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Retailers Look to Licensing Deals to Boost Brands and Profits

Once the exclusive bastion of consumer products, the licensing boom is now extending to retailers as more are interested in long-term brand strategies and brands that extend into new and emerging product categories.

In the past, manufacturers would simply latch on to a hot licensing image for a short-term sales surge – whether it be to Spiderman, Tweety Bird or Big Bird. But retailers today need more. They want innovation and they want to be involved in product development with manufacturers and licensors, according to industry leaders who presented at the recent International Licensing Industry Merchandisers Association (ILIMA) in New York.

According to Kathi Sharpe-Ross, president of a Los Angeles-based consulting firm, manufacturers need retailer license concept buy-in up front in order to assure shelf space. "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 said.

Savvy retailers also realize that licensing can be very lucrative. In 2004, manufacturers paid $5.9 billion in licensing royalties, a 1 percent increase from 2003, according to ILIMA. (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 fairly simple and the gamble calculated. Manufacturers are betting that the increased sales from a licensed product will exceed what they pay licensors, which is an average of 10 percent of the wholesale price, according to ILIMA.

According to industry players, however, retailers believe there are too many poor-selling products and brands. They would develop exclusive relationships with brand marketers. But unless retailers have vision and strategy, they can kill the best-conceived licensing deal, according to Sharpe-Ross. "You have to give the retailer a sense of enthusiasm, which can also help drive the [promotional] program."

Sid Kaufman, executive vice president of domestic licensing at MGA Entertainment, said manufacturers must also be more forward-thinking about retailers’ needs, especially around films or animated characters. "The [retailer] doesn't want to hear about today; they want to hear about a year from now," Kaufman said. "Companies need to be able to pitch a year in advance, and even then the [movie] might not be done."

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