July 8, 2013

Direct To Retail: Licensing in India

Direct to retail Licensing is a model whereby the retailer is both the licensee and the seller of the product; the retailer in effect acquires licensing rights for their private label. DTR Licensing as a format is a licensing world unto itself ranging from using licensing across varied segment of private labels: appare...

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Direct to retail Licensing is a model whereby the retailer is both the licensee and the seller of the product; the retailer in effect acquires licensing rights for their private label. DTR Licensing as a format is a licensing world unto itself ranging from using licensing across varied segment of private labels: apparel, food and beverages, personal care, consumer electronics and more. In fact DTR licensing models are the very laboratory for nurturing new and customised licensing models because it commands two very important advantages: the retailer’s strong understanding of its customers and the possibility of creating a branded environment that bring the licensed product alive – both key to creating a successful licensed programme.  The revenue potential for DTR runs in billions of dollars worldwide, it is in India that the true potential could be unlocked to meet very specific retail objectives that retailers are currently grappling with and to take the market by storm.

While sports, celebrity, fashion and theatrical licensing are now making their presence felt and in coming months will start making headlines, it is entertainment licensing that makes up the biggest slice of licensing revenues in India. This stems from the fact that India is very strong with two of the three pre-requisites of a growing licensing market: a large affording class and a strong entertainment economy. India scores very well under both these heads, but where it lacks woefully behind is in retail. Organised retail is still only 10% of the market, but the prospects are bright. With easing of norms, retail can be unshackled and can only grow from strength to strength. And that is what will pitch India into the exponential growth path for Licensing. While this is the larger narrative arc, there is a far more eminent idea that is waiting in the wings – that of private labels and how they can leverage licensing to not just great advantage, but to take on specific challenges that are unique to India.

Private labels in India of all leading retailers are now becoming a major part of the profit pie. In the last three to four years, retailers have fine-tuned the private label product and pricing to result in higher returns. Industry estimates show that In-house private brands account for 12-15% of sales and more than 20-25% of profits for most Indian retailers. And at the forefront of the charge of private labels are the Apparel and Food & Groceries segments. Both these segments can reap rich profits as they are also the best poised to leverage licensing to great advantage.

In the case of apparel licensing, private labels can enter into Direct To Retail licensing models with a large number of pay-offs. These range from creating licensed brands with private labels that competitors do not have, driving destination shopping by dint of having signature licensed lines of products, being on the forefront of bringing the top licensed properties to hordes of admiring fans and most importantly driving revenues and growth for private labels. Research shows that sales of licensed products in the right retail environment which brings alive the experience for shoppers for their favourite entertainment stars or spots clubs or even movies,  is far higher than in non-branded environments. With retailers being able to control the sales environment and providing for dedicated space, they are much better placed than licensees to really reap the benefits of licensing. This coupled with the retailers’  deep understanding and insights of their target audience’s buying behaviour, creates a lethal combination to catapult DTR licensing to be a differentiator as well as a major growth driver for organised retail in apparel.

Apart from entertainment properties, Fashion, Celebrity, Sports and Theatrical licensing are very well suited for apparel and allied segments like accessories as well as gifts and novelties. Marks and Spencers, Zara, H&M and Target are some retailers who have used licensing to reap rich dividends internationally.  Leading E-tailers are another segment who could very successfully use DTR models for furthering their brand and footprint.

Food & Groceries is the second segment that is seeing fervent activity in the private label space. The segment has larger margins; the key players have access to commodity manufacturers and in some cases also own processing centres and logistics subsidiaries. In case of leading retailers, private labels account for 25% of the food and grocery sales – while this is a significant share, the sector also faces the might of large FMCG players and their large marketing budgets. Licensing offers multi-faceted solutions to take these challenges head-on. Iconic and much loved licensing properties offer creative solutions, starting from product to marketing and promotions.  Licensed properties could be great brand ambassadors for private label products like biscuits and snacks, juices, breakfast cereals, personal care, cleaning agents.   Licensed properties bring outstanding product packaging solutions that breaks the clutter; provide stunning visual merchandising elements that can make the retail environment come alive and offer innovative promotion solutions can help induce trial and drive awareness about private brands, all in all creating distinctive products that engage and delight customers and drive long term growth for private brands in this very crowded segment.  Internationally Carrefour, Systeme U, Coop, Tesco are some leading international retailers who have driven growth with DTR licensing in food and groceries. Closer home, Future Group runs a successful DTR alliance on their brand Tasty Treat.

With  the Indian retail market  expected to increase to 750-800 billion dollars by 2015 and organised retail set to emerge as a leading piece, retailers will find the private brand space most lucrative to ramp up  earnings and market share. In addition private brands go a long way in forging a bond with consumers. As competition heats up, Direct To Retail licensing holds the answer to forge ahead.  The key is in finding the best and strongest of licensing properties and identifying the gaps in the product portfolio that can truly leverage licensing to create that winning combination. Now is the time, to power up with Direct To Retail Licensing.

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