Activision Blizzard

NEW YORK, NY; March 6, 2017—Sequential Brands Group’s Yehuda Shmidman did his best to put a positive contextual spin on the current state of retail at Li©ense Global’s sold out NYC Summit last week. Even if you didn’t agree with all of his assumptions, he made a compelling case for a future (five-plus years from now) in which we will “look at this [period] as the ‘2008 crisis’ for retail,” a reference to the financial collapse of that year.

Shmidman’s boiling down of the root causes of the current status of retail to two key factors — we are “overstored” at 48.4 square feet of retail space per capita in the U.S., compared to 23 square feet for the next largest market, the UK; and the disruptive effects of e-commerce — crystalized the themes that emerged in a day and a half of presentations by licensors, licensees, and agents at the Marriott Marquis in Times Square. (More on Shmidman’s observations shortly.)

Among the themes:

• Impact of Trumponomics — in particular trade agreements and tax structures — on the licensing business.
• A shift away from boomer-centric to millennial-centric shopper behavior, and the commensurate overwhelming challenge of embracing social media and staying ahead of trendlines. (A favorite presentation among Summit participants I spoke with was PepsiCo Creator Carlos Saavedra — yes, that’s his title, and licensing is part of his domain — whose talk centered on implementing experiential licensing-based programs that spur social media use and lead to new business concepts.)
• Continued rapid growth in licensors’ embrace of off-price and club stores.
• “The anxiety [that the] retail store-based consolidation that we are seeing is the tip of the iceberg,” as PVH’s Ken Wyse put it.
• Acknowledgment of limited growth opportunities for evergreen brands (e.g. “maintain” brands at Iconix, including Canon, Waverly, and Fieldcrest; “heritage brands” such as Izod at PVH. Of course both have developing as well as high growth or, as Iconix terms them, “driver” brands).
• Impact of just-in-time sales data which, combined with consumer ability to order instantly, requires substantially greater speed to market and, as Xcel Brands Robert D’Loren put it, “52 seasons a year.”
• Dramatic differences in how companies define “experiential” licensing, which might mean the Kola House restaurant in NYC’s meat packing district for PepsiCo, sponsorship of a half-marathon for Iconix’s Danskin Now brand, or arena eSports events for Activision Blizzard.
• Near-impossibility of countering counterfeits in many markets.

‘Trumponomics’ Trumps the Conversation

“How will Trump changes impact global trade?” PVH’s Wyse asked. Some were more uncertain than others of how trade policy will shake out. Robert D’Loren of Xcel Brands (and the financial co-founder with Neil Cole of Iconix who had previously run the retailer Athlete’s Foot) was the most emphatic. Having lobbied congressional offices in Washington, DC the prior day with the American Apparel and Footwear Association, he was convinced “the border tax will become law. We were arguing to phase it in to give us some time.”

Speaking of brand holding companies such as Sequential and Iconix, that specialize in licensing out all manufacturing, equity research analyst Eric Beder, of Wunderlich Securities, wasn’t hazarding a guess as to what the new administration will do on the economic front, but suggested that some of the proposals under consideration could deliver “a new tax structure that could potentially destroy every brand that doesn’t have core,” core being something that they make, market, and distribute themselves. (Interestingly, Iconix’s Dave Jones said earlier in the event that Iconix deems itself “asset –lite; we don’t make anything,” touting that as a positive aspect of its business model.)

Of a potential border tax, Beder adds, “A border tax doesn’t let you account for cost of goods [in your pricing]; and you can’t turn on a dime to manufacture in the U.S. It’s going to be tough for Republican senators in states like Arkansas to vote for.” Unlike D’Loren, Beder said, “I think it won’t happen, but it will keep rearing its head” and keep that state of anxiety high.

Meanwhile, Wyse noted that he’d made the infamous shirt and tie licensing deal with Donald Trump 11 years ago. “At some point, for various reasons, I wound up a member of Mar-a-Lago,” he said. “And recently I ran into the president there. He remembered me, and remembered the deal. We talked, and he was very much on top of the apparel business.”

As for the “2008 crisis for retail,” Shmidman likes to look to the book business, which he said is now “post-crisis,” for inspiration: 46% of book stores are gone, he noted, while in the apparel business, for which 15% of sales are online compared to 10%-12% for merchandise overall, only 7% of stores are gone so far. With the growth of online retailing, he added, “We have to be able to adjust distribution.” To that end, Sequential is increasingly focusing on building digital businesses for its brands. Example: Martha Stewart meal kits, a “pure digital business” that is “growing double digits month to month.” Earlier that week, Sequential had downgraded its guidance for 2017, attributing the decline primarily to weakness in the department store segment.

General Insight

• Off-price retail sales were up 9% 2015-2016, reported Iconix’s Jones. But off-price, discount, dollar, and clubs are “mostly for our ‘maintain’ brands.
• PVH’s Wyse said off-price is “crucial — not for designer brands, though we certainly sell some Tommy [Hilfiger] and Calvin [Klein] at Costco. For our heritage brands it’s vastly expanded. We might have a halo [presence] at Macy’s or Belk. But where off-price might have once been 12% of business for certain brands [it] can now be 20%-40%.”
• “Retailers need to get better at e-commerce. It’s not something we want to be in on our own.” (Dave Jones, Iconix)
• Brand marketers and retailers need to “reimagine shopping, entertainment, and social as one.” (Robert D’Loren, Xcel Brands)
• “PepsiCo is doing something every agent in this room wishes every client did: applying metrics beyond dollars.” (Debra Joester, The Joester Loria Group, which represents PepsiCo). On a similar note, Scott Bannell, recently retired from Stanley Black & Decker (represented by Beanstalk), outlined the four objectives that company has for licensing: Increase brand impressions and touchpoints; please end-users so they buy more core; expand to new channels and partners; and use licensing income to invest in brand-building programs.
• “We are a media company, not an apparel company.” (Robert D’Loren, Xcel Brands)
• “We don’t sell posters anymore. We sell wall art.” (Dell Furano, Epic Rights, which specializes in licensing musical artists)
• “We are one year away from Amazon, WalMart, and Alibaba accounting for $1.5 trillion in sales.” (Yehuda Shmidman, Sequential Brands Group)
• “Retailers don’t want the brand, they want product performance.” (Scott Bannell, Stanley Black & Decker)
• “Don’t think you can give licensing part-time to someone on a team.” (Scott Bannell, Stanley Black & Decker)
• “Wall Street doesn’t like debt anymore, which hit Iconix and Sequential[‘s stock valuations].” (Eric Beder, Wunderlich Securities)
• For subscription box service Loot Crate, “every box has to arrive the same day, so the videos of people opening the boxes aren’t spoilers.” (David Morris, Loot Crate)
• Spirit Halloween’s 1300 stores do “the same volume in eight weeks as [parent company] Spencer Gifts does in a year.” (Eric Morse, Spirit Halloween/Spencer Gifts)
• Asked what licensors can do to help retailer Tesco, the retailer’s Rachel Wakley said, “Talk to us. Walk our aisles. Make sure your licensees sell your brand as well as you do. If you have to call me to ask for feedback about your licensee you’re probably working with the wrong licensee.”
• “If you can’t sell it in a tweet, it’s not good enough.” (Rachel Wakley, Tesco)
• “Let the customer tell you what they want, then be the best to deliver it.” (Rachel Wakley, Tesco)
• “If you’re rotten and toxic on the inside, no amount of makeup is going to cover that up.” (Drew Barrymore, actress and founder of Flower Beauty, a cosmetics brand available exclusively at WalMart, and other companies.)

Ira Mayer, co-director of the Institute of Branding & Licensing at LIU Post University, and former Publisher of The Licensing Letter, conducts competitive research for marketing and licensing companies. Contact him at ira@iramayer.com.

NEW YORK—November 6, 2015: Iconix is re-stating its financials for 2013, 2014 and 2015 with a net impact of about $3 million. Ultimately not a huge amount for a public company, but enough to send the stock plummeting 58% today as of 1 p.m. Results for the quarter and year-to-date will be released Monday, but essentially the bad news is out. And it’s no surprise. (See my previous post on Iconix last August for more on the company.) The company also noted that an SEC inquiry into its 2014 financials continues.

Meanwhile, no one has been announced as a permanent replacement for founder/ex-CEO Neil Cole, and although the Peanuts movie opening today, which the company has been betting on to turn its fortunes around, is getting good reviews, they’re not money reviews. “Pleasant” isn’t the sort of adjective that brings out the masses (kind of the equivalent of “she/he has a great personality”), and Iconix is revising downward its forecast of licensing revenues for the year yet again because of Peanuts, because too many of its fashion brands aren’t cutting it at retail, and because of soft performance in key European and Chinese markets.

You’d think Star Wars was the movie opening today, but that’s got more than a month to go. Iconix is surprised that Star Wars is getting the amount of shelf space it is already. Hard to know what galaxy they’ve been hiding under. In a Barnes & Noble in Brooklyn Heights, NY, there are 17 linear feet of tables alongside the escalator that are pure Star Wars, with another 3-4 places around the store offering still more. At Costco two properties dominate the toy aisles: Star Wars and Frozen, the latter the property Disney credits for its strong consumer products performance year-to-date.

Lucy with licensing agent Stu Seltzer of Seltzer Licensing in the mid-2000s.

About 10 years ago, when Peanuts was still licensed by United Media and I owned and published The Licensing Letter, I was granted permission to use a classic panel of Lucy in a lemonade stand to adorn our booth at Licensing Expo. We had invited various licensing consultants to be “Licensing Doctors,” advising newcomers on licensing strategy. We couldn’t change the wording on the actual panel, but we were permitted to attach a little piece of “fence” to get our message across. Feels as though there’s some irony in there somewhere.

Jottings:

Wonderful to wake up to a front page NY Times story about the success of University of Alabama licensing, the first two words of which are “Bill Battle.” Battle, now 73 and truly one of the stars of the modern era of consumer products licensing, played for Alabama in his day. In 1970, at 28, he coached the competition at Tennessee. He founded Collegiate Licensing Company (CLC) in 1981, building the company to handling licensing for about 200 of the leading colleges, universities and conferences before selling to IMG in 2007 for a reported $100 million (IMG is now part of WME). Since 2013 Battle heads the Alabama athletics department. Great to see him get this kind of national recognition. The article, incidentally, notes that CLC guaranteed Alabama $9 million in royalty revenue from sales of licensed merchandise for this year (translate that to about $200 million at retail), and $103 million through the 2024-2025 season (in excess of $2 billion at retail over the next decade).

Activision Blizzard, which is acquiring Candy Crush developer King Digital, is forming a studio to develop movies and TV shows based on the properties it owns, including Candy Crush, Call of Duty, and Skylanders. Unit is headed by Nick van Dyk ex-SVP corporate strategy for . . . Disney.

China’s State Administration for Industry and Commerce is endeavoring to stamp out counterfeiting of Disney merchandise. Unusual for a crackdown like this to focus on a particular company’s IP, but (a) Disney is such a huge chunk of the market and (b) the company is building a theme park in Shanghai. Seems like all roads, no matter where, lead to the House of Mouse.