A legal guide to setting up your online retail business
The world of online retail has progressed significantly since the launch of eBay and Amazon in 1995 and online channels are now a key source of revenue for retail businesses. As customers increasingly move to shopping online, rather than in physical stores, retail startups evermore question the need for a physical store to sell their products.
That said, while setting up an online shop may provide much lower barriers to entry than physical stores, there are many factors to consider before you start your online retail business, including how to comply with your legal obligations. Let’s take a look at a few key points to bear in mind.
Own website vs. aggregator
One of the first decisions retail startups have to make is whether to sell your products on your own dedicated website, or on an ‘aggregator platform’, such as Notonthehighstreet or SilkFred, which display different brands’ products together and sell them all on one website/ app. Aggregator sites are great for businesses who may not have the time/ funds to set up their own website, and enable brands to gain immediate access to an existing customer base. However, this does come at a cost, as you will have to pay fees to the aggregator (often in the form of a percentage of sales).
On the other hand, creating your own website offers you greater freedom with how you market and sell your products, allowing you a stronger identity from the get-go. E-commerce platforms, such as Shopify and Demandware, can help with the website set-up process as well as the day-to-day running of your website, and so may be an attractive option for new brands.
If you choose to create your own website, be sure to check your chosen website address (also called a domain name) is available. You will need to purchase the rights to this domain name in order to use the website for your online business.
Create (and protect) your brand
When creating a new retail brand, you will want to ensure you stand out from the crowd. A great way to do this can be to have an eye catching logo and memorable brand name. A lot of time and effort goes into the creation of a brand, and so you will want to ensure your brand is properly protected, for example, by registering your logo and/or brand name as a trademark.
Customer terms and conditions
One of these rights is the right to cancel. When customers buy online, they generally do not have the chance to examine the products beforehand. Online retailers are generally obliged to allow customers to change their mind, if they do not like the products when they arrive. In your terms, you should include details of this right (often referred to as a ‘right to cancel’), stating that customers have 14 days from when their purchase arrives to change their mind and return the products. However, there are exceptions to this rule (e.g. where a product has been customised/ is bespoke).
The terms of sale should also include information about the brand itself (e.g. full legal name and address), the order process, how to return items (including any restrictions on returns), and complaints procedures, as well as other important information. You must also ensure that your customers are provided with all relevant details about their purchase before they buy the product. This includes customers understanding the main characteristics of the product they are buying, the total price they will pay (including any taxes and delivery charges) and details of how and when payment will be taken.
The exact requirements for legal terms are set out in detailed legislation and so it is advisable to engage a legal advisor to help you write your terms, to ensure you comply with all applicable legal requirements.
Where you choose to run your own website (instead of selling your products on someone else’s platform), you may have to consider how to collect payments for your products. The online payments landscape is in a state of change, with new rules soon to require the use of ‘strong customer authentication’ (SCA) for card payments. These rules require a customer to authenticate each payment using two of the following methods: something a customer has (e.g. a mobile), knows (e.g. a password), or is (e.g. a fingerprint). New online retailers will need to ensure they are up to date with the rules on SCA, and have implemented the appropriate payment technologies by September 2021 to ensure compliance.
Thinking about your supply chain
Before you can start trading online, you will need to have agreements in place with your suppliers and logistics companies. These contracts should clearly set out what you expect from your suppliers (e.g. details of the service they are providing, any timeframes they are expected to meet). This, in turn, will enable you to hold them to account in the event they do not deliver to the standards you expect. Again, it may be helpful to seek legal advice for negotiating these contracts, to ensure you are fully protected.
The power of social media
No online brand is complete without a strong social media presence. Social media not only provides a fantastic platform to reach potential new customers (for example, through the use of carefully curated posts or influencers), but features such as integrated shopping functionality on Instagram and buyable pins on Pinterest enable an additional and easy way for customers to purchase products. It is helpful for brands to familiarise themselves with the advertising rules for social media to ensure compliance when promoting their products (e.g. influencers should clearly show that a post is an advert by using #ad or similar).
Online rather than in-store models usually involve fewer staff. Once you have decided what level of support you need, you will also need to determine what staffing model is right for you. Is it appropriate to hire employees, self-employed freelancers, or can you outsource some of your staffing needs entirely?
Each comes with its own pros, cons and legal implications. At its most basic, you will have greater control over employees but they come with a raft of legal obligations, from statutory leave and minimum rest breaks, to minimum pension contributions, wages and sick pay. You will also need to register as an employer with HMRC to deduct income tax and national insurance contributions through payroll and ensure that you have certain basic insurance and staff policies in place. Self-employed freelancers do not have the same entitlements as employees, but they pose a greater risk to your IP and confidentiality if the arrangement is not documented carefully.
Finally, if you have identified a non-UK national as being key to your business, then don’t lose sight of the potential immigration and tax implications and any timescales involved in bringing them on board.