by Hank Schlesinger, Vending Times – Issue Date: Vol. 49, No.9, September 2009, Posted On: 9/11/2009
Licensed products entered the bulk vending industry in a big way more than a decade ago, and though right now they may be down, they’re far from out. According to experts in both the licensing and bulk vending businesses, the category will remain viable and profitable far into the future. According to an annual survey conducted by the International Licensing Industry Merchandisers’ Association, the global financial slump severely depressed consumer spending on licensed properties last year. Brand owners collected an estimated $5.7 billion in royalty revenues in 2008, down a significant 5.6% from 2007’s $5.8 billion. LIMA recorded profit declines in eight of the nine defined licensing categories, with only the collegiate market posting an increase.
“The business was doing okay through the first three quarters of 2008, then consumer spending in general went off a cliff in the last quarter. You had retailers downgrading or, in some cases, canceling orders,” said Marty Brochstein, LIMA’s senior vice-president of industry relations and information. “It’s a challenging business environment, to say the least.”
According to LIMA’s research, licensing income from entertainment characters (such as Mickey Mouse and Hannah Montana) declined 3.9% last year, from around $2.7 billion in 2007 to slightly more than $2.6 billion in 2008. Accounting for some 46% of the licensing business, this drop was seen as a major blow to the industry. Sports licenses, another major segment, showed an even larger decline, dropping from $8.1 billion to $7.4 billion.
“Given the current economic climate, the revenue declines are not unexpected,” said Charles Riotto, LIMA’s president. “However, a strategic, thoughtfully implemented licensing program remains a very effective way for businesses to build their brands, drive incremental revenue and position themselves to thrive in a rebounding economy. To succeed, it’s more important than ever for brand owners to identify brand extensions that will support and enhance their core businesses, while retaining flexibility to be there when consumers are ready to buy.”
This general decline may not be entirely bad news for bulk vending, and other industries that purchase licensing rights. Speaking off the record, many licensees indicated that licensing fees, including royalties and guarantees, had inflated over the past several years. This decrease has initiated a transition to bring these costs back in line with “reality.” Whether this is good news for bulk vending, already confined by the slimmest of profit margins, remains to be seen.
“Sales of licensed bulk products are stronger than they’ve ever been, simply because of the public’s familiarity with the product,” said A&A Global’s Phil Brilliant. He noted that his company has been assertive in acquiring high-profile licenses for bulk vending products. Over the past year, A&A has picked up licenses for Major League Baseball and the National Basketball Association, and renewed its partnership with Marvel Comics to bring such well-known characters as Iron Man and Spider-Man to bulk venders. “A&A is still aggressive in its licensing program,” said Brilliant. “It’s an important part of our consumer product strategy.”
There are proven reasons why offering licensed goods continues to work in bulk vending. Consumer familiarity with these licenses often is bolstered by ongoing promotion and marketing efforts across a scope of industries. Promotional efforts for movies include multimillion-dollar advertising and promotional campaigns. When “Iron Man II” hits theaters in May 2010 (as it is tentatively scheduled), it will no doubt be accompanied by a major promotional blitz that will help sales of Iron Man-themed bulk vendibles.
“When consumers are valuing every penny they’re spending, they are looking for the trust factor. That’s where licensing comes in,” said LIMA’s Brochstein. “If you can present a product with a well-known brand, it enhances the sale of that product.”
Many bulk vendors point out that offering licensed merchandise helps when presenting to potential new accounts, particularly malls and other upscale venues. “Brand awareness” can ease location management’s resistance to bulk equipment.
Brilliant and others in the industry also observed that the majority of licensed products arrive in bulk venders with clearly defined demographic targets. For operators who take the time to study their locations’ demographics, this is very appealing and can help boost sales significantly.
For suppliers, licenses can establish desirable “exclusivity” if one can become the sole provider of a hot product. Even with the added charges of royalties and guarantees, licensed goods can offer pleasing profit margins for both suppliers and operators if developed and deployed smartly.
But many bulk vending suppliers have discovered over the years that creating their own licenses can prove even more profitable.
Brand Vending Products maintains its own licensing program through its Desert Sky Graphics, which creates its unique designs. “Our focus is on themes that are timeless,” said Brand’s Craig Goodman.
What seems clear, even in the midst of a struggling economy, is that licensing is in no danger of fading from the bulk vending landscape. Indeed, given the recent fall in licensing fees, combined with a need to increase vend price points, licensed products will likely play an ever-larger role in bulk vending. Despite their higher wholesale cost, licensed products provide numerous marketing benefits over generic merchandise, and help operators make the jump to higher price points.