To Resell, or Not To Resell, That Is the Question – by Cliff Ennico

Cliff Ennico“I am a recent immigrant to the United States from [for purposes of this column, we will refer to the reader’s country of origin as “Whereverland”].

I am the owner of an online retail store targeting a niche market of Whereverland people living in North America. We sell our stuff exclusively online, in the Whereverland language, and I have a team of graphic designers that is making sure that all our designs are unique.

What I would also like to do is sell brand name apparel and accessories back in Whereverland as I know that there is a huge demand for designer names. My question is; do I have the legal right to resell branded items if I purchase them from a liquidator or a major department store, all of whom are licensed to sell and/or distribute these branded products?”

The short answer is “it depends, but in most cases you won’t be able to do this without the manufacturer’s permission.”

What you are seeking to do in Whereverland is an example of what is increasingly known as “retail arbitrage” – buying merchandise at retail from a brick-and-mortar outlet and then reselling it online at an even higher price to people (such as the citizens of Whereverland) who cannot find that merchandise locally and who will pay a significant premium over retail for it.

“Retail arbitrage” is generally legal, but I think you will encounter some difficulties if you follow this plan.

Manufacturers – especially those dealing in “luxury goods” such as designer-label apparel – are notoriously concerned with controlling their channels of distribution.  They see themselves as having an “image” to protect, and will want to be sure your website measures up to that “image”.  If you fail to meet their uncompromisingly high standards, you may find yourself facing a lawsuit from the manufacturer for “trademark infringement” (using their intellectual property without permission) or “misuse of trade dress” (selling their merchandise in such a way as to “cheapen” their image in the marketplace).  Since I’m assuming you do not have the financial resources to withstand such a lawsuit, you probably will have to fold your business as part of any settlement with the manufacturer.

Why would a manufacturer do this when all you are doing is creating a new market for their merchandise they should be happy to have?  Because many manufacturers – particularly in the apparel industry – offer exclusive rights when they sign distribution agreements with department stores and other retailers.  These resellers are expressly prohibited from selling at wholesale (or for resale), and your activities may inadvertently put them in breach of their contracts with the manufacturers.

There may be other reasons as well – for example, an exclusive agreement with a regional distributor who has the exclusive right to sell in Whereverland but hasn’t yet exercised that right.  Such a distributor will not look kindly upon your “invading his turf” and will complain to the manufacturer, triggering a lawsuit.

If you suspect these manufacturers do not have distribution outlets anywhere in Whereverland, your best course of action is to contact the manufacturers directly, explain what you are trying to do, and offer them for a one-year “trial license” to sell their merchandise on your website to Whereverland citizens and expatriates living in the United States.  The license should be exclusive for the one-year period, with the understanding that either party may terminate the relationship after the first year on reasonable notice (I would suggest at least six months) to the other party.

By offering this arrangement, you ensure that you have the legal right to sell brand-name merchandise to the Whereverland community.  You will also increase the odds of your becoming the leading online destination for Whereverland shoppers, as luxury-goods manufacturers tend to “cluster” on websites that also distribute other lines of luxury merchandise.  If this happens, you will have considerable bargaining leverage to “lock in” your suppliers for longer periods at more favorable terms.

The manufacturer, for their part, gets the opportunity to develop a new market for their merchandise quickly and with limited risk (if things don’t work out they can always terminate after one year), and without compromising any of their existing agreements with U.S.-based online retailers.

To land your first license, I would recommend preparing a PowerPoint® presentation detailing the size and quality of the Whereverland market, the desirability of reaching that market, and your expertise and position as a leading marketer to Whereverlanders.  You should be prepared to provide Web traffic statistics on your existing Whereverland customer base, along with comparable data for other websites targeting this market.

Failing that, you should consider offering your services as a consultant to the manufacturers on all things Whereverland, helping them market directly to that community.  By demonstrating your knowledge of the market and your expertise in reaching them, you will establish credibility with these companies and make yourself a more attractive candidate for a distribution deal in the future, if not today.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.




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