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Top Legal Issues for Retailers Enhancing Customer Experience with New Formats

The nature of retail is changing, and the days of treating shopping as a mere transaction are largely over. Instead, shopping in today’s increasingly diversified and competitive retail environment requires offering customers something more: an experience.

It is for this reason that 2017 was a banner year for “new retail formats.” Technology giant Amazon rolled out the first checkout-free store. Publisher Marie Claire is in the process of launching a premium beauty store based on its magazine content. Leading fashion retailer J.W. Anderson has traded “flagships” for “brandships,” aiming to create a community and social space through the installation of exhibitions and events in its stores. And numerous retailers have experimented with emerging technologies such as facial recognition software and virtual reality/augmented reality experiences to enhance the shopping experience.

As retail evolves with new formats that emphasize the experience and utilize new technologies, there are new and not-so-new legal issues and other considerations that important to keep in mind to avoid running into trouble. Below are the top ten legal issues retailers who seek to enhance the customer experience with these type of new formats should be aware of:

1. Privacy Is Key, Part I: Consent Is King
Thinking of pushing sales notifications to a customer by the jeans rack? Of using facial recognition to better understand consumer reactions to particular displays? Of monitoring the activity of consumers at an in-store kiosk? Then think about privacy first.

Certain types of data collections and certain types of data uses require the consent of the consumer. Because the laws concerning privacy in the United States are varied and inconsistent, it is important to discuss your data collection practices with your counsel and get affirmative consent for data collection where necessary.

Retailers need to disclose cross-device tracking, re-targeting through interest-based advertising, reverse appending or otherwise combining on-line and offline data as these measures are being regulated more than ever before at the federal and state levels.

2. Privacy Is Key, Part Ii: Transparency Is Vital
See a treasure trove in your customer data? You are not alone. Mirroring the explosion in data collection from retail consumers is the explosion in data mining and data usage for creative marketing. Retailers are increasingly using data collected in stores to target advertisements, offer individual sales and increase brand engagement.

To avoid trouble with regulators and comply with the various U.S. privacy laws, be sure to ask your legal counsel to draft a comprehensive privacy policy explaining what data your company collects and how it uses it, and if you are a founder, make sure your contracts allow you to retain and use the data for multiple clients and for your own monetization strategies.

3. Hire the Right Team
As the complexity of new retail experiences increases, the need for specialized personnel has skyrocketed. Retailers are now hiring brand ambassadors, software developers, experiential events agencies and other specialized teams that were not historically part of their organizational structure.

For new employees, it is therefore important to ensure that your business enters into proper employment agreements that say it owns all materials created by the employee and that all its information is confidential. For vendors, it is important to enter into commercial agreements that transfer ownership of materials and protect your business from claims of vendor misconduct. Experiential (e.g., internships) or other in-store experiences also require consideration of labor regulations and various permits or other local legal requirements may apply.

4. Clear Your Technology
Thinking of creating your own customer app? A virtual reality headset and experience? Facial recognition sensors? So are many other people. In fact, fields like virtual reality have been the subject of hundreds of patent applications in the last few years.

If you are creating a new product, have your attorney check for similar products or technologies so that you can avoid an expensive lawsuit. And if you are asking a vendor to create technology for you, make sure they take responsibility for intellectual property claims.

5. Protect your Intellectual Property
Once you have hired the right people, and cleared your unique experience, make sure you protect it! Putting together a unique name and tagline for your enhanced retail experience? Trademark it. Creating cool graphics, ad copy or software? Copyright it. Inventing a new device or method of interacting with consumers? Patent it.

Intellectual property protection can enhance your appeal to both customers and investors and can protect you from copycats.

6. Added-Value Sponsorships
Product and brand integrations can truly enhance a new retail experience. Creating a wellness experience? Consider a sponsorship with a smart water or health food company. Creating an automotive experience? Work with a well-known auto brand. Selling video games via virtual reality? Consider partnering with a major video game publisher.

The key to a good sponsorship, however, is an appropriate sponsorship agreement. Ask your counsel to negotiate the particulars of a sponsorship agreement to clarify each party’s obligations and protect against risk to your business if something goes wrong.

7. Advertising Laws Apply to New Retail.
If you include a sweepstakes, you will need legally compliant sweepstakes rules. If you include coupons, be sure to have proper coupon conditions. If you make claims about your products or business, those claims need to be substantiated. And, if you include images of talent, logos, music or other third-party content, those items will need to be cleared.

8. Digital & Social Media Compliance and Disclosure
A digital and social media strategy is critical, but be careful to avoid the legal pitfalls that can surround social media platforms. Retailers should comply with all social media terms of use. Any paid influencers will need to disclose their relationship to the retailer and any sponsored articles or videos about the retailer will need to have clear indicia of sponsorship.

9. Check Your Lease, Firm Up Your Insurance
Thinking of creating a permanent structure for your new retail experience? Serving food or drink? Expanding outside the front of the store? Increasing foot traffic in the store? These are all items that will likely be addressed in your lease.

Be careful to check your lease to understand what types of new retail experiences are permitted. And be sure to let your insurance carrier know of any unique program so you can adjust your coverage accordingly.

10. Don’t Get Sued by Customers
Thinking of creating an experience that requires physical activity on the part of your customers? Or using a technology, such as virtual reality, that may cause nausea or other side effects? Make sure you get a participant release from your customers, so that your new retail experience doesn’t land you in court.

Attorneys Vejay Lalla and Brooke Erdos Singer are partners with Davis & Gilbert LLP, a strategically focused, full-service mid-sized law firm headquartered in New York City. Devin Kothari is an associate with the firm.

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