Shelf Interest: Licensors Cut Exclusive Deals with Retailers

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.”

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.

Meanwhile, the licensing business has its own issues. The competition is tighter than ever, and there are fewer breakthrough properties. Promising entertainment up-and-comers such as Wow! Wow! Wubbzy! and Yo Gabba Gabba! haven’t turned into Dora the Explorer dollarwise. Even Disney seems to have run out of steam.
“The only variable is if there’s a super-hot property out there that commands consumer and retail attention and defies what’s going on in the marketplace,” says Debra Joester, president of the Joester Loria Group, New York, the licensing agency for Jeep, Care Bears and Discovery Communications. “But today, that property doesn’t exist.”
Brochstein agrees. “The definition of success is smaller than it was five or 10 years ago. It was easier to have an $800 million or $1 billion licensing program on a tentpole film then,” he says. “It’s incredibly difficult if not impossible now because there are fewer retailers and so many more properties. Memorial Day used to kick off summer movies. If I’m a boy, I got Wolverine, Star Trek, Terminator. Which one am I supposed to spend my increasingly scarce disposable income on?”