Margins have been bothering the retailers since long and in recent years, the retailers have altered their philosophy of the high streets in a bid to stay on priority list of consumers. In order to rev up the margins, the retailers have swiftly hopped on the brand licensing bandwagon and are not just entering exclusive deals with the licensees, like Amazon did with Style Quotient for Being Human Jewellery), but also inking direct-to-retail licensing deals while slipping into the shoe of licensee.
Direct to retail or DTR deals are the fad as they enable he retailers and licensors to get in direct agreement, thereby making retailer the licensee as well as seller of the licensed merchandise. Retailers like Zara, Mango and H&M have changed their philosophy; brand licensing has continued to grow as a business model, in part, down to the benefits of direct-to-retail relationships.
Generally retailers didn’t have licensing as a main focus, but they’ve expected it to be a lucrative part of their business. Disney Consumer Products has paved the way in terms of DTR deals; especially in apparel and its first such deal was with H&M in 2000, which is continued to this day.
Explaining the benefits of DTR deals from a licensor’s perspective, Anand Singh, Director – South Asia, Turner said: “Direct-to-retail deals let us forge a long-term relationship with our retail partners. This way we are able to try out new products and various concepts together.” Marks and Spencer boasts of Thomas and Friends, Bob the Builder and Fireman Sam while Celio fashion has inked deal for Simpsons.
DTR deals also aid the shelf space allocation and the licensors are assured that their merchandise won’t be in-store one minute and out the next. In case any DTR property is underperforming, retailers will try changing the product in some way much before taking it off the shelf.
DTR: A winning formula…
Not just licensors, but also retailers are keen on DTR as they want an edge their competitors by offering exclusive licensed merchandise at their stores. The challenge the character licensing industry in particular is facing today is that the main consumers – children are not being loyal like they used to be.
Vasanth Kumar, Executive Director, Max Fashion India said, “Since Max is a private label with own retail, the impact through DTR partnerships is quite good as it helps a lot in connecting with the target segment essentially kids below 12 years.”
“Now character merchandise is no longer for kids only but has spanned to adult segment as well,” said Jiggy George, CEO, Dream Theatre. He added, “DTR deals help retailers push their private labels while being in sync with the needs of consumers. Also, such retailer-backed deals help licensors to cater to the niche audience.”
Also, retailers working with their own suppliers can turn around products faster and can get on to bring tie-in merchandise to retail shelves as soon as a franchise is a success. “There is space for both parties in DTR deals and there needs to be a balance between licensor and the retailer, as there is a certain level of manufacturing capacity in the industry,” said Chitra Johri, Director, Bradford License India.
While it is a widely accepted fact that margins are squeezed all the time in licensed merchandise, as retailers have to keep a cap on ticket size to lower the risk of counterfeit; DTR eases the way.
No licensee as a middle man mean retailers can increase their margins, while selling items at price lower than their competitors. A combination of factors, including more brands entering licensing, limited shelf space and consolidation in retailing, have made DTR the ideal route for many licensors, helping them to get their merchandise on physical shelves.
While in form of DTR deals, the industry is seeing a wave of change in the way licensing deals are carried out, it is not at the expense of licensees. The industry will always require licensees. However, DTR only makes sense if the retailer is going to take the license in-depth, and wants to develop long-term partnerships.