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Licensing Can Be Your Shortcut to Success

Martin Brochstein, Senior Vice President of Relations and Information for International Licensing Industry Merchandisers’ Association (LIMA), contributed this article to BusinessNewsDaily's Expert Voices: Op-Ed & Insights.

In a crowded marketplace, in which retailers and consumers are confronted with a seemingly endless array of product choices, the value of a brand has never been higher. Whether it's a familiar or beloved character, a popular sports or collegiate logo, a trusted corporate trademark, a fashion designer's pattern or another recognizable piece of intellectual property, licensing can be a shortcut to breaking through the clutter.

Overall, the licensing business is on a definite growth curve. In 2012, owners of trademarked IP generated an estimated $5.454 billion in royalty revenue in the U.S. and Canada — a 2.5 percent increase from the prior year, and the second consecutive year of growth, according to results of the annual survey of the International Licensing Industry Merchandisers' Association. That translates into estimated retail sales of $112.1 billion!

The five largest sectors were entertainment and character, corporate trademarks, sports, fashion, and collegiate. Together, they represented 94 percent of the overall licensing revenues in 2011.

Growth in the licensing business is coming from virtually all industry sectors, propelled by a general rebound in consumer spending from the depths of the severe economic slump of the past decade. But it's also being generated by the ability of licensors, manufacturers and service providers to find new ways to strategically leverage the equity of the brands, characters, imagery and other intellectual property.

For example, the Entertainment/Character sector was by far the largest revenue generator in 2012, accounting for $2.55 billion in royalty revenues and an estimated $49.3 billion in retail sales, up 2.8 percent from a year earlier. A large portion of those sales are being driven by the kinds of highly publicized major motion pictures and a range of long-running children's television series that are traditional industry staples. But there are other sources of entertainment that are playing an ever-expanding role, too.

For example, digital entertainment is also the source of an increasing number of licensing efforts — everything from web-based video franchises such as Annoying Orange or Smosh, to mobile gaming hits such as Angry Birds. One of the big hits of the year was Skylanders — a hybrid of physical toys and videogaming from Activision. Those kinds of digitally-based franchises are sure to become even more key to the licensing business as consumers spend more and more of their entertainment time in the digital realm.

The second largest segment is corporate brands, where total licensing royalty revenues reached an estimated $928 million, translating into an estimated $21.6 billion in retail, or 19.3 percent of overall licensed retail business. More and more corporate brand owners have moved into licensing as a way of extending their equity into new merchandise categories and distribution channels.

In sports licensing, the hot growth segments are tailgate-related products and women's apparel and fashion accessories. While sales to hardcore and casual fans have always been the most basic elements of sports licensing, all the major and minor sports leagues (as well as those in the collegiate market) are always looking for new avenues to tap into the lifestyle appeal of the sporting culture.

Separately, licensing has always been a major factor in the designer fashion business; designers typically keep certain core categories in-house, while using licensing to extend their brands into such areas as fashion accessories and health & beauty aids/fragrances. In some cases, top designers have been able to make the leap into home goods, taking their design sensibilities into such areas as bedding, home textiles and tabletop.

What will spur licensing growth going forward? Perhaps the most enervating aspect of the business is that it's difficult to predict future trends in a business that is so tied to popular culture and the broad consumer economy.

Within the entertainment sector, it's likely the growth in properties from the digital realm will continue to grow. But it should also be noted that this can be a tricky road to travel; in many cases, the popularity of those titles and characters comes and goes so quickly that it's difficult to get merchandise to market quickly enough to leverage the opportunity.

"There are so many properties out there nowadays, and we want to have what the customer is looking for in the stores," said Andy Prince, Walmart Senior Category Director for Toys, during the keynote panel at Licensing Expo 2013. "But it requires you to work very quickly, not only from the retailer's standpoint, but from the licensor's standpoint, from the manufacturer's standpoint, because properties are coming and going so quickly … The customer is so fickle, and we just have to figure out how to move quicker in that environment."

Reality TV shows also continue to be fodder for strong licensing programs. A great current example is Duck Dynasty, the A&E TV hit that has been a strong seller for Walmart and a wide range of specialty store merchants. And well-executed celebrity-based programs will also continue to drive business in a host of categories — and not always in the most obvious ways. Look at the success that CVS/Pharmacy has had with actress Salma Hayek's NUANCE line of health and beauty products!

As always, when the right property is combined with the right product at the right time, licensing can be a shortcut to success for an IP owner or manufacturer of any size.

The views expressed are those of the author and do not necessarily reflect the views of the publisher.

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