24 August 2022

Legal Considerations When Diving into the Reselling Industry

A long-standing selling approach for the fashion industry has been the allure of exclusivity. Reduced quantities, capsule collections, and limited-edition releases are among the sale and marketing methods used to create an air of hype and exclusivity for goods. The harder it is to attain something the more it is desired.

Which leads us into the era of the reseller. Fuelled by social media, many have ventured in the world of reselling sought-after brands, their accessories, shoes and apparel. Manufacturers only produce a certain amount of goods and provide limited quantities of those goods to authorised retailers across the world. This limited availability means that many eager consumers are left disappointed when they are unable to access the products they want.

Insert the reseller. Through savvy connections and determination, resellers can source “sold-out” products and resell them for a profit. But what are the legal considerations when stepping into this market?

Authenticity of goods

Customers looking to purchase hard to find or sold-out items want to know that the product they’re getting is authentic. Resellers looking to grow their business need to ensure they can source authentic products from legitimate sources. Where a reseller purports to be selling authentic products but is in fact selling counterfeit goods, this could be seen as enticing customers into a fraudulent transaction, which is contrary to the Consumer Protection Act.

Consumer Protection Act 68 of 2008 (“CPA”)

The CPA will apply to any reseller who operates as such as their primary business. Where anyone resells goods on a once-off or periodical basis, the CPA will not apply. The CPA lists requirements which resellers will need to meet to ensure they are operating lawfully. Under section 25 of the CPA, there is a requirement on a reseller to ensure any goods which they import “without the approval or licence of the registered owner of that trade mark” must have a notice on those goods to that effect. This what we know as ‘parallel imports’.

Section 41 of the CPA regulates false, misleading, or deceptive representations by Suppliers. According to this section, a reseller must not by words or conduct “directly or indirectly express or imply a false, misleading or deceptive representation concerning a material fact to a consumer”. A false, misleading, or deceptive representation includes, amongst other things, falsely stating, implying, or failing to correct a misunderstanding of a customer as to:

  • the quality, style, grade, or model of a good; and
  • if a good is new or unused if it is not or is a reconditioned good.

Consumers have a right under section 58 of the CPA to safe and good quality goods. A reseller therefore has an obligation to ensure that the goods they provide are:

  • reasonably suited for the purposes for which they are generally intended;
  • are of a good a quality and are in good working order and free of any defects;
  • will be useable and durable for a reasonable time; and
  • meet the applicable standards under the Standards Act 29 of 1993.

If any goods are of a lesser or special condition, a reseller must ensure that they expressly inform a customer of its lesser or special condition and the customer must expressly accept the goods in that condition or have acted in manner that indicated they accepted the goods in such a condition.

Supplier Agreements

It is important to record any commercial relationship in writing. Resellers need to ensure that they record the details of their relationship with a supplier in writing to protect themselves and their business. An agreement in place guarantees that there is no ambiguity between the parties as to delivery of the products, payment terms and any warranties etc. Without an agreement in place, resellers place themselves at risk as they then have no formalised agreement in place to fall back on should the relationship go sour, or things go awry.

E-Commerce Considerations

When trading online using an e-commerce platform, it is important for resellers to protect not only themselves but their customers by having proper website terms and conditions as well as a privacy policy in place. Without proper terms and conditions in place for customers to refer to, resellers may land themselves in disputes with customers regarding certain aspects such as the return of goods or the refunding of purchase prices.

Another important consideration for resellers is to ensure that any e-commerce platform they operate offers secure online payments by using a registered payment services provider. . It is illegal to perform certain payment function without the appropriate license in South Africa. It also does not invoke trust from a potential customer where a platform does not offer secure online payments and customers are placed at risk.

Deadstock v Second-hand

Resellers need to be clear about whether they are selling products that are deadstock or whether the products are pre-owned or second-hand. The selling of second-hand goods may be subject to the Second Hand Goods Act 6 of 2009, as amended (“Second Hand Act”). The Second Hand Act has registration and compliance requirements for dealers of second-hand goods and is under the authority of the National Minister of Police. It is therefore important for a reseller to understand the laws applicable to the goods they are selling to ensure they are meeting all regulatory requirements placed on them.

Although new business ventures are exciting, it is always important to take time to understand the legal aspects and implications attached to starting a new business. We have recently launched a fashion and cosmetics product which aims to assist anyone venturing into the fashion industry. With the product we can offer any legal advice and assistance that you may need. From advice on regulatory compliance to drafting agreements or launching an e-commerce platform, Legalese is your one stop shop for all your legal needs.

– Lauren van der Byl