Business Licensing Shelf Interest: Licensors Cut Exclusive Deals with Retailers

//Business Licensing Shelf Interest: Licensors Cut Exclusive Deals with Retailers

Business Licensing Shelf Interest: Licensors Cut Exclusive Deals with Retailers

The task is to read these two articles, which are pasted below and answer the question
– How does this change the business of licensing ?

(ARTICLE 1) –

Shelf Interest: Licensors Cut Exclusive Deals with Retailers
From Brandweek Magazine
May 30, 2009
-By Brandweek Staff

Step into an Office Depot these days and you’ll see crayons, markers, glue sticks and other items from Scholastic. Best known as a publisher of children’s books and educational materials, Scholastic initially linked with Office Depot for an exclusive branded product line of schoolbooks for teachers, but now it’s a sort of house brand for the chain. “Sort of” because such licensors are expanding the definition of private label and, along the way, providing a bright spot in the otherwise moribund licensing industry.

“It guarantees us shelf space, and it gives them something exclusive and a product array from a brand that has recognition with teachers, kids and parents,” says Leslye Schaefer, Scholastic’s svp, licensing. “Plus, the economics of them producing it themselves are favorable — from a margins or price standpoint, they can be more competitive.”

Welcome to licensing, 2009 style. In this craptastic economy, traditional thinking is out (bye bye retail-channelwide entertainment deals!) and creativity (Let’s make up a deal!) is in — and retailers and licensors are finding common ground.

“They usually mix like oil and water, but they’re working together in this recession,” says Steven Ekstract, global publisher of License! magazine. He notes that the emerging trend of exclusive licensing deals between a brand and a retailer allow the best of both worlds. “You think people are going to buy the cheapest thing they can, but they also want things they can trust because everyone wants comfort.”

Or, as Jamie Salter, CEO of Hilco, which has exclusive Tommy Armour and RAM Golf equipment and apparel lines selling at Sports Authority, puts it: “Retailers have traditionally not been good brand builders. They know how to sell on price, but they don’t know how to build brands.”

MARRIAGE OF CONVENIENCE
Years ago, retailers were primarily seen as distribution mechanism for companies like Procter & Gamble, Kraft and General Mills, which spent millions in advertising and creating brands. But the balance has shifted, and retailers learned long ago that sprucing up their house brands with new packaging and, in some cases, advertising, can reap dividends. According to the Private Label Manufacturers Association, such store brands now account for one of every five items sold in U.S. supermarkets, drug chains and mass merchandisers.

But there are some downsides to store brands. Retailers don’t like taking all the risk, and traditional store brands-those that were created by the retailer — don’t have the draw that a brand created elsewhere does. “Cyclically, retailers fall in and out of love with private label on a regular basis,” says Martin Brochstein, svp-industry relations and information for the Licensing Industry Merchandisers Association (LIMA). “What happens is, they’ll be selling a lot of brands, and they have a private label business. They look at those margins and say, ‘Wow, these are great-let’s get me some more!’ And then they beef up the private label a lot, and that’s great until something doesn’t work. And then they say to themselves, ‘Where do I go for the markdown money? Oh, wait a minute, it’s us — we own it.'” At this point, brands start looking attractive again, and the next stage of the cycle begins.

Meanwhile, the licensing business has its own issues. The competition is tighter than ever, and there are fewer breakthrough properties. Promising entertainment up-and-comers such as Wow! Wow! Wubbzy! and Yo Gabba Gabba! haven’t turned into Dora the Explorer dollarwise. Even Disney seems to have run out of steam.

“The only variable is if there’s a super-hot property out there that commands consumer and retail attention and defies what’s going on in the marketplace,” says Debra Joester, president of the Joester Loria Group, New York, the licensing agency for Jeep, Care Bears and Discovery Communications. “But today, that property doesn’t exist.”

Brochstein agrees. “The definition of success is smaller than it was five or 10 years ago. It was easier to have an $800 million or $1 billion licensing program on a tentpole film then,” he says. “It’s incredibly difficult if not impossible now because there are fewer retailers and so many more properties. Memorial Day used to kick off summer movies. If I’m a boy, I got Wolverine, Star Trek, Terminator. Which one am I supposed to spend my increasingly scarce disposable income on?”

A marriage of convenience for licensors and retailers makes sense, especially as retailers have gotten much more sophisticated about private label. “They now have in-house departments,” Brochstein says. “And so they have much more of a vested interest in making private label work because they have infrastructures to feed. So it’s more entrenched than it’s ever been.” Brochstein points out that companies such as Iconix and Cherokee are “making a very nice living” doing direct-to-retail licensing of their brands. Such brands are basically house brands.

LICENSING FOR THE TIMES
Direct-to-retail licensing isn’t new. Discovery Communications just renewed its exclusive line of Animal Planet toys and plush for Toys “R” Us, which started as a 10-year deal in 1999. But the economy is prompting more such deals. On the eve of the Licensing 2009 International Trade Show, which has moved from New York to Las Vegas, the LIMA Statistical Survey determined that royalties collected by licensors for the U.S. market totaled $5.7 billion — a 5.6 percent decrease over the 2007’s $6 billion. There’s generally a lag factor in tracking revenues, so the full impact of the recession may not be reflected until next year’s total is tallied.

“The recession is causing sales…and royalties to be down and licensees to renegotiate their financial commitments. It’s making it more difficult to close deals,” says Michael Stone, co-founder, president/CEO of the Beanstalk Group, a New York agency that lists Ford, Procter & Gamble and Jack Daniel’s among its clients. “But it’s also opening up opportunities [for brands and property owners] to develop retail-exclusive programs.”

One such program was via Kohl’s, which has an exclusive arrangement to sell Food Network-branded housewares in a deal brokered by licensing agency Brandgenuity, New York. Kohl’s also has a line on Chaps, Dana Buchman, Simply Vera by Vera Wang, Mudd, Hang Ten, LC Lauren Conrad and other exclusive brands. According to the company’s last quarterly statement, exclusive and private brand sales comprised 44 percent of total store receipts.

“These are exclusive to them, and they are responsible for the sourcing,” Brochstein says. “It works like any other licensing deal. The brand owner has approvals, and all that. It’s just there’s no third-party manufacturer who is supplying Kohl’s.” Wal-Mart, meanwhile, has launched several brand exclusives, such as one with CBS Consumer Products for an America’s Next Top Model line.

Last December, the superstore debuted fashion-forward togs, bags, hats and room decor for juniors and young women. Apparel is being added for spring/summer.

Gap also put together a deal with Peanuts, Old Navy did another with Marvel and Zara launched a direct-to-retail deal with MTV. Hot Topic’s fourth-quarter profits were up 19 percent because of its program based on the hit movie Twilight.

As that deal shows, when retailers choose the right property, they can buck the recession. “As retailers are consolidating their inventory, there’s a risk aversion; they’re limiting their exposure,” says Liz Kalodner, evp and general manager of CBS Consumer Products. For brand licensors and licensees, she says, “The margins are high, and generally it’s quite efficient to [create an exclusive brand] as you are producing for a specific retailer, so you know your quantities ahead of time.”

That’s not always the case, of course. “We’ve seen some successes and some failures recently,” says Joester. For every Kohl’s there’s American Living, JCPenney’s project with Ralph Lauren, the first line created by the designer that didn’t bear his name — or his fancy prices. Brochstein says deals like that don’t work because they aren’t a good fit. “The [properties] that succeed have an image, expectation or performance. They mean something to the consumer,” he says.

Still, for every deal gone wrong, the math is too compelling right now. Licensors need the venues, and retailers need strong, cheap brands that will draw consumers. Exclusives are the only way that, say, Toys “R” Us can compete with Wal-Mart on something other than price.

At the same time, licensors are adapting to the times by realizing that in this economy, it’s better to go for base hits rather than home runs.

“I would never bash where I came from, but the rules of ‘Do it our way!’ aren’t working anymore,” says Imagi’s Corbett, a former marketing/promotions executive at Warner Bros. and Disney. “We are more flexible in our partnerships. It used to be all about licensing fees, but people are being more creative now — making back-end deals from box office. We’re all in this economic downturn, and people want to get deals done.”

Ekstract agrees. “Everyone is saying, ‘If a retailer can get behind this, we’ll give them an exclusive,'” he says. “If you roll out [the same merchandise] everywhere, it just becomes a price battle. And no one wants that.”

(ARTICLE 2 ) –

Style & Substance: Fashion’s New Model?; For Iconix, Licensing Deals Are the Ticket Into Big Stores As Commodity Apparel Fades
Teri Agins. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 16, 2006. pg. B.1
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Author(s): Teri Agins
Publication title: Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 16, 2006. pg. B.1
Source type: Newspaper

Document URL: http://proquest.umi.com/pqdweb?did=1061250091&sid=2&Fmt=3&clientId=70692&RQT=309&VName=PQD

Abstract (Document Summary)
What makes the deals especially tempting for those retailers is that they are exclusive: Teens can find Candie’s fashions, for example, only at Kohl’s Corp.’s stores. Joe Boxer sportswear is exclusive to Sears Holdings Corp.’s Kmart chain. And men’s and women’s apparel under the Mossimo trademark, which Iconix is set to formally acquire in July, will continue to be sold solely at Target Corp.
As in traditional licensing agreements, Iconix sees just a small portion of retail sales of products branded with its trademarks. Its royalties on brands licensed to retailers range between 2.5% to 5% of sales, industry executives estimate. (Its royalties on brands licensed to manufacturers, such as Bongo and Mudd jeans, are slightly higher.) Minimum royalties (minus Iconix’s own corporate expenses) are guaranteed, and the money drops straight to Iconix’s bottom line: Analysts say Iconix is on track this year to post net income of $37.2 million — more than double a year ago — on revenue of $82.2 million, with a pretax profit margin of 56.5%.
Iconix, with about 40 employees, controls marketing and advertising for Candie’s and its other brands, coordinating their overall images. (Iconix also has the power to veto certain product styles.) Iconix’s in-house marketing team signed teen celebrities Hilary Duff and Michelle Trachtenberg for Candie’s spring fashion campaign. “We envision the Candie’s relationship as a very, very long-term commitment,” Mr. [Kevin Mansell] says.

Full Text (1275 words)
(c) 2005Dow Jones & Company, Inc.Reproduced with permission of copyright owner.Further reproduction or distribution is prohibited without permission.
AS BIG RETAILERS consolidate and old-school garment makers get squeezed, a tiny player in fashion is growing fast by turning the industry’s age-old licensing model on its head.
Iconix Brand Group Inc., owner of the trendy teen shoe brand Candie’s, has been on a two-year shopping spree, buying up trademarks ranging from Joe Boxer underwear to the designer label Badgley Mischka, famous for its beaded evening gowns. With its brand portfolio, Iconix is trying to become something new in the fashion industry: a pure licensing play.
Licensing deals are the mechanics of much of the fashion industry — the way designers become billion-dollar companies at lightning speed. Typically, a designer or brand contracts with a third-party manufacturer to produce some of its branded products, such as fragrances, handbags, coats and sportswear, and sell them to stores; the designer collects a small royalty on sales. Iconix’s twist, with some of the trademarks it has acquired, is to make licensing deals directly with retailers, and to give them far more creative and strategic control over the products than is ordinarily the case.
What makes the deals especially tempting for those retailers is that they are exclusive: Teens can find Candie’s fashions, for example, only at Kohl’s Corp.’s stores. Joe Boxer sportswear is exclusive to Sears Holdings Corp.’s Kmart chain. And men’s and women’s apparel under the Mossimo trademark, which Iconix is set to formally acquire in July, will continue to be sold solely at Target Corp.
Iconix’s strategy comes as Federated Department Stores Inc. and other big retailers increasingly demand styles from their vendors that are exclusive or in limited distribution. The demands shut out many fledgling apparel makers. But tiny Iconix has turned their demands to its advantage, using exclusive licensing deals as its entree into high-volume big-box retailing.
Retailers that are Iconix’s licensing partners have total responsibility, and substantial control, over the design and production of the branded products they sell. The retailers ordinarily hire out the manufacturing to their own subcontractors.
As in traditional licensing agreements, Iconix sees just a small portion of retail sales of products branded with its trademarks. Its royalties on brands licensed to retailers range between 2.5% to 5% of sales, industry executives estimate. (Its royalties on brands licensed to manufacturers, such as Bongo and Mudd jeans, are slightly higher.) Minimum royalties (minus Iconix’s own corporate expenses) are guaranteed, and the money drops straight to Iconix’s bottom line: Analysts say Iconix is on track this year to post net income of $37.2 million — more than double a year ago — on revenue of $82.2 million, with a pretax profit margin of 56.5%.
“This is a new business model that is lean and mean,” says Todd Slater, a managing director at Lazard Capital Markets who follows retailing companies. “It is marketing driven and not operating driven — a model with low risk and high return.”
“The licensees do the heavy lifting — the manufacturing, importing and retailing,” says Neil Cole, chairman and chief executive of Iconix, which he co-founded in 1981 as Candie’s Inc. “We get to do the fun stuff, the great advertising and brand coordination — with a guaranteed profit.”
To finance its acquisitions, Iconix says since 2004 it has borrowed about $215 million against future minimum royalty guarantees.
Iconix isn’t the first apparel maker to bet the farm on licensing. In 1995 Cherokee Inc., a Van Nuys, Calif., jeans and sportswear maker, successfully recast itself as a licensing company by marketing the Cherokee brand exclusively through Target stores, and the Carole Little women’s brand exclusively through TJX Cos.’ Marshalls.
But few other companies have attempted licensing on such a large scale. Mr. Cole, the 49-year-old younger brother of high-profile shoe designer Kenneth Cole, turned a brand his family created in 1981 — Candie’s, the once-ubiquitous high-heeled slides for teenage girls — into a line of manufactured and licensed apparel. He took Candie’s public in 1993. Ten years later, it was out of the manufacturing business altogether, instead buying brands to be licensed to manufacturers and retailers. Candie’s changed its name to Iconix Brand Group in July 2005.
Mr. Cole says getting out of manufacturing had its advantages: Iconix operates with minimal working capital — and with no inventory, production or distribution costs. Having had his fill of production issues when he ran Candie’s, Mr. Cole says he sees owning a collection of brands and licensing them to retailers or to other manufacturers as the future of fashion marketing.
What’s in it for retailers? They like being in control. Stores can develop the broad lifestyle brands they crave in exactly the styles they think their customers want. Since 2004, when Candie’s became exclusive to Kohl’s, the retailer has expanded the brand into some 20 new categories, including shoes, underwear, eyeglasses and handbags.
“In one year, Candie’s has become our largest brand in the teen space,” generating about $240 million at retail this year, says Kohl’s President Kevin Mansell. “We control all aspects,” he says. “We choose the assortment, we do the in-store presentation, and we do all the sourcing.”
Iconix, with about 40 employees, controls marketing and advertising for Candie’s and its other brands, coordinating their overall images. (Iconix also has the power to veto certain product styles.) Iconix’s in-house marketing team signed teen celebrities Hilary Duff and Michelle Trachtenberg for Candie’s spring fashion campaign. “We envision the Candie’s relationship as a very, very long-term commitment,” Mr. Mansell says.
The trick, for Iconix, is to find new brands at the forefront of fashion and to keep existing ones there. “It is a business model that only works, of course, with brand names that resonate with consumers,” Lazard’s Mr. Slater concedes.
It also depends, to a large degree, on the whims of retailers: Although Iconix’s minimum royalties are guaranteed, there are no guarantees after the contract expires: Retailers or Iconix can choose not to renew. Iconix says as a precaution it wants to limit its business with any one licensee to about 20% of royalty revenue.
Relationships sometimes can sour: Iconix, which owns the teen fashion brand Rampage, now is negotiating with licensee Charlotte Russe Holding Inc., owner of 66 Rampage stores, after the San Diego company disclosed earlier this year that it is seeking a “strategic solution” to repositioning the underperforming stores, which it says have generated retail operating losses of $9 million so far this year.
Iconix has another variation on the model with its Badgley Mischka label. Fashion designers Mark Badgley and James Mischka have been employed by Iconix since the company purchased their dormant trademark in 2004 and design a line of evening gowns. The company has signed a traditional licensing deal for the gowns with manufacturer JS Group, of Montreal, which is selling the gowns at several high-end retailers, including Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue.
There is a lot of ground to cover at a recent meeting at Iconix’s New York headquarters. Sitting at the head of a glass conference table, Mr. Cole asks about the status of a search for a celebrity to replace the 20-year-old Olsen twins in Badgley Mischka ads. Mr. Cole says he thinks an older actress would galvanize the Badgley Mischka image with more mature, monied women.
Both designers and the manufacturer hope to stage a runway show for New York’s fashion week in September, but Mr. Cole is opposed. “The expense for a fashion show could be better spent in ads, raising our awareness for eyewear and footwear,” he says. But a couple of weeks later, he relents. “Sometimes you have to make the licensees happy,” he says, “so the fashion show must go on.”

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By | 2018-08-11T18:58:56+00:00 August 11th, 2018|Business|0 Comments

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