Retail concession agreements: what are they and how do they work

Have you wondered how you can secure space in some of the UK’s most expensive department stores such as Liberty, Selfridges, Harrods etc? The answer is often through retail concession agreements.

Concession agreements are becoming a popular way for all types of retailers, whether market leading or newbies, to expand even quicker in the retail market. Often used in large department stores with an already established brand identity, these types of agreements can be fruitful for both the retailer taking a concession stand and the department store without the hassle of engaging in lease negotiations.

Often each department store will have their own favoured form of agreement which will cover the following themes:

Basis of occupation: licence v lease

A concession agreement is a form of a licence to occupy. This means that the retailer will have a more informal right to occupy rather than as documented in a traditional form of lease. Under a licence to occupy, the retailer will not have the right to exclusively occupy a space but rather share it with other brands, including the department store owner. As there is no exclusive possession as you would usually expect to see with a lease of a store, the retailer will not be entitled to protection under the Landlord and Tenant Act 1954 meaning that there is no statutory right to renew the concession agreement at the end of the term. Considered alongside the length of the term of the agreement, from a retailers perspective this could work favourably in ‘testing the waters’ before looking to take a flagship store.

Payments

Each retailer will be required to make various payments under the agreement including;

1. Concession rates. These payments could be likened to a form of rent payable under a traditional lease arrangement. In the simplest form ‘concession rates’ are linked to a percentage of the sales figures for the concession stand. We have seen percentages (vary x to y %).
2. Marketing contributions. The retailer will usually be required to contribute towards marketing incentives for promoting the concession. It will be important to understand and clarify what form these initiatives will take or if there are any binding obligations the department store to use any funds in a particular way.
3. Service charge. As with usual lease arrangements, the retailer will be responsible for payment of a percentage towards the landlord providing various services. Often these charges will be separate to the actual maintenance costs of the concession.

Retailers obligations

1. 1. The agreement will set out various obligations on each retailer and will likely be tailored to how much of a heavyweight the brand is. Often you will see the concession agreement contain a restriction on the retailer opening another concession stand in a competing department store within a certain mileage, unless without the department stores consent. It is therefore important for each retailer to review their expansion plans to ensure that any new stores are outside of these distances or that you have the department stores consent.
   2. Concession stands are also likely to be required to be kept open the same time as the wider department store is. It will be key to understand what the usual trading hours of each department store is and whether these are likely to change during holiday periods.