The holiday shopping rush is here – Eight things retailers need to know this season

Hogan Lovells

As the saying goes, it's the most wonderful time of the year – but it is also the busiest time for retailers. As merchants seek to cash in on the holiday shopping rush, we are noticing trends that have potentially significant impacts on the retail market and raise interesting legal questions.

Holiday promotions are starting earlier and lasting longer throughout the holiday season, which potentially strains supply chains. Retailers are counting on technology to more effectively target their promotional efforts, attract and retain consumers, and implement efficient pricing strategies. But these new approaches can create legal risks as regulators firm up advertising and privacy regulations. And as jurisdictions impose new tariffs, some of which could go into effect during the holiday season, companies should closely look at their imports to determine if they are, or will be, subject to additional import duties.

With the holiday season now in full swing, here are eight things your business needs to consider.

Personalization raises compliance concerns

The holiday shopping season means that businesses are even more focused on data-driven marketing strategies such as targeted promotional emails, on-screen offers, programmatic/behavioral advertising and effective personalization of website or app content. All of these activities are aimed at increasing meaningful and relevant consumer engagement and can offer real benefits to customers, but still must comply with direct marketing requirements and any rules affecting profiling activities under the GDPR.

When personalization activities utilize cookies or other tracking technologies, businesses also must ensure compliance with the notice and consent requirements as interpreted by regulators and courts, which in practice is likely to amount to displaying opt-in consent mechanisms. Precisely because of the increasing reliance by consumer-facing businesses on personalization and tracking technologies, regulators are paying greater attention than ever before to compliance in this space.

Katie McMullan, Senior Associate, London

Smart products getting even smarter

Smart home products are nearly ubiquitous, with approximately one-third of U.S. households owning a smart speaker such as an Amazon Echo, Google Home, or Apple Pod. Indeed, the concept of a connected home has been largely embraced in the U.S. as voice-powered devices become more and more useful to customers. Smart clothes are now providing retailers with growth opportunities similar to those that smart home products offered to technology giants. Clothing items are now available with embedded technology to track how often the garment is worn and where. Smart glasses screen videos and photos and can record what the wearer sees. Yoga pants can now analyze the wearer's posture and identify areas of improvements to optimize each pose. And high-tech clothing and tech-enabled fabrics offer better sleep, improved running performance, and muscle recovery for athletes.

The ever-connected nature of today's consumer suggests that these products, which pair with a user's smartphone or other connected device, are likely to continue to rise in popularity. The convergence of IoT, 3D printing, and other new technologies is creating tremendous opportunity for the fashion industry to expand its product offerings through innovation. Smart products offer identifiable benefits to the customer and supply retailers with new data sets. Those data sets represent both potential value and risk. Retailers are well-advised to consider whether the data is appropriately protected during collection and transmission. And before leveraging data for innovative uses, retailers should consider whether those uses align their public statements and applicable laws. Smart products can raise issues involving biometrics, electronic marketing, consumer profiling, and the use of precise location and other sensitive data, which are subject to increased scrutiny from regulators, policymakers, and plaintiffs' attorneys.

Meryl Bernstein, Partner, Washington, D.C. and New York

James Denvil, Senior Associate, Washington, D.C.

Pricing algorithms and competition issues persist

As we approach the festive season, retailers and manufacturers should be aware of the potential antitrust implications of using algorithms and AI when pricing their products.

The digital revolution has led to a significant growth in companies' ability to capture, store, and analyze data about their customers, competitors, and the wider world. Increasingly, companies are using this information to develop algorithms that set prices for them.

Whilst the use of algorithms can indeed be pro-competitive and efficient, there is also a risk that price-setting algorithms using artificial intelligence could collude among themselves, to the detriment of consumers. Competition authorities around the world are increasingly focusing on these practices and addressing any potential competitive risks associated with the use of algorithms. Companies should therefore be careful to design their pricing algorithms in a way that allows for outcomes that benefit consumers through faster adjustments to prevailing market conditions.

Salomé Cisnal De Ugarte, Office Managing Partner, Brussels

Power of the influencer expected to rise

Influencer marketing continued to be one of the legal hot topics in 2019 and it can be expected that this topic will continue to be much debated in 2020 as well. The focus of such debate will certainly remain on the question of how to label influencer posts on social media. New questions could include how to effectively disclose purchased followers – a problem which has already been reported.

Developments in 2020 could also include influencer collaborations, such as long-term partnerships in which the influencer assumes a creative function and possibly develops its own brand and collection together with a company. Relationships such as these can be challenging to communicate to a user within the space constraints of social media platforms.

To ensure a happy holiday season, we recommend taking a look at Influencer Snapshot, a new interactive tool from Hogan Lovells that offers best practices for businesses partnering with social media influencers to promote products and services online.

Yvonne Draheim, Partner, Hamburg

Sabrina Mittelstädt, Associate, Hamburg

Beware of new tariffs

Retailers of consumer goods have recently been hit by numerous new import tariffs (Customs duties) on imports from China and Europe, which increase the costs of their imported goods. Companies should closely look at their imports, ascertain their correct tariff classification and country of origin to determine if they are currently, or will be shortly, subject to potentially significant additional import duties.

Consumer goods, electronics, apparel, and other goods from China were subjected to new Section 301 import tariffs in several different actions over the past two years. Some products only recently came under new tariffs in October, and yet another group of products will become subject to the tariffs on December 15 when imported from China. Further, certain products imported from Europe, such as food products, handbags, and cookware are or will be subject to import duties when imported into the U.S. from certain European countries.

In order to avoid increased landed costs, retailers can review and potentially legally re-engineer tariff classifications and country of origin of their products to reduce or avoid the increased duties.

Chandri Navarro, Partner, Washington, D.C.

The gift dilemma: artworks or consumer goods?

Every holiday season poses the same dilemma: what shall I buy for a gift? The fashion and art worlds usually offer good ideas. Luckily, this season there are more popular goods that are both fashionable and artistic. Or, at least, they pretend to be so.

The new trend is creating garments reproducing trademarks, designs, and patterns of a famous fashion brand reinterpreted with a touch of irony, usually in combination with "fake" works of art or applied to unique pieces of design. These brands play with the concept of "fake or real" and seem to have found a safe harbor in the freedom of expression principle. They praise their products to be a piece of art rather than a consumer good. But is this true?

Using third-party IP rights on a competing product that is offered on the market could end up being an infringement of such right. As a matter of fact, courts are not very generous when they decide whether the freedom of expression exception is applicable.

So be careful when choosing your gifts: not all unique garments reinterpreted by art-lover-designers are actually artworks under IP law.

Luigi Mansani, Partner, Milan

Maria Luigia Franceschelli, Senior Associate, Milan

Where does green marketing end and green washing begin?

When looking for the right gift for loved ones, many consumers wish to do good – not only for their loved ones but beyond. Retailers are well advised to carefully consider so-called green marketing claims like "green," "sustainable," 'earth-friendly," "carbon neutral," "ozone friendly," "renewable," "recyclable," "ecological," "organic," "clean," and "locally sourced."

Regulators around the world have recognized the need to address misleading claims. In view of the immense effect of green marketing, stringent requirements apply in a number of countries – aiming to restrict green washing, i.e. unsubstantiated or misleading corporate environmental claims.

Where there is not always and not even regularly a statutory framework for green marketing, internationally recognized standards – such as ISO 14064, the Greenhouse Gas Protocol or the British Standards Institution's Publicly Available Specification (PAS) 2050 for the assessment of the life cycle greenhouse gas emissions – can give guidance. When referring to such internationally recognized standards their proper and coherent application should be ensured.

Christiane Alpers, Senior Associate, Hamburg

Crunch time in the retail industry

The relationship between retailers and suppliers in the busiest time of the year can be tricky. On the one hand, both parties want to cooperate smoothly to make the year a great success. On the other hand, there are intense negotiations over the contract and commercial conditions for the next fiscal year. Clashes of interest are inevitable. In addition to careful economic considerations, it is crucial to know the legal issues around supply relationships in the retail industry. What are the rights and remedies in the case of supply shortages? Where are the boundaries between hard bargaining and unfair trade practices? When are de-listings and delivery boycotts permissible?

Experience shows that it is always better to clearly define the positions in the contracts for the next year. And watch out for the national implementations of the Directive (EU) 2019/633, which prohibits certain unfair trading practices in the agricultural and food supply chain, such as the cancellation of orders for perishable food products at short notice by retailers.

Florian Unseld, Partner, Dusseldorf and Munich

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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