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Comment: The most wonderful time of the year

It’s the most wonderful time of the year. Or at least it is if you are a shopper, with an ever-lengthening Christmas shopping season spanning from November through to the nirvana of the January sales. The start of this year’s winter shopping season was no different, with Moz the Monster (John Lewis), Paddington Bear (Marks & Spencer) and other similar friends released in early November, ready to entice shoppers into a November bargain, both in store and online. It is this omnichannel requirement that embodies the challenge for retailers at this time of year – do shoppers want the opportunity to visit Santa in his grotto, see some fake snow and listen to Christmas music, or would they be just as content with a price discount for purchasing their Christmas presents before 1 December? Or is the solution a combination of the two? 

Early press reports from the 2017 Black Friday weekend suggest the answer might be a bit clearer than you may think, with retailers reporting a rise in Black Friday sales despite a reduction in high street footfall, whilst online retailer Amazon’s Christmas advert is reportedly the campaign most likely to persuade British people to part with their money. The mouse click is, for many, the most convenient means of shopping, and given the volumes involved, it is not surprising that seasonal demand spikes can see retailers struggling to keep their online customers in the manner to which they may have become accustomed (readers may, for example, recall recent high-profile issues faced by both Argos and Marks & Spencer). The associated damage suffered by the retailer can be very real – reputational damage and product liability claims (to name but a few) loom for the unwary.

In many cases this places an increased focus on supply chain control and the attendant possibility in an outsourcing scenario that this control might be lost. This is not simply a theoretical risk either, as at least one media source last year pointed out – its short list of online stores considered least likely to crash during the Black Friday period highlighting a general lack of confidence that retailers will perform well during seasonal pinch points. Which is perhaps a little unfair when one considers that in many cases retailers are under pressure to make the most of seasonal trading patterns in order to hit their annual targets, often requiring the use of outsourced third-party expertise to make this happen.

The benefits of outsourcing a business-critical function can certainly be numerous and hard to ignore; however, problems can arise if appropriate care is not taken, and this is often most evident in specialised areas that may be outside of the ordinary scope of the retailer’s expertise, such as web design and hosting or logistics and warehousing. The latter are good illustrations of where issues can arise on a number of fronts without sufficient oversight, including late or missing delivery to consumers and counterfeit issues through unchecked co-mingling of stock (for example, you may have seen internet chatter on the relative demerits of co-mingling in programs like Fulfilment by Amazon). It is all the more surprising, therefore, to find that this is an area that is inherently without regulation, beyond what can be agreed within the parties’ contractual documents.

These risks may not be apparent until the outsourced model is put under stress, and the unwary may find themselves without an appropriate remedy in a disaster situation. To mitigate against this, retailers may wish to consider in advance how they will deal contractually with any problems they may face. Website uptime (in a hosting contract), for example, ought ideally to become the subject of a service level (with associated credit if missed). Repeated breaches could lead to a remedial plan, a payment holiday or termination. Co-mingling of stock could be expressly forbidden. Audit rights could be granted. Loss suffered could be the subject of an indemnity. The list continues and depends on the type of service and the role the retailer wants to take in the relationship.

Either way, a key takeaway for retailers is to consider a dual prevent and redress strategy – ‘prevent’ in terms of effective operational oversight to help avoid disaster in the first place and ‘redress’ in terms of clear contractual remedies to help mitigate and recover losses suffered. 

Charles Maurice is a senior associate at Stevens & Bolton LLP