Lessons to be learned in fashion and clothing from 2022 | News and events

Offers of names, images and likenesses are on the rise

Name, Image and Likeness (“NIL”) contracts, which allow the use of an individual’s name, image and likeness to advertise and sell branded clothing, footwear and other consumer goods, are on the rise. July 1, 2021, in response to known NCAA vs. Alston case (where the United States Supreme Court ruled that the NCAA could not limit education-related payments to student-athletes), the NCAA changed its long-standing rule that prohibits student-athletes from benefiting from their name, image and likeness. Since that time, NIL businesses have made their way to the top of the sports and apparel world as many companies have invested significant money in amateur level athletes.

NIL contracts come in all forms and fashions and are usually dictated by the terms of the parties’ agreement and state legislation governing such deals. For example, a NIL affiliate may agree to an exclusive contract for all of the company’s products or a non-exclusive NIL contract for limited sponsored social media posts that advertise specific products or services. The terms of party agreements dictate the obligations of the parties. School rules also help dictate what type of NIL contract is allowed for college athletes. For example, the University of Michigan’s NIL Policy mandates that student-athletes are prohibited from entering into agreements that would “damage the reputation” of the school, such as those involving gambling, tobacco, or adult entertainment.

With more than a full calendar year in the books since the NCAA rule change, apparel companies have significantly increased their investment in the NIL movement. Nike is reported to have directly compensated amateur athletes to the tune of more than $140 million in the past year, while Adidas reportedly invested approximately $90 million. Expect this number to only increase throughout 2023.

Expect licensors to demand broader options to terminate affiliate/licensing agreements

One of the most significant business divorces also occurred in 2022, when Adidas dropped Kanye West as a brand partner due to his anti-Semitic hate speech. The company announced that it was immediately halting production of its Yeezy product line and halting payments to Kanye and his companies. Adidas further said it expects to take a hit of up to $246 million in net income this year from the move.

The breakup is sure to have a lingering effect through 2023, as many brands are likely to consider what lessons can be learned from the story. For example, what can a brand do to protect its image when a partner or affiliate engages in actions that damage their reputation. Generally speaking, when a contracting party engages in highly offensive conduct unrelated to the product or partnership, this is not grounds for termination. However, this is not always the case as specific termination provisions may be adopted whereby one party may terminate such an agreement if the brand representative or partner takes actions it deems “damaging” to the brand. Expect an increase in business and litigation arising from such provisions in 2023.

Expect continued high inventory and deep discounts

We should also expect a continuation of the discount wave in 2023 when it comes to fashion and clothing. During 2022, one of the biggest stories in the fashion and apparel industry was that 2022 was a perfect storm, with low inventories (caused by the adverse impact of COVID-19 on the international supply chain), rising interest rates and fears of a recession leading many retailers stockpile to avoid shortages. However, this happened to such an extent that when the economy began to rapidly decline and consumer demand plummeted, many companies were left with significant overstocks and no warehouse space. For example, Nike announced in its most recent quarterly earnings report that its North American inventory was up 65 percent compared to last year.

As a result, retailers and wholesalers can expect to be forced to release this inventory at deep discounts during 2023. This is also likely to lead to retailers looking to cut 2023 orders with wholesalers. Foreign contracts and invoice terms are now more important than ever.

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The views and opinions expressed in the article are those of the author and not necessarily the official position of Clark Hill PLC. Nothing in this article constitutes professional legal advice or is intended to be a substitute for professional legal advice.

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