Russian action shows need for an exit strategy

April 10, 2014

In years to come students may be asked to compare and contrast the Austrian Anschluss in March 1938 with what has happened in March 2014 in Crimea. But unlike 76 years ago, fashion brands are much more global and those trading in Russia and Ukraine may well be at risk.

Already there are reports that products entering Russia are being impounded. Unless the products are released quickly, there is a serious risk that local distributors who have not paid already will refuse to do so. Brands may then turn to their credit insurers only to find that these insurers have moved first to invoke the exclusions to the cover.

In future, it will be critical for brands to ensure that sale contracts and standard terms and conditions of sale adequately address the issues of payment, currency fluctuation and force majeure, presupposing that the standard terms of sale are properly incorporated into the contract in the first place.

Depending on the contractual wording, using, for example, a letter of credit may not ensure the brand gets paid. Meanwhile, force majeure clauses will regularly be poorly drafted and fail to give the brand the opportunity to refuse delivery in the first place.

Brand integrity necessitates that brands are able to control what happens in store and online (where they have ceded control of national websites to a local partner). On the basis that prevention is better than cure, existing distributorship, and franchise agreements in particular, need to be checked to see what can be done to ensure performance by the counterparty.

Again, such agreements should provide that the brand is protected as much as possible and can exit agreements if by being in a country such as Russia, the brand’s integrity may be damaged.

And for those wondering why China abstained in the UN Security Council resolution vote to condemn Russia, look no further than its ongoing territorial dispute with Japan over the Diaoyu/Senkaku islands in the East China Sea. What would sanctions involving China mean to British fashion companies?

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