Retail reduced February 2023

In this month's Retail Reduced our experts examine and review emerging trends in the retail industry including beauty brands, the UK Government's consultation on 'buy now, pay later' schemes, IP disputes and cybercrime in retail.

During her long-anticipated Super Bowl LVII performance on 12 February, Rihanna did not miss the opportunity to elevate Fenty Beauty. The moment in which she paused to blot her face with Fenty Beauty Invisimatte Blotting Powder has since gone viral.

Rihanna has shown why it pays to perform for free at the Super Bowl: her whole line of Fenty Beauty Super Bowl-themed products has since sold out on the website, and performance company Launchmetrics estimated the moment generated a total of $5.6 million in media impact value in the first 12 hours following the show – the brand became the 4th most Google-searched topic on the night. This has signalled a sea change to beauty brands looking for new collaborative outlets, beyond sponsoring fashion shows or the occasional music video product placement. Entertainment events are evidently a sweet spot for beauty marketing opportunities, with a huge payoff – as Rihanna has demonstrated to us.

After a long 2-year period, the UK government set out draft legislation for consultation this month looking to crack down on the potential harm caused to consumers by ‘buy now, pay later’ (BNPL) schemes.

The plans have been published by the Treasury with an 11 April deadline for submissions. The proposals are expected to become law before the end of 2023. Although the companies that offer the service, such as Klarna and Clearpay are profiting (the sector nearly quadrupled in 2020 to £2.7 billion), the cost-of-living crisis is leaving customers vulnerable.

Many consumers do not realise that they are taking on real debt when it is placed in the context of a convenient and quick way to buy a product. On average, it takes just a few clicks and limited affordability checks to sign up at an online check-out.

A recent survey by Citizens Advice heard from 2,288 people who had used BNPL during the previous 12 months. Of people who had used BNPL in the previous year, 39% had used it without realising and 42% didn’t fully understand what they were signing up for. 1 in 10 of those who’ve used BNPL ended up chased by debt collectors. It found that 52% made repayments from their current account, but 23% used a credit card, 9% used a bank overdraft and 7% borrowed from friends and family.

Under the draft legislation, lenders offering BNPL products would need to be authorised by the FCA and would need to comply with various regulatory requirements. One of these regimes that the FCA may be able to enforce are the Conduct of Business obligations (COBS). Offering credit to consumers will likely qualify as a ‘controlled activity’ under the Rules. COBS 4.2 makes clear that a firm must ensure that a financial promotion is fair, clear and not misleading and clarify that a client’s capital is at risk. With the market still expanding at a fast rate, it will be interesting to see the results of the consultation and role of the FCA once the laws come into force.

At the end of January, JD Sports was the latest retailer to be hit by a cyberattack which ended up leaking around 10 million of their customers’ data with consumer trust in the retail sector taking yet another hit.

Cybercrime is by no means a new phenomenon, but it is no doubt becoming more and more sophisticated and therefore an increasing threat to virtually any industry, not just the retail sector. It has been reported that ransomware attacks increased by 105% last year. Businesses need to be ahead of the game when it comes to cybercrime prevention solutions and strategies, given the speed at which hackers seem to be moving. That said, some cybersecurity experts ask whether this is even possible. Despite considerable investment going into tech, cybercriminals still seem to find a way through.

Taking the JD Sports incident as an example, it is clear that the outcome of such attacks tends to be less than favourable. A drop in share price and the risk of fines over £17 million (or 4% of annual worldwide turnover, whichever is higher) appear to come in the immediate aftermath of the breaches, clearly putting a dent in a business’s balance sheet. However, perhaps more importantly is the impact on customer confidence in the compromised company – or indeed the wider industry – following data leaks such as the one in this case. One thing is clear – people do not like their details leaked, no matter how seemingly insignificant they appear., which labels itself as “the leading innovator in commerce search and discovery,” has set up a Retail Trust Index (“RTI”) to monitor customer trust in the retail sector, looking specifically at online tracking practice and cookie use by leading UK retail brands. The RTI findings suggest that almost 20% of consumers do not trust any of the top UK retail brands they buy from online and around 50% do not believe retailers are doing enough to protect their data. Cyberattacks of the scale in the JD Sports case will not improve this perception.

Amongst the leaked data from this incident were names, billing and delivery addresses, emails, phone numbers and the last four digits on customers’ payment cards. Customers have since been warned of scams and phishing, with hackers making use of the data they have managed to harvest or otherwise selling the details on over the dark web. Given the type of data retailers store, they become prime targets for cybercriminals with reports showing the retail industry to be the most vulnerable sector for cyberattacks.

Cyberattacks are unlikely to go away, so it is for retailers to stay informed and build up their resilience to cybersecurity threats. This will involve staying tuned in to guidance on how to defend against cyberattacks and taking advice from experts when it comes to investment in cybercrime prevention technology.

The Oregon sportswear company is taking legal action against Lululemon over patent infringement. Around the same time last year, Nike took legal action against Lululemon for infringing its patent linked to its Mirror home gym system and related mobile apps.

The brand filed its case in the southern district of New York, alleging that four of Lululemon’s lifestyle sneakers infringe its Flyknit technology, highlighting its Flyknit-related patents in the claim. Nike alleges that Lululemon’s textile knitting processes – including how the knit’s webbed and tubular sections function and stretch, and the flat-knitting used to structure the seams of the uppers – infringe on its Flyknit tech.

When Flyknit was initially patented in 2013, Adidas brought about a claim, proposing that Nike shouldn’t be the only company with the rights to use the technology. Although the court sided with Adidas, Nike continues to protect its technology through taking legal action against companies such as Skechers in 2016, claiming that the brand violated its Flyknit patents, and now with Lululemon, asking for an unspecified amount in damages and a permanent injunction to ward off further infringement by Lululemon.

Although Nike’s stock as of February 2023 has not been massively impacted, as Nike has shown, brands don’t become industry leaders without protecting – or monopolising – their property.

For a further IP dispute update, please see our recently-published article exploring design right protection over the M&S/Aldi light-up gin bottles: Lights out: M&S vs Aldi over snow globe gin range | Foot Anstey.

Several new initiatives are emerging across different sectors designed at tackling material waste.

The clothing industry is the world’s second biggest polluter behind oil and gas, producing around 92m tonnes of textile waste every day.

Ethical Fashion Group, co-founded by industry veteran Harold Tillman, has teamed up with Hydrogen Utopia International (HUI), whose technology turns fabrics into carbon-free fuels. The group represents a number of large fashion retailers, such as H&M, Gucci and Vivienne Westwood.

The machine used by Hydrogen Utopia, based in Poland, is the size of a small house and uses vapours from 300°C to 900°C to heat waste plastics into a mixture of gases. The reactors are powered by renewable sources so no CO2 is emitted. The resulting contaminants are removed and hydrogen separated, then purified to export grade. The hydrogen can then be used as fuel or in industry.

In France, President Macron is spurring the EU to enforce new legislation across the board with new French laws preventing fast food and casual dining outlets from using disposable packaging and cutlery for customers. He retweeted his approval of a new plastic reusable container for chips in McDonalds recently, sending the internet into a frenzy.

The question remains whether these reusable replacements are in fact more eco-friendly over their entire lifecycle than their paper and cardboard counterparts. The European Paper Packaging Alliance (EPPA), found in their study that 2.8 times more carbon emissions and 3.4 times more water is required to wash and dry reusable items than paper-based products.

To find out more please get in touch with the team on the details below