Clouds Over Portugal

A looming economic crisis and massive structural change cast gloom over the future of the Portuguese licensing market.

The Portuguese market is in a state of both massive structural change and also looming economic gloom. The economy is in terrible shape with inflation running at 2.5 percent and unemployment at 7.6 percent. These figures combined to push the 2006 deficit to 4.6 percent of the $176.6 billion gross domestic product. This is more than 50 percent above the EU-permitted deficit of 3 percent, and inevitably foreshadows difficult decisions and hard times.

Even if difficult times are on the horizon, but have not actually arrived, Sandra Vauthier-Cellier, co-managing director, 4Kids Entertainment International, says that the worsening economic situation has already had a noticeable effect on the marketplace. "There has been a huge rise in the popularity of discounters," she says, "with people now buying very much on price. This is especially noticeable in apparel where the price is becoming as important as the textile and design." This increasingly important market sector is dominated by two players, Dia & Minipreco and German discounter Lidl.

This shift to discounters is not confined to the public, so marked has it been that the licensing business is also now prepared to see its products in discount stores, whereas, per Vauthier-Cellier, "even a few years ago you would have seen none."

The increasing emergence of discounters as dominant players in the retail sector is perhaps just the most dramatic sign of radical change that has swept through the structure of the Portuguese retail sector over the past three to five years. This has seen Portugal move from a fragmented retail market to a mass-market structure with hypermarkets, malls, supermarkets and specialty stores, like Toys "R" Us.

As a result, Portugal as a market has moved into line with many of the retail and licensing trends common throughout Europe, especially in the increasing dominance of foreign chains such as Lidl, Toys "R" Us, and Carrefour. However, in other ways there are still aspects of this market idiosyncratic to Portugal. For one thing, the move to mass market has lead to a noticeable concentration of retail outlets around the two major cities of Porto and the capital Lisbon. "Outside of these two cities," says Vauthier-Cellier, "these is still a sector for the small independent store, but it is nothing like as dominant as it was even five years ago, and the only examples of department stores, such as El Corte Ingles, are only to be found in Lisbon and Porto."

Another way in which the Portuguese licensing market differs from many others in Europe is in the importance of the promotional market, which probably ranks second only to apparel and ahead of back-to-school, toys and gifts, music, and new technologies. 4Kids has a very successful promotion with McDonald's and "The Dog," which is about to enter its third year.

Also while most of the dominant brands are imported, such as Shrek, World Wrestling Entertainment, Noddy, and Spider-Man, Portugal also has homegrown brands of great significance such as Floribella, and family show on Sic TV, and MCA, and youth property on TVI.

For the size of the country (its population is just 10.6 million), Portugal has punched above its weight, and the structure is changing to resemble the more common European structure. But the numbers are difficult to ignore, and hard times seem unavoidable.