The style set might have spent the last week poring over the latest designs, but when New York Fashion Week brought the industry’s legal experts together, the talk turned to a different kind of trend.
Fashion week events at the Fordham Fashion Law Institute and law firm Foley & Lardner looked past the latest runway looks, plumbing the Barneys New York bankruptcy for legal lessons and examining who is responsible for making sure influencer-brand tie-ups are properly declared.
Here are two key themes from the latest legal get-togethers.
Many big brands got severely burned when Barneys filed for bankruptcy — from The Row, which is owed some $3.7 million, to Gucci, which is owed nearly $1.8 million — but the Chapter 11 filing also brought with it some lessons for vendors and traditional retailers.
Jeff Trexler, associate director of Fordham’s Fashion Law Institute, said vendors shipping to stores on consignment — retaining ownership of goods even after shipping to the retailer — should memorialize the arrangement with paperwork filed with the state, or risk losing those assets if the retailer goes bankrupt. If a transaction qualifies as a consignment under the uniform commercial code, the vendor should file so-called UCC paperwork with the state where the retailer is incorporated, and do so before shipping the products.
“The basis of consignment is that you retain ownership,” said Trexler. “But what happens when a [retail] bankruptcy happens is that all those goods are part of the bankruptcy estate, unless you’ve filed a UCC statement.”
“So the situation is, vendors are left unprotected, and the goods they’ve shipped can be sold to pay off [the retailer’s] creditors,” he said.
Barneys’ Chapter 11 proceedings have also prompted some to take a close look at the company’s recent strategies.
Gary Wassner, chief executive officer of factoring firm Hilldun Corp., said at the Fordham event that Barneys went astray when it added more physical stores — like an ill-conceived second location in Manhattan in 2016 — rather than diversifying its channels of distribution. Wassner has a role on the unsecured creditors’ committee in the Barneys bankruptcy, but he spoke as the ceo of Hilldun and not on behalf of the committee.
“They didn’t invest in digital as much as they should have, and invested more in brick and mortar,” said Wassner.
Wassner said the department store had also been too resistant to the concession, or shop-in-shop, model of leasing space in stores to brands, something that gives brands more creative control but also more of the expenses — from sales associates to signage to displays.
Influencer marketing is perceived as a bit of a regulatory wild west, but that doesn’t mean there isn’t oversight. Just last week, U.K.’s self-regulatory group the Advertising Standards Authority issued a report finding that consumers have trouble understanding when they’re being marketed to by influencers on social media. Brands in the U.K. are legally required to ensure that such posts are labeled clearly, under legislation there that governs advertising materials, namely the Consumer Protection From Unfair Trading Regulations.
In the U.S., the Federal Trade Commission has indicated in the last two years that it is paying attention to online posts meant to sell products. The agency sent dozens of notifications and warning letters to influencers in 2017 and undertook its first law enforcement action against influencers that year in a case involving the promotion of online gambling.
The agency also updated its endorsement guidelines at the time, saying that sponsored posts should be clearly labeled as such and that influencers should disclose their relationships with the brands they’re promoting. But there are some ongoing questions about whether the FTC has been vigilant enough about enforcing compliance.
In March, the nonprofit Truth in Advertising filed a complaint with the agency saying that celebrities including Sofia Vergara and Vanessa Hudgens had put up Instagram posts that appeared to promote products, but without labeling them as ads. The agency usually investigates such complaints and decides whether to take any steps to address it, including bringing a lawsuit or its own enforcement action.
“It will be interesting to see how the FTC does in controlling the influencer marketplace,” said Rob Weisbein, a partner at Foley & Lardner, at a fashion law panel the law firm hosted.
The FTC could push brands to take on more responsibility for ensuring clear disclosures on their influencers’ Instagram posts, said attorneys. That means brands not only need to insist on formal contracts with the influencers they are working with, but such contracts should also lay out clear explanations of the types of disclosure requirements under the law, and provide guidance to the influencers on what they should state in disclosures in sponsored posts, said Jessica Cardon, deputy general counsel at Quality King Distributors Inc., which distributes beauty products, cosmetics and pharmaceuticals.
“It’s a brand’s role to educate the influencer as to the content of the posts and the financial relationship between the parties,” said Cardon, who was previously also a general counsel at Camuto Group, which owned the Vince Camuto brand. “You have to have some amount of control over what you put out there.”