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Shelf Interest: Licensors Cut Exclusive Deals with Retailers

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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.

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