Retailers Add Their Star Power to Licensing Deals.

The consumer products licensing boom has a fresh new face: retailers.

As the consumer products market becomes saturated with short-term licensing promotions, retailers are flexing their muscle with manufacturers and licensors, saying that they want long-term brand strategies and brands that extend into new product categories.

In the past, manufacturers would simply latch on to a hot licensing image — be it Barney the Dinosaur or Darth Vader — and be assured a short-term sales boost. But today, retailers need more than an action figure inside a cereal box.

Instead, retailers want innovation and to be included in product development — or they simply won’t stock the product, according to industry observers speaking at the recent International Licensing Industry Merchandisers Association (ILIMA) in New York.

If manufacturers don’t get retailers to buy into the licensing concept, they’ll have a hard time negotiating shelf space, says Kathi Sharpe-Ross, president of a Los Angeles-based consulting firm.

It’s often a matter of manufacturers and licensors getting stores excited about the concept: “If the manufacturer and licensor aligns with the retailer, that retailer will get behind the product and help with point-of-sales displays and in-store events and advertising,” Sharpe-Ross says.

And retailers may wonder if licensing losing steam. In 2004, manufacturers paid $5.9 billion in licensing royalties, a 1 percent increase from 2003, according to ILIMA. (Licensing deals with entertainment personalities account for 44 percent of licensing deals, while fashion and sports figures account for 14 percent each.)

The economics of the licensing model are straightforward. Manufacturers bet that the increased sales from a licensed good will exceed what they pay licensors, an average of 10 percent of the wholesale price.

But as retailers see it, there are already too many poor-selling brands on their shelf, and they don’t want to be stuck a with licensing dud. In addition, retailers would rather have exclusive relationships with brand-makers rather than rely upon licensing.

A popular apparel designer, for instance, might extend his or her line into pet supplies and pet wear sold at a single chain. Retailers thus hope to develop a brand around a consumer’s lifestyle, says Carol Spieckerman, president of a consumer products management-consulting firm in Denver.

“Retailers don’t want a million different brands nor a million different licenses,” Spieckerman says. “[Licensing] is no longer a push from the [manufacturer], but it’s a collaborative effort. This helps with product innovation.”

The shift away from bombarding the market with licensing promotions highlights the fierce competition in retailing. “Retailers and manufacturers used to buy as many licensees as possible; now, it’s oversaturated,” Spieckerman says.

“It doesn’t mean a [hot license] can’t help sell products — it’s just that retailers are more selective in their choice of licensing promotions,” Spieckerman adds. “You see more short-term promotions or temporary brand alliances in the food category.”

Retailers are also partnering with licensors of existing brands. For example, Target Corp. offers an exclusive line of Isaac Mizrahi-designed apparel. Spieckerman says that such a strategy can be extended throughout a store.

That brings the licensing issue right back to stores. Unless retailers have vision and strategy, they can kill the best-conceived licensing deal, Sharpe-Ross says. “You have to give the retailer a sense of enthusiasm, which can also help drive the [promotional] program,” she says.

Sid Kaufman, executive vice president of domestic licensing at MGA Entertainment, said that manufacturers need to consider retailers’ needs carefully, particularly when it comes to licensing deals involving movies or animated characters.

“The [retailer] doesn’t want to hear about today; they want to hear about a year from now,” Kaufman said.

Fickle consumers and fast-changing trends can be a thorny issue. “Companies need to be able to pitch a year in advance, and even then the [movie] might not be done,” said Kaufman.

The amount of lead time between idea and rollout is a major risk for manufacturers and retailers, said Scott Johnson, executive vice president of DNA Digital Media Group in Chicago. There is no telling when and if a movie will hit the market. For retailers planning a summer promotion of a licensed product, a delay can be devastating.

By Kathleen Kiley, Managing Editor, Consumer Markets Insider

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