What Floats in Licensing?

Here’s a lesson from the licensing pros: Political affiliations or patriotic logos may attract some, but they’re just as likely to repel potential buyers. That was Everlast’s recent eye-opener, according to its SVP Global Licensing, Hal Worsham, when the company discovered that its signature USA logo had depressed international sales — confirming the US’s recent loss of popularity across the pond, and leading the members of a recent licensing panel to surmise that perhaps the Bush Administration hasn’t been good for the licensing business. The panel was part of EPM Communications The Licensing Letter’s informative one-day symposium, “The Future of Licensing,” held in New York City in early October.

Although the excellent cast of presenters and panels offered an otherwise upbeat picture, sales of licensed merchandise saw a drop to $18 billion in 2003, with further decline expected in 2004. Most merchandise continues to be that sold through discounters (mass merchandisers) and supermarkets, with food being by far the largest category. TLL Executive Editor Marty Brochstein genially set the tone with a litany of woes we are all familiar with: consolidation, consumer spending, and higher oil prices.

Dan Stanek of market research firm Retail Forward assured his audience that the best and the worst of times are behind us. In the ’90s, licensing saw a 6% annual compound growth; but these days the best to be hoped for is 4.5%, and that is predicated on reaching both high-end and mass consumers. He predicted the economic gap will continue to widen with less and less of a middle ground — even Wal-Mart is seeing softness in their sales, and the world’s top retailer figured prominently in all panel discussions. And for good reason: the behemoth now gets a weekly visit from fully half of all Americans, an astounding statistic.

Nevertheless, available areas for growth include e-commerce, (even though it represents only 2% of total licensed retail sales, it is up 62% in five years and is also a marketing tool, bar none), supercenters (sales and profit margins grow dramatically when big stores convert to the even-larger format), drug stores and dollar stores – the latter notwithstanding the gloomy assessment of sales in the bottom part of the market. Stanek coined the term “Zoomers” for a new breed of consumers — boomers with zest, who happily shop at Bergdorf Goodman and Wal-Mart — and catering to this customer is the latest challenge. Nevertheless, with licensing volume flat and limited shelf space, cannibalizing from one to another is inevitable, interjected TLL publisher Ira Mayer.

Notwithstanding Everlast’s recent international experiences, business abroad remains an available area of growth for retailers (presumably sans stars and bars), as Wal-Mart has not proven to be very adept in this arena. But, retailers may not want to stray too far, since the US represents over 65% of all retail sales of licensed merchandise.

Everyone’s margins are under siege, not the least due to retailers’ attempts to compete with Wal-Mart. The dollar stores have reached critical mass and are a different animal, requiring their own tightly marked-up merchandise and making the appeal of outsourcing that much more apparent. In this climate, the licensor and the retailer must work from the same assumptions and be more collaborative than in the past, when issues such as royalties, guarantees, and tunnel vision regarding the rest of the marketplace were more the norm.

The keynote speaker, Tim Kilpin, SVP, Girls Marketing & Design, Mattel, gave a spectacularly upbeat presentation demonstrating how Mattel was continuing to extend Barbie’s reach and evolution from a toy, to a consumer product, to intellectual property. Despite Barbie’s recently reported sales decline of 26% in the third quarter, she still represents $3.6 billion globally at retail. As part of the brand expansion, for the first time she’s going to be up there with Barney, Bullwinkle, and Garfield in the Macy’s Thanksgiving Day parade. Their challenge: Girls now “transition out” of Barbie at age six, and to move her to the 7-14 age bracket, they’ve hired actress Hilary Duff as a spokes-Barbie to market a line of clothes, and created a series of animated features available on DVD. Kilpin echoed the importance of the Internet to their marketing strategy: The Barbie site gets 55 million hits a month (22 million individual), and a sticky average of 15 minutes per visit. Although they do not sell on the site, it links to such retailers as (guess what?) Wal-Mart, Toys“R”Us, and Amazon with hugely positive results.

Conclusions: license cautiously, market hugely, and make your mantra: “Go where the consumers go!”