From High School Musical to Shrek, licensed
clothing is big business for the multiples and is on course to get even bigger as they extend their
offers. Josephine Collins reports
Comic book and cartoon lovers aren't the only ones salivating over the prospect of a bumper crop of animated and action hero movies this year. The supermarkets are too.
The release of movies such as Iron Man next month, the next instalment in Disney's Toy Story franchise in June and Shrek 4 in late summer don't just add up to big bucks in the box office. They also provide a significant boost to children's clothing sales thanks to the character licensing opportunities they represent.
New clothing featuring Buzz and pals will soon be vying for attention on the supermarket rails with a vast array of T-shirts, nightwear and underwear adorned with characters from the likes of High School Musical and Ben 10.
Character-licensed clothing has become a lucrative gig for the supermarkets. The overall market is worth £442m a year, according to NPD License Tracker, and the supermarkets are very much at the front of the field, Asda currently occupying the number one spot, Tesco second and Sainsbury's, though someway behind, coming up fast on the rails. So how much bigger can the the licensed clothing market realistically become?
On the face of it, a lot bigger. The supermarkets are expected to significantly ramp up their offers over the next 12 months as the summer's blockbuster movie releases and the World Cup throw up an unusual wealth of tie-in opportunities.
"Toy Story is going to give the biggest wow, but the World Cup through FIFA, and other licences, will be crucially important across a whole range of products," predicts Anthony Thompson, outgoing managing director of George at Asda.
This year's growth will come on the back of an already impressive performance. Disney won't put an exact figure on its business with the supermarkets, but says that it has enjoyed strong, double-digit growth for the past three years.
"In recessionary times, Disney tends to grow its businesses because shoppers revert to tried and trusted brands," says Liam Gallagher, Disney fashion director for the UK and Ireland. "Our supermarket business is growing overall, and that rate of growth is surpassing that in traditional fashion retailers. Woolworths left an opportunity for grocers to ramp up their licensed clothing business but they were already opening it up."
The upshot is that some 30% of BBC Worldwide's clothing business is now with the supermarkets; at Warner Bros, 25% of the apparel team is consistently working on supermarket business; and the supermarkets account for about 30% of Turner's apparel and nightwear licensees.
These figures are only set to increase and Asda and Tesco, which stole a march on their licensed clothing rivals thanks to their focus on price, the depth of the offer and improved in-store display, will need to watch their backs.
Sainsbury's focus on clothing may have come later than its rivals' as it concentrated on improving its core grocery business, but it is doing its best to make up for lost time. Non-food forms an integral part of the company's 2010/11 expansion plans and the retailer is already beefing up its TU clothing collection.
In recent months, the retailer, which tends to focus on 'evergreen' brands such as Thomas the Tank Engine, Charlie and Lola and Winnie the Pooh rather than shorter-lasting movie and event-related tie ups, has been putting greater emphasis on its licensed childrenswear offer, stocking a greater range and allocating more space to it. It's a strategy that is already starting to pay off. Sales of licensed clothing accounted for just 2% of total childen's clothing in 2008 but have now increased to more than 10% and are still growing.
This has helped propel the retailer into the top 10 of NPD's License Tracker for the first time, but it's aiming for a place much higher in the rankings. In the coming months, the retailer intends to run cross-category promotions to bring 'theatre' into its stores with licensed childrenswear products displayed alongside other products. So DVDs and stationery products from a particular movie could be sold next to clothing emblazoned with characters from that movie.
Neither Asda nor Tesco will be resting on their laurels. Both are expected to boost their offers and it's not just the slew of movies and sporting opportunities that is encouraging them to up the ante.
A key reason more character-licensed clothing is hitting the shelves is that the supermarkets have really cemented their relationships with the powerful studios and broadcasters that own the intellectual property. "George has fantastic and growing partnerships with Disney and Warner," attests Thompson. "Licensing is not about one-off contracts but about long-term growth derived from long-term relationships."
It's vital to have a good relationship with the licensor. They're the ones who approve all products, third-party suppliers and licensees, after all. The relationships used to be long-distance affairs, but these days that is less and less the case.
Disney has 'field offices' close to Tesco's clothing operation in Welwyn Garden City and George's Lutterworth headquarters to ensure its dealings run smoothly. And BBC Worldwide is creating a retail team specifically tasked with focusing on grocers with cross-category promotions, the creation of exclusive product and the development of events.
"The grocers are a hugely important part of the market," confirms Neil Ross Russell, managing director of Children's at BBC Worldwide.
"But there are challenges that we are addressing from our side, including moving away from the traditional licensing supply chain and working directly with grocers on product differentiation, margin and footfall."
The supermarkets too are raising their games. They have been recruiting experts to manage the licensing business internally, according to Paul Bufton, general manager of Warner Bros Consumer Products UK. He feels that their current position is merely "the tip of the iceberg" and that their licensing business will continue to grow as retailers finesse their offer and ramp up online sales.
If they do, we could be approaching a tipping point not just in terms of the size of the market but also the balance of power. At the moment, deals are weighted in favour of the licensors. Licensees pay an up-front fee to use the IP and on top of this pay royalties, which are a percentage of wholesale sales.
The up-front fee and level of royalties are negotiated between licensee and licensor depending on the property. Because of these additional costs, retail margins are inevitably squeezed. Unlike typical retail clothing mark-ups, which are 100%-plus of the wholesale price, retailers must negotiate hard to maintain maximum margins, but inevitably have to make some concession to the cost of using the IP. But these hits on margin can be more than made up for by volume, according to Sainsbury's childrenswear buying manager John Carolan.
"Although there is a lower margin on licensed clothing, consumer recognition is high and the sell-through is better," he explains.
One way to boost margins is through direct-to-retail deals, where the retailer effectively becomes the licensee but without paying the upfront fee using its existing supply chain. However, some licensors feel they retain more control over design and quality using their existing licensing supply partners. The upshot is that grocers tend to sign a mix of traditional licensee and DTR deals with, in both cases, elements of exclusivity in terms of design and fabrication.
Negotiating the right prices and margins to protect the interests of both parties is only one part of the equation, of course. If the movies turn out to be turkeys, you could end up with a lot of unsold clothing. Fortunately, most supermarkets take a less-is-more approach to the number of characters they'll use and stick resolutely to the surefire hits. And they know they're onto a winner if 'pester power' comes into play which will no doubt be the case with the likes of Buzz and Shrek.
In short, "character", as Sainsbury's Carolan describes it, "is here to stay".
Fashion in figures
Supermarket clothing sales checked in at £3.2bn in 2009 9% of total clothing sales
The market is dominated by Asda (4.3% share), then Tesco (2.7%) and Sainsbury's (1.4%)
Supermarket childrenswear sales hit £900m in 2009 19.9% of total childrenswear
Children's character clothing was worth £442m in the 12 months to 30 September
Most character clothing is bought for five to eight-year-olds and girls account for 54%
Ben 10 (Turner CN) is the top seller for boys and High School Musical (Disney) for girls
The top-three selling character categories are nightwear, T-shirts and underwear
Source: Verdict Research and NPD License Tracker
Comic book and cartoon lovers aren't the only ones salivating over the prospect of a bumper crop of animated and action hero movies this year. The supermarkets are too.
The release of movies such as Iron Man next month, the next instalment in Disney's Toy Story franchise in June and Shrek 4 in late summer don't just add up to big bucks in the box office. They also provide a significant boost to children's clothing sales thanks to the character licensing opportunities they represent.
New clothing featuring Buzz and pals will soon be vying for attention on the supermarket rails with a vast array of T-shirts, nightwear and underwear adorned with characters from the likes of High School Musical and Ben 10.
Character-licensed clothing has become a lucrative gig for the supermarkets. The overall market is worth £442m a year, according to NPD License Tracker, and the supermarkets are very much at the front of the field, Asda currently occupying the number one spot, Tesco second and Sainsbury's, though someway behind, coming up fast on the rails. So how much bigger can the the licensed clothing market realistically become?
On the face of it, a lot bigger. The supermarkets are expected to significantly ramp up their offers over the next 12 months as the summer's blockbuster movie releases and the World Cup throw up an unusual wealth of tie-in opportunities.
"Toy Story is going to give the biggest wow, but the World Cup through FIFA, and other licences, will be crucially important across a whole range of products," predicts Anthony Thompson, outgoing managing director of George at Asda.
This year's growth will come on the back of an already impressive performance. Disney won't put an exact figure on its business with the supermarkets, but says that it has enjoyed strong, double-digit growth for the past three years.
"In recessionary times, Disney tends to grow its businesses because shoppers revert to tried and trusted brands," says Liam Gallagher, Disney fashion director for the UK and Ireland. "Our supermarket business is growing overall, and that rate of growth is surpassing that in traditional fashion retailers. Woolworths left an opportunity for grocers to ramp up their licensed clothing business but they were already opening it up."
The upshot is that some 30% of BBC Worldwide's clothing business is now with the supermarkets; at Warner Bros, 25% of the apparel team is consistently working on supermarket business; and the supermarkets account for about 30% of Turner's apparel and nightwear licensees.
These figures are only set to increase and Asda and Tesco, which stole a march on their licensed clothing rivals thanks to their focus on price, the depth of the offer and improved in-store display, will need to watch their backs.
Sainsbury's focus on clothing may have come later than its rivals' as it concentrated on improving its core grocery business, but it is doing its best to make up for lost time. Non-food forms an integral part of the company's 2010/11 expansion plans and the retailer is already beefing up its TU clothing collection.
In recent months, the retailer, which tends to focus on 'evergreen' brands such as Thomas the Tank Engine, Charlie and Lola and Winnie the Pooh rather than shorter-lasting movie and event-related tie ups, has been putting greater emphasis on its licensed childrenswear offer, stocking a greater range and allocating more space to it. It's a strategy that is already starting to pay off. Sales of licensed clothing accounted for just 2% of total childen's clothing in 2008 but have now increased to more than 10% and are still growing.
This has helped propel the retailer into the top 10 of NPD's License Tracker for the first time, but it's aiming for a place much higher in the rankings. In the coming months, the retailer intends to run cross-category promotions to bring 'theatre' into its stores with licensed childrenswear products displayed alongside other products. So DVDs and stationery products from a particular movie could be sold next to clothing emblazoned with characters from that movie.
Neither Asda nor Tesco will be resting on their laurels. Both are expected to boost their offers and it's not just the slew of movies and sporting opportunities that is encouraging them to up the ante.
A key reason more character-licensed clothing is hitting the shelves is that the supermarkets have really cemented their relationships with the powerful studios and broadcasters that own the intellectual property. "George has fantastic and growing partnerships with Disney and Warner," attests Thompson. "Licensing is not about one-off contracts but about long-term growth derived from long-term relationships."
It's vital to have a good relationship with the licensor. They're the ones who approve all products, third-party suppliers and licensees, after all. The relationships used to be long-distance affairs, but these days that is less and less the case.
Disney has 'field offices' close to Tesco's clothing operation in Welwyn Garden City and George's Lutterworth headquarters to ensure its dealings run smoothly. And BBC Worldwide is creating a retail team specifically tasked with focusing on grocers with cross-category promotions, the creation of exclusive product and the development of events.
"The grocers are a hugely important part of the market," confirms Neil Ross Russell, managing director of Children's at BBC Worldwide.
"But there are challenges that we are addressing from our side, including moving away from the traditional licensing supply chain and working directly with grocers on product differentiation, margin and footfall."
The supermarkets too are raising their games. They have been recruiting experts to manage the licensing business internally, according to Paul Bufton, general manager of Warner Bros Consumer Products UK. He feels that their current position is merely "the tip of the iceberg" and that their licensing business will continue to grow as retailers finesse their offer and ramp up online sales.
If they do, we could be approaching a tipping point not just in terms of the size of the market but also the balance of power. At the moment, deals are weighted in favour of the licensors. Licensees pay an up-front fee to use the IP and on top of this pay royalties, which are a percentage of wholesale sales.
The up-front fee and level of royalties are negotiated between licensee and licensor depending on the property. Because of these additional costs, retail margins are inevitably squeezed. Unlike typical retail clothing mark-ups, which are 100%-plus of the wholesale price, retailers must negotiate hard to maintain maximum margins, but inevitably have to make some concession to the cost of using the IP. But these hits on margin can be more than made up for by volume, according to Sainsbury's childrenswear buying manager John Carolan.
"Although there is a lower margin on licensed clothing, consumer recognition is high and the sell-through is better," he explains.
One way to boost margins is through direct-to-retail deals, where the retailer effectively becomes the licensee but without paying the upfront fee using its existing supply chain. However, some licensors feel they retain more control over design and quality using their existing licensing supply partners. The upshot is that grocers tend to sign a mix of traditional licensee and DTR deals with, in both cases, elements of exclusivity in terms of design and fabrication.
Negotiating the right prices and margins to protect the interests of both parties is only one part of the equation, of course. If the movies turn out to be turkeys, you could end up with a lot of unsold clothing. Fortunately, most supermarkets take a less-is-more approach to the number of characters they'll use and stick resolutely to the surefire hits. And they know they're onto a winner if 'pester power' comes into play which will no doubt be the case with the likes of Buzz and Shrek.
In short, "character", as Sainsbury's Carolan describes it, "is here to stay".
Fashion in figures
Supermarket clothing sales checked in at £3.2bn in 2009 9% of total clothing sales
The market is dominated by Asda (4.3% share), then Tesco (2.7%) and Sainsbury's (1.4%)
Supermarket childrenswear sales hit £900m in 2009 19.9% of total childrenswear
Children's character clothing was worth £442m in the 12 months to 30 September
Most character clothing is bought for five to eight-year-olds and girls account for 54%
Ben 10 (Turner CN) is the top seller for boys and High School Musical (Disney) for girls
The top-three selling character categories are nightwear, T-shirts and underwear
Source: Verdict Research and NPD License Tracker
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