Fashioning Deals

A changing retail landscape brings forth a new business model where licensing plays an increasingly dominant role. There's a new dynamic going on at retail and it's taking many big fashion brands away from traditional

April 6, 2018

A changing retail landscape brings forth a new business model where licensing plays an increasingly dominant role.

There's a new dynamic going on at retail and it's taking many big fashion brands away from traditional department store distribution and granting them exclusive entry at retail chains like Kohl's, Target, and Wal-Mart. Although this retail trend has been building for some time, it's now gaining momentum.

Several years ago the industry saw big fashion brands like Mossimo move into Target, and more recently Op gained exclusive entry to Wal-Mart. As part of a major restructuring plan, Liz Claiborne recently announced that its Dana Buchman brand is being licensed to Kohl's. How did this shift in the fashion retail landscape start to unfold and what led to the creation of a new business model where licensing—especially direct-to-retail deals—plays an increasingly dominant role?

"Over the last several years, we've seen a real consolidation at retail and now we're seeing that at the brand level," explains David Conn, executive vice president, Iconix Brand Group, a brand management company that owns

a portfolio ranging from mass to class. Candie's, Badgley Mischka, Rocawear, and Joe Boxer are part of the mix.

A consolidated retail environment certainly took its toll on traditional distribution venues, specifically the department store channel. As a result, many fashion houses have shifted from a wholesale model to one that is increasingly focused on opening up their own stores.

"We're seeing brands walk away from department stores and place their destiny in their own hands," says Patricia Pao, CEO of Pao Principle, a fashion retail consultancy. With their own retail doors, fashion houses can control their own branding, imaging, and distribution.

Pao believes that the days of designers like Ralph Lauren building their brands with the goal of becoming fashion powerhouses are over. There's a new strategy infiltrating the designer mindset and it's impacting the nature of the business. "Their strategies now center on growing to an attractive revenue and profit base and then selling off to a larger organization that can provide them with financial and strategic support necessary," says Pao. These brands, now nurtured and well established, are being purchased by brand management companies such as Iconix or sourcing giants like Li & Fung, which aim to license them out.

This selloff strategy will certainly continue to impact the ebb and flow of business. "I think we'll see power increasingly consolidated into a few big companies, along with the demise of small brands growing into large companies," predicts Pao.

Going Direct

Iconix brand Grop's Conn thinks we'll also see more direct-to-retail deals in the future.

He should know. Iconix currently owns six brands that are being licensed directly to retailers. Among them are Candie's at Kohl's, Op at Wal-Mart, and Mossimo at Target. "We bring a lot of excitement to the retailer," says Conn of the key role Iconix has played in helping department stores redefine their apparel portfolios. "We're bringing strong brands to retail and these retailers have exclusivity."

Iconix Brand Group's chairman and CEO Neil Cole shifted gears in 2003 moving from a traditional outsourcing model toward a licensing-centric model. "Our belief is that it's difficult to do everything and do it well," says Conn. "Our business model is about specialization. We focus on what we were good at, which is marketing and building brands, and we partner with companies that are experts at operating and manufacturing. The reason that companies like Iconix and Li & Fung are buying brands is because our business model offers a more efficient way of doing business in the 21st century."

High Returns

So far, this strategy has proven to be an effective and lucrative business model for Iconix. In 2007, the company has given guidance to Wall Street of revenues between $150 million and $160 million, and Conn will give guidance for 2008 of somewhere between $240 million and $250 million. He believes that the retailer—whether it be Wal-Mart, Target, or Kohl's—has the "best of both worlds" with this model in place. With the middleman being cut out, retailers can offer nationally recognized brands that are exclusive but can continue to operate on private-label economics.

"The decision to convert the business has been a good one, but we're really just beginning," says Conn. With the belief that this business model can be applied to other industries beyond apparel, Iconix recently purchased bed and bath brands Cannon, Fieldcrest, Charisma, and Royal Velvet.

"In the long term, we see ourselves with a large portfolio of brands that serve all segments of the consumer marketplace from luxury to mass, spanning many different industries," says Conn.

Although he notes that he doesn't see any direct competitors in the marketplace, Conn expects new companies to emerge. "This is a new way of doing business, so we will be emulated," he says.

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