License to Sell
Casual Living Staff -- Casual Living, July 14, 2012
Why license? and if I decide to do it, what's the right license for me to acquire? These are two basic questions confronting manufacturers and service providers since licensing is a marketing, brand enhancement and line extension tool that is used by a wide variety of businesses offering goods and services.
According to recently released results of Licensing Industry Merchandisers' Association's (LIMA's) Annual Licensing Survey - conducted on the association's behalf by a team from the Yale School of Management - licensors generated an estimated $5.3 billion in royalty revenue in the U.S. in 2011, which translates into estimated retail sales of $109.3 billion of licensed goods in the U.S. and Canada. That's 5% higher than the $104 billion in retail sales in the territory in 2010, and it's the first year-on-year increase in royalty revenue and retail sales in five years. The home décor category, into which most furniture and associated category sales would fall, was up 8.7% in 2011 to an estimated $6.8 billion at retail. The results were driven by a few major factors.
Primary among the factors contributing to the gain is a gradually strengthening North American economy, which showed increased levels of consumer spending. But it also reflects an increased willingness on the part of major corporations over the past few years to look at their brands as assets that can be leveraged, rather than just as platforms for their own businesses. Weighing the costs and potential benefits of licensing against other models - i.e. entering new categories via internal expansion, joint ventures or other methods - they've become more open to a strategic, well thought-out licensing relationship with a high-quality licensee.
For the licensee, taking on a new license can be driven by an array of goals - going after a new demographic target, gaining new distribution (or holding onto existing accounts) by broadening assortments, bolstering sales by tying in with a popular or growing brand, or a host of others. The potential licensee weighs the costs of licensing, such as royalty payments, marketing and design fees and other facets, against the time and cost of building another brand or sub-brand on its own. The licensing model can help a manufacturer radically cut time to-market for a new line, with the benefit of giving the retailer and consumer a brand that has instant recognition and appeal.
At its most basic, licensing depends on emotion. Whether it's trust in a brand's reputation, the lifestyle evoked by a particular label or a pleasing design sensibility, the licensing business model depends on whether or not the brand owner has established enough equity to merit the royalty that a licensee will have to pay.
For example, in announcing a Tommy Bahama license for outdoor furniture late last year, Lexington Home Brands President-CEO Phil Haney called the brand "iconic, with designs and a lifestyle message that have proven highly effective in attracting the aspirational consumer." He said, "Tommy Bahama Outdoor is a natural extension for Lexington. We have a keen understanding of the brand, and will leverage our design and marketing expertise in energizing the product line through the current outdoor distribution channels." The company has been a longtime indoor furniture licensee for Tommy Bahama, so extending the brand to outdoor made sense.
But as much as licensing is about the relationship between brand and consumer, it's also about the relationship between licensor and licensee. Kathy Ireland, who in June was the keynote speaker at the LIMA-sponsored Licensing International Expo, since 1993 has built a business empire which now generates about $2 billion in annual retail sales, with about half the licensees in home goods.
During the run-up to the keynote, we asked her about keys to building a successful licensing business. She cited a number of factors, but an important one is how brand owner and licensee share a vision for the brand, and forming a working relationship to maximize the opportunity for everyone. "Licensing is an extraordinary business," she said. "It is a brilliant mechanism which allows countless, gift ed designers to bring their vision into the world. We must work as licensors to be team players.
"Many licensees fear brands. They become concerned that they have all the work to do and the licensor collects revenue, as passive income. We never want a passive income. We work side by side to make our programs the best they can be. An extra effort, an expression of appreciation, authentic design talent, and a genuine desire for retailers, licensees and our customers to be happy and successful. It's a cornerstone of every long-term licensing program."
Pelican Reef Wicker is the licensee of Panama Jack – one of the emerging brands in the outdoor industry.