The Five Greatest Challenges Facing the Global Licensing Industry
This is the first edition of “Extracts from Ekstract,” a new monthly column in which Steven Ekstract, Managing Director of Global Licensing Advisors and for more than two decades a leading voice in licensing, will offer his opinions and perspectives on the licensing business.
Steven launched Global Licensing Advisors – a global, independent advisory service for companies seeking direction for brand collaborations — in September 2020.
His involvement in the licensing business goes back to 1998, when he co-founded License! Magazine (now known as License Global under the ownership of Informa markets). In 2018, Steven took on the Brand Director role for the Global Licensing Group at Informa Markets with new Expo launches in China and Japan.
The global pandemic has created significant changes in consumer behavior, with new trends emerging as well as accelerating those that were already underway. Many of these trends may permanently alter our behaviors and the zeitgeist of the next decade as we move into a post pandemic world.
There are any number of pundits who offer up predictions for what the future will bring, but none of us really know. That said, there are sign posts on the post Pandemic highway that provide us with clues. In my view the following are arguably the five most obvious challenges we face in licensing.
The Greatest Challenge: How quickly will the Pandemic end?
Covid-19 and the efficacy of the vaccines against them remains a mystery. This is our first and greatest challenge we face—the speed and efficacy of vaccinations. Here in the U.S., the vaccine process since the start of the new Biden/Harris administration has been speedy and relatively well organized. The two biggest challenges: How quickly can the rest of the world vaccinate and will the vaccines protect against new variant strains?
Challenge #2: Direct to Consumer Model
Until the Pandemic struck, our licensing industry was following the same tried and true business model it had for years. IP Owners and Agents license to licensees, who in turn sell to retailers. Royalties were calculated based on wholesale price of goods. This business model was beginning its transition pre pandemic, however the Pandemic accelerated the change by a decade in a single year. A just released report from UBS retail analysts estimates that within the next five years, in the U.S. alone, 80,000 to 150,000 retailers will close their doors as the U.S. shifts from brick-and-mortar retail to ecommerce. The largest licensors are shifting to a direct-to-consumer model, as are future minded licensees, creating their own ecommerce storefronts and working with licensors to co-market together. The next year will determine which companies are able to successfully transition and thrive in the new DTC model. Challenges: New tools needed in a DTC arsenal requires learning new skills in online marketing for ecommerce. Most critical of these is understanding customer data and the ability to reach those customers with content that will drive them to commerce.
Challenge #3: China
The China challenge differs depending on which area of the licensing world you do business in, but it has one thing in common. Politics. The current trade war between the U.S. and China which is now in its third year has raised prices on goods from China as a result of higher tariffs. Costs have also sharply risen on shipping and raw materials. For Western licensors, the issue of China’s growing nationalism combined with its economic might and consumptive consumer market create significant challenges (witness the recent consumer led boycott in China of H&M and Nike). Whether you are a licensee that manufactures goods in China or a brand that licenses to China, the political climate that has developed because of the Pandemic has caused a significant Great Wall to develop between China and the West. China is now the largest consumer market in the world in terms of physical goods purchased. Challenges: For brands that are dependent on the China market, navigating the politics will require careful strategic positioning. For Licensees that manufacture in China, higher costs and tariffs will result in higher priced consumer products and lower margins.
Challenge #4: Shift to Remote Work
While it is easy to label Covid 19 as a once in a century anomaly that will soon pass, after a full year of work at home mandates, many large companies have seen the benefits of work from home for employees as a permanent solution. Beyond lowering significant costs in real estate and infrastructure savings, the quality-of-life benefits for workers has been undeniable. This has increased opportunities in categories of consumer products like home furnishing, DYI, home goods, cookware, lawn and gardening and recreational products and home office. Long commutes disappeared while employee productivity increased substantially. According to a recent article from the Harvard Business Review “Stay-at-home orders liberated time previously spent commuting and created flexibility in work schedules, enabling many employees to devote additional time to their jobs. Challenges: While the benefits of work at home create more productivity and greater freedoms, the challenges are in cross collaborations and collegial relations as well as work/life balance.
Challenge #5: Environmental, Sustainability
While science still cannot pinpoint how Covid-19 jumped from animals to humans, scientists have shown that climate change will lead to even greater future pandemics. The evidence is great enough to force humanity and our attendant governments to take greater action towards environmental protections with a focus on sustainable, recyclable, and renewable. The current Pandemic created a Sea Change event that should be a wake up call to humans to reboot and refocus on protecting our environment and creating more sustainable products. The challenges here are many, but the alternative is obvious: An unsustainable and eventually uninhabitable earth.