There’s more to fashion than celebrity trends, runway shows, and new season rollouts. The industry is an economic staple of the North American economy, and fashion licensing is a growing segment. At 13.7% of total revenues, licensing produces an estimated $770 million in royalties. Based on that indicator, it is estimated that licensed fashions generated retail sales up to nearly $17 billion in 2013.1
Anyone looking to build a career in fashion may find themselves working on one side or the other of a licensed product agreement. Candidates should understand the role licensing plays, especially if they seek help from Fashion Placement Agencies in NYC.
How Licensing Works
The established company brand or designer, defined as the licensor, offers its trademark to other firms making different types of products. The second company, known as the licensee, agrees to manufacture and distribute the new product lines.
Designers often take advantage of their own brand names to expand market opportunities by licensing into related product categories besides fashion, including all kinds of accessories, home goods, and health and beauty aids. The original brand may be licensed to a third party, who will manufacture, market, and distribute goods under the brand name, even originating apparel designs in some cases.
The more traditional approach is for the original brand to retain all aspects of apparel design and production, while extending the licensee rights to manufacture and market in related, non-apparel categories. Whatever the business arrangements, consumers should perceive the brand as one entity, with no distinction in quality and appeal between core brand and licensed products they may purchase.2
Success in fashion licensing is built on a successful original brand and a well-run licensing arrangement, with clearly defined roles for all involved. Tight control over design and quality control are essential to preserve the all-important brand image, and retain its productive value for the long term.
Fashion companies, like other industries, recognize that properly done licensing offers a powerful way to grow brand awareness and build image, both for the original core products and for the expanded offerings in other segments. The initial core product investments have already been made, saving on some cost outlays for new licensed product lines. Licensing to a third party manufacturer gives brand originators access to another entity’s expertise and channels of distribution, including previously untapped overseas markets.
Certain product categories demonstrate the greatest strength in product licensing sales, reflecting general market trends and giving designers guideposts to follow when considering their own licensing options. The strongest categories in 2013 were seen in licensing for perfumes and fragrances, apparel, and accessories.1 Major brands may extend licenses to manufacturers of unrelated products that simply serve as extenders of the brand name into otherwise unattainable markets. Licensees benefit from attaching their products to an established powerful brand and reaping the rewards that go along with it.
Risks and Cautions
Designers who embark on licensing ventures should be aware that they are giving up a degree of control over part of their brand, for the specific services and products involved. They should develop an agreement based on careful consideration of every aspect that will impact the brand and core business. It is important to specify:
- which specific products are included;
- if distribution will be domestic only, international only, or a combination of the two;
- which stores will carry the products, and if they will be sold online as well;
- what is the term of the agreement, and if it is renewable;
- how quality control will be maintained.
The licensor must perform extensive due diligence when evaluating the partner company, to determine if they are able to make and sell the products and impose quality control. The prospective partner should demonstrate a good record of success in their industry segment, delivering inventory on time and maintaining excellent customer relations.
It is important to limit the scope of the agreement to maintain control over future licensing opportunities and the ability to add other partners. Product rights should be defined as narrowly as possible.3
The licensor should make heavy use of trademarking and take steps to protect the mark, filing in every country and for every product or product category in which it will be used. Most countries outside the U.S. grant trademark rights based on registration, rather than on use in commerce (the U.S. approach).3
A Two-Way Street
The ultimate success of any business agreement usually depends on the degree to which it is mutually rewarding and workable for both parties. Naturally, each party will seek to gain advantages. It is smart to craft an agreement that builds on the respective strengths of each side, and protects them from harm. In the event of a misunderstanding, disagreement, or change of business status, even the best working relationship can become unmanageable or simply outlive its usefulness. In that event, the licensee may want to assign the agreement to another, or terminate the agreement.
Licensing partnerships are complex business arrangements, with many outside influences and factors that can affect success. Despite all best efforts, one or the other partner may prove unequal to the task, and either fail to fulfill their role, or be unable to overcome sudden market changes. A good agreement will have an out clause or a detailed exit plan based on any number of specific events.3
Given the risks and potential liabilities of licensing a successful brand, it makes sense for designers to rely in part on a professional licensing advisor or agent, in addition to their own attorneys, to attain the best possible agreement and avoid the pitfalls. A specialized advisor will understand the importance of defining terms like net sales, how to determine royalty rates, and guaranteed minimums.4
Licensing does more than build sales for fashion and other design-based brands. It generates new, expanded economic strength and opens up significant numbers of new job opportunities. Determined candidates, with help from the right Fashion Employment Agencies in NYC, have a greater choice of potential job opportunities, especially if they are armed with a deeper understanding of the importance of fashion licensing.