Risks and rewards of licensed merchandise

Why license?

Merchandise licensing is usually profitable for both the licensor and the licensee. Some licenses, such as Barbie or Disney classics have a perennial appeal, and others are much more difficult to predict, such as licenses for new product or, related to events of a short duration such as a sporting event or a film release.

From a manufacturing or retailers perspective, buying the licensing rights to a popular character can significantly increase the sales of a basic product such as a T shirt, colouring book or pencil case. It will differentiate your product in the market place and increase its appeal, as long as you have chosen the correct license.

You can probably make a slightly higher margin, but need to cost carefully to ensure your royalties are taken into account, and maybe a contingency for royalty minimums and the higher risk of markdowns is covered.

Licensed product may interest Buyers who have not previously dealt with you, and once you have an account open with them because they want the license, you may be able to sell other unlicensed product to them.

What do you need to provide

Once you know the product and the license you want to use, the licensor will want to know about the products sales history in its unlicensed version, or perhaps with a different licence .They will want a detailed business plan for the promotion, marketing and sale of licensed merchandise. They will want to know target clients and estimated sales. Their interest will be in granting the license to whoever can produce the most revenue for them.

Downside

Even if the product sells well, your agreement will probably mean you have to submit designs and samples to the licensors, and allow them to monitor your quality and sales plans closely.

Stock management must be carried out carefully, ensuring you meet any contractual dates. You must take the likely performance of the licensed product (film, TV series, sports event) into account at all times.

If you choose the wrong license it can be disastrous. If the product does not perform as planned for whatever reason, then you may be left with stock on your hands that you cannot sell at any price. You may be forced to mark down quickly and heavily to clear stocks, and your clients may have to do the same.

The clients you sell product to will not forget failure – they will associate your company with that failure for a long time to come, and will question your judgement.
Quite apart from the loss on surplus merchandise, you may have to pay a minimum royalty fee or penalty for missing targets.

So should you get involved in licensed merchandise?

In certain sectors it is almost impossible not to get involved.

If you are involved you must have someone to advise you who knows how the market works, who understands the product, market, licenses and processes.

They must have up to date information on what is happening now and in the future-what is being planned for release next year and the year after . What is relevant to which season, which product will benefit from a license, will sell season in and season out, and which will be more risky.

Risk and reward must be carefully evaluated. Contracts carefully negotiated, plans laid carefully and continually evaluated.

But if you choose the right license , it can be a fantastic new lease of life for your product.