to manage your Brand online both where you have control and where you do not, and some recent legal cases dealing with novel online brand issues for retailers. We start off by taking a look at some recent developments in retail Brands that have been hitting the headlines.

Recent developments

The big news in the last couple of weeks has been the collapse of some well-known high street retail brands, notably BHS. In our view, a large explanation for that was a failure rigorously to understand and follow through on the above. The brand failed to remain relevant and failed to adapt to the changing habits and demands of today’s consumers. For example, in many BHS stores there was a café, but it often served unhealthy fried food and sometimes the smell from the kitchen permeated the store. This was an unpleasant customer experience and did not match with the aspirational messages essential in a shop largely selling clothes. The business failed to innovate. By contrast, in Christmas 2015 John Lewis offered a facility for customers to order John Lewis goods online, but collect at their local Waitrose. To the customer a simple convenience. The fact that enormous back-end logistical arrangements were needed to be put in place to be able to deliver this simple convenience to customers was worth it: it gave a competitive edge. This was also, incidentally, a clever example of getting two Brands within the same group working together and supporting each other.

BHS failed to stay relevant to younger customers. It failed to understand what its brand value proposition was in today’s market place and did not react quickly enough to warning signs that things were going wrong. The brand therefore became irrelevant to modern consumers. At the time of writing, the brand might be retrievable, but a lot of work will need to be done very quickly.

The plain fact is that competition in the retail sector is getting fiercer and fiercer. It goes without saying that this is not just from bricks and mortar competitors, but also online rivals. In Christmas 2015 Fortnum & Mason’s online sales were up 38% year-on-year, after the firm redesigned its website. A full 40% of John Lewis’ sales were online during the period.

But we would be wrong to think that physical stores are on the way out. The emphasis these days is much more on the overall customer “experience”. We have seen bookstores such as Waterstones react to the Amazon challenge by making their bookstores much more user friendly “destinations”, with coffee shops and comfortable chairs where potential purchasers may sit and browse undisturbed. It is telling that matters have now gone full circle: Amazon itself is now beginning to open bricks and mortar stores.

Licensing and franchising your Brand

Given the essential importance of Brand, why would a business place it in the hands of a third party, whether through licensing or franchising? Below we look at the benefits of each of these in turn.

Why license your Brand?

There are a number of reasons to license your Brand:

  • Growth: for example where it is hard to do this under your own steam. For example, luxury brands need to avoid over-exposure in their home markets or else their message of exclusivity may become diluted. Therefore overseas expansion may be a good option. 
  • Speed to market: you can harness the know-how and local market knowledge of others without having to “reinvent the wheel”. There are many examples where simply taking a model which works in one market and imposing it in a different market, has resulted in failure. Take Tesco’s Fresh’n’Easy in the USA: Tesco did not study sufficiently the differences in local customer buying habits. Prominently displaying “Best Before” dates on the packaging sent a message not of freshness, but the opposite to US consumers: they took this to mean the product was close to its expiration date and therefore likely to be stale. Another example is B&Q in China. Despite vast investment, B&Q did not grasp sufficiently that the concept of “DIY” does not really translate to Chinese home owners. If they want work done in their house or apartment they tend to hire migrant workers who will do the job at very low cost and who will source the relevant materials cheaply from a local wholesaler.
  • Alternative business opportunities: licensing is also an attractive option if an opportunity does not fit your business model or priorities. You can create multiple revenue streams from products or services which are not close to your key competence. Cadbury’s Chocolate many years ago exited the beverages market. Cadbury’s Drinking Chocolate is therefore now not made by Cadbury’s but by Premier Foods under licence. 

It is crucial to provide practical and effective mechanisms for termination of a Brand licence, maybe because the licensee is not performing; or because the strategic priorities of the licensor have changed (e.g. they wish to do themselves what the licensee has been doing to date); or if the licensee has become insolvent.
It is also essential to retain ownership control of the brand, goodwill and ancillary intellectual property post-termination. There was a notorious case demonstrating this in 2001 involving the business Scandecor. It had appointed an exclusive licensee in the UK to carry on its business under the name SCANDECOR. Upon the insolvency of the main Swedish company which owned the trade marks, the licence to use the trade marks terminated. However the former exclusive licensee in the UK continued to trade under the name SCANDECOR for some time. The trade mark owner should have stepped in and stopped this immediately. By the time it did get around to trying to do so, the UK business that was continuing to use the name SCANDECOR objected, and was able to persuade the court that either the goodwill in the brand was shared (and therefore a claim in “passing off” could not be successfully mounted), or the Swedish company’s registered trade mark was no longer a distinctive indicator of the fact that the goods originated from a single business, and therefore it could be revoked as it was not performing the essential function of a trade mark.

In a more recent case, NGRS v. Milner (2014) a trader who had a right to use a logo of the licensor (the National Goods and Removal Service (NGRS)) had fallen out with the licensor. He no longer wished to feature the NGRS trade mark or logo and instructed Thomson Directories and BT to remove the logo from his classified advertisements with those publications, both on- and off-line. Neither of them did so. On an action by NGRS for trade mark infringement the trader was able to show that he had done everything he could to remove the use of the logo. Perhaps the owner of the trade mark should have contacted the directories directly to instruct them to remove the logo. The action for trade mark infringement against Milner failed.

Why franchise your Brand? 

The great advantage of a franchise is that the owner of a brand with established market acceptance and customer loyalty, may enable a third party to own and operate a business under the brand name, thus harnessing the energy, investment and local knowledge of the franchisee to grow revenue. It is a successful and widespread model. Franchising accounts for one third of global retail sales.

It is important to appreciate that a franchise is essentially an intellectual property transaction. It is a licence to use the Brand, but also a knowledge transfer: an agreement to share with the franchisee and impart to him a proven “system”. This system may have individual further intellectual property itself, such as proprietary software and operating manuals protected by copyright, and trade secrets etc. As with any retail Brand licence, tight quality control and close monitoring is essential. The franchisee’s marketing should be aligned with the overall marketing messages and campaigns of the Brand owner. For this reason franchisees are usually required to contribute to central marketing budgets. A franchisor should seek feedback on, and listen to, what works/does not work from its franchisees and stay in regular contact with them.

Monitoring your licensed or franchised Brand

In the case of both franchising and licensing a critical question is: who will monitor for, and take action against, infringements? Typically a licence or franchise agreement will provide that the Brand owner will take responsibility for this. However in a globally licensed or franchised Brand this may be impractical. Certainly many exclusive master licensees or franchisees will wish to ensure that the valuable Brand which they are operating is properly protected and defended in their local markets.

The best solution to ensure appropriate monitoring of the Brand is for the parties to work in partnership: the franchisee or licensee should be required to report infringements and counterfeits, but the franchisor itself should make efforts to visit the territories regularly and have its own monitoring or watching system. It may be that the costs and any damages arising from taking action should be shared. Certainly it is unwise, when counterfeits are known, to take no action.

The Brand owner should ensure that it has strong trade mark protection in all markets where it is operating, including local script versions of its name and even transliterations of its name and logo. If local consumers ‘read’ your brand in local script and with local pronunciation, it is no good only having the ‘Western’ version in your armoury to chase after local infringers.

Managing Your Brand online: situations where you have control

Licensing and franchising are “traditional” ways of extending the reach of your retail Brand. Of course in the last 20 years, and to an accelerating degree, we have seen channels opening up for communicating the Brand in multiple ways online. It is essential that any retailer which understands properly how to manage its Brand, has a digital strategy which is completely integrated with, and supports its bricks and mortar strategy.

Understand the Brand’s digital footprint: this is anything which involves the Brand, online, and goes well beyond traditional trade mark registrations. It can include: geographical domain names, generic top level domain names (e.g. ‘.coffee’, ‘.store’, ‘.grocery’), email addresses, Facebook pages, twitter handles, Instagram pages, Branded Apps on mobile phones.

Take strategic decisions about how to manage and market your Brand online: the proliferation of “inbound” channels offers more opportunities than ever before for reaching your customers and building your Brand. However strategic choices are needed about how most effectively to invest money. It is essential to make consistent use of available opportunities. For example, a mass TV campaign should be followed up in social media. But retailers should beware of “digital overload” – traditional media can still be effective. It is essential also to ensure there is cross-platform consistency. You do not want your official Facebook site to be sending different messages to your company website. Links to e-commerce opportunities need to be links which work. The Brand messaging must be coherent and consistent across all online platforms.

Use social media to showcase products: for example spread awareness by uploading pictures and videos. If a “viral video” can be developed this can be an extremely effective way of getting your customers to communicate your Brand for you. Of course this has dangers as you are losing control (see discussion below).

Consider celebrity endorsement: using celebrities to endorse products or launch ranges can be effective and well suited to social media given the number of ‘followers’ celebrities will have. H&M has been doing this successfully for some years. However it is very important to make sure that you do actually have their consent or endorsement.

There was a recent UK case involving Rihanna (Fenti v. Arcadia) where although the pop star had previously endorsed merchandise sold by Topshop, a T-shirt bearing an image from a current album was launched by Topshop without her consent. Topshop had obtained a proper licence from the owner of copyright in the actual photograph, however. The case confirmed that there is in fact no such thing as “personality rights” under English law. The celebrity needs to take action under one of the pre-existing legal avenues: trade mark infringement, copyright infringement, passing off, breach of confidence, breach of contract etc. In this instance Rihanna sued for “passing off” on the claim that Topshop were misrepresenting to their customers that Rihanna had endorsed this particular product when she had not, and thereby taking advantage of her goodwill.

The case is close to the border line as other cases in the past have said that mere “fan” T-shirts which featured a celebrity which do not pretend or hold themselves out as being endorsed by that celebrity, do not amount to passing off or trade mark infringement. But in this instance because Rihanna had had a prior trading relationship with Topshop, the court believed it was reasonable inference on the part of the customer to think that she had endorsed this particular product, when she had not.

Managing Your Brand online: situations where you do not have control

Deal with negative online comment about your Brand: bloggers and vloggers (video bloggers) and indeed celebrities can all say nice things about your Brand. Equally they can say nasty things. What should a company do in this situation? In terms of Brand ambassadors or celebrities, if there is a contractual relationship, especially where the celebrity is being paid, then it is reasonable to impose some restrictions on what they can (and in particular, cannot) say. In May 2016, Ben Fogle, who a couple of years previously had been appointed by Lego as their first Brand ambassador, made a speech in Manchester in which he said that Lego boxes which show how to build structures or machines on a step by step basis, completely contradicted the spirit of Lego and can “ruin a child’s imagination”. This was extremely negative for Lego and astonishing for someone who was a Brand ambassador. We do not have information yet about what steps Lego will be taking …

Take control by communicating a consistent and authentic Brand message online: an over-aggressive and over-prescriptive approach by Brand owners can be equally damaging. The key thing is to speak with a unified voice through social media and make sure that you send consistent and authentic messages to customers. If you sound insincere or appear to be failing to listen to the feedback about your Brand, this can be very damaging to your Brand reputation. It is good to maintain a dialogue when problems arise and be upfront and possibly humorous about problems. There are examples of where complainants about a Brand have been turned around and become loyal supporters. Recently a customer tweeted during a meal in a US restaurant complaining that it had ran out of tacos. Someone back at corporate HQ was monitoring any tweets with the Brand in it and immediately contacted the manager of the restaurant who was able to bring some fresh tacos to the customer, while still at his table. The customer’s delight was of course tweeted to everyone and ended up showing the Brand in a very positive light.

Deal with unauthorised Brand statements: Brand owners should be on the look-out for apps, websites or social media pages which feature their Brands but which are not in any way officially authorised. Certainly in the case of apps which generate commercial activity, these should if possible be “brought within the fold” and authorised under a licence (thus giving a contractual ability to restrict what is done). Otherwise action for trade mark infringement is a possibility. As regards ‘fan sites’, the Brand owners should be wary of being over-aggressive, for the reasons stated above.

Some recent legal cases dealing with novel online brand issues for retailers

There have been a number of recent legal cases which have explored some of the new issues thrown up by the use of technologies involving Brands. In Interflora v. Marks & Spencer (2013), the flower delivery network which owned the trademark “Interflora” took action against Marks & Spencer when the retailer paid Google a handsome sum for the use of the word “Interflora” as a keyword for internet searches. This meant that an ad for M&S’s own flower delivery service appeared on the search engine results page when a customer, searching the net for Interflora services, deployed the word “Interflora” as a search term. Interflora sued for infringement of its trade mark. The court held that the essential function of a trade mark is to indicate origin and the use by M&S of “Interflora” in this way could potentially infringe if it lead customers to believe, incorrectly, that M&S’s flower delivery service could be connected to the Interflora network. The case settled before a final decision but there is no doubt that the use of a third party trade mark as a Google keyword can infringe unless it is made very clear that the resultant ad is that of a competitor.

What if ads of online retailers or platforms are triggered if an internet user types in your Brand? Is that trade mark infringement when those retailers do not sell your products? This was the issue considered in the Lush case (Cosmetic Warriors v. Amazon.co.uk (2014)). There, the court had to decide whether it was trade mark infringement in a number of situations. It held that it was an infringement of the LUSH trade mark where the advertisements for Amazon platform displayed on Google featured the word “Lush” in circumstances where those products were not available on Amazon. However, if typing in the word “Lush” resulted in ads that did not feature the word Lush then these were found to not constitute infringement. For example: if the ad displayed was:

“Bomb Bath at Amazon.co.uk
www.amazon.co.uk/bomb+bath
amazon.co.uk is rated *****
Low prices on Bomb Bath
Free UK Delivery on Amazon Orders.”

It was considered reasonable that the customer seeking that type of ad would simply see it as offering competitive products and not those of Lush.

A somewhat different case was brought by Richemont, the owner of the luxury brands, Cartier and Mont Blanc to deal with websites which were selling counterfeit versions of their products. Richemont wanted to take action against the internet service providers (ISPs) to require them to block access to these sites. The law was clear that if this were a matter of copyright infringements then an entity like Richemont could seek an injunction, but it was not 100% clear if this extended to trade mark infringement situations. Richemont was successful: the court felt that under general legal enforcement principles it should be able to seek, and on these facts obtain, such an injunction.