With a rising middle class and stepped up enforcement of trademark rights, China is rapidly emerging as a consumer market for licensed merchandise of all sorts.

And with that growth, has come an increased focus on using local suppliers to develop and manufacture products tailored to China, dispensing with the one size fits all strategy that once was a hallmark of companies selling products there.

Particularly on the entertainment side, the global properties are being confronted with an increasing number of locally-developed characters and brands. Says Shirley Zhu, who heads up Sesame Workshop’s business in China: “The competition is getting more intense and you are seeing more China-groomed IP that is being introduced both because of the consumer interest and a government push to develop the ulture.”

The interest in China among global licensors has been triggered both by consumers willing to pay a premium for global brands across fashion, entertainment and sports and a crackdown by the Chinese authorities on counterfeit goods, say industry officials. Retailers and mall operators are requiring that licensees have paperwork documenting that they have the trademarks to sell the products, says LMCA Asia’s George Williams. Sinofaith IP Group and Alibaba’s Alifish also have introduced brand protection platforms that allow for tracking of licensed goods.

“Licensing is finally hitting its stride as a viable business model in China and part of that is because trademark and IP laws are getting enforcement,” says Williams. “The stepped up enforcement combined with China’s surging brand awareness have combined with the speed and convenience of the Internet and e-commerce shopping to make an investment in brands and character properties in China” a safer course than it was previously.

$7.6B at retail

Retail sales of licensed goods in China grew to $7.6 billion in 2015, up from $6.1 billion a year earlier, accounting for 3% of the $251 billion global market, according to LIMA’s Annual Global Licensing Business Survey. Entertainment/characters accounted for more than half of that (58.5%) while fashion was at 20.4%. and corporate brands at 12.1%. Royalties earned by those licenses totaled $443 million in 2015 — 3.2% of the global total.

Licensing is finally hitting its stride as a viable business model in China and part of that is because trademark and IP laws are getting enforcement.

The increased awareness of global and local brands has been fueled in part by a booming e-commerce market headed by JD.com and Alibaba, the latter having about 450 million monthly active users. The Internet marketplaces are being complimented by both branded standalone brick and mortar stores and store-within-a-store formats that allow Chinese consumers to sample the products. For example, Sinofaith’s Alfilo is a master licensee for the British fashion brand Austin Reed, operating both an online store and more than 30 brick and mortar locations across Asia, including several in China.

The licensing deals are emerging in a variety of shapes and sizes, but most are combining retail and consumer products with content that is being made available through Chinese government-run broadcasters and cable operators as well as a growing number of streaming services:

Mattel is “buying into properties” in China and forming partnerships for local products, CEO Christopher Sinclair told analysts recently. For example, TV production company Silvergate Media is working with Mattel China to secure local licensees to produce products based on its Octonauts property. Mattel will manage Octonauts-based consumer products and a retail program for them in China. Mattel also gained the rights from Century Innovate Technology to make Fisher-Price toys for the locally-developed Bodhi and Friends license. 

Mattel also signed an agreement to launch toys based on family entertainment company UYoung’s new animated action series “Battleclaw.” The pact represents both the first time both a Chinese property has signed a global master toy license, and that Mattel is introducing product first in China. The series, which launches this week on China Central Television, consists of 78, 22-minute episodes. 

“There is no doubt we need local products and local curated product,” Sinclair said.  “So a lot of work is being done to tailor and drive performance in what is the future in many respects.” Mattel is adding design and development staff in China, where about 35% of its revenue is generated by online sales. “You have to be facile and you have to have entry price points that are different than those in the developed world,” Sinclair said. 

The National Basketball Association has 36 licensees for China and is increasingly adding local suppliers and retailers, the latter including the Baozun, Xebio, Belle, Intersport and Yohobuy chains,  in an effort to appeal to fans in China, says the NBA’s Rob Millman. The local retailers are in addition to the 126 NBA stores in China (some of which are operated by South Korea’s MK Trends) and the e-commerce sites Tmall, JD.com and WeChat. Nike, which signed last year to be the NBA’s official supplier of on-court apparel starting with the 2017-18 season, will likely generate “significant interest” among Chinese fans by using a selection of locally developed products, says Millman.  

•The British Museum’s pact with Alibaba, in which the Chinese Internet giant serves as a licensing agent, is expected to add a broad range of products across apparel, housewares, gifts, leather, jewelry, tableware and replicas inspired by its collection of eight million objects. 

A British Museum online store, which will use Alibaba’s Alifish licensing platform, is expected to launch on Tmall in early 2017 and will be followed by shop-in-shops in department stores and pop-up locations in 2018, says the British Museum’s Craig Bendle. Alfilo will operate the stores, which will be the museum’s first outside the UK. 

The museum is the most visited destination in the UK among Chinese tourists and exhibit tours in China are among its most successful, says Bendle. For the museum, which launched its licensing program in 2015, the Alibaba program is part of an effort to broaden the audience for its collections with products designed for the Chinese market, says Bendle.

•Entertainment One’s Peppa Pig was featured in a display containing playsets and plush toys at the opening of the U.K. retailer Hamley’s first store in Nanjing, China in October. The launch at Hamley’s came on the heels of Peppa Pig Ferris Wheels that debuted at Toys “R” Us in China in June. The products followed the introduction of the Peppa Pig series on CCTV last year and the hiring of local licensing agent PPW, which signed Penguin China for books and King Bee for toys.

•Sequential Brands Group is working with Alibaba to expand Martha Stewart’s presence in China. Stewart was a speaker at Tmall’s Super Kitchen Expo, an event that also featured 24 other companies. Stewart said she would sell online in China likely through Tmall and that her trip to China was “to discover how we can do that efficiently, as well as to promote our brands and products.” Sequential is preparing for a “big movement” with Alibaba and the Martha Stewart brand in China, Sequential’s CEO Yehuda Shmidman told analysts recently.

“Licensing is becoming more integrated into the eco-system. As the income levels rise in China, the consumer perception has changed and has driven the desire for more distinctive IP with heritage and quality being the most attractive features.”

•SmileyWorld launched a partnership with mall operator Liberation for pop-up shops featuring a capsule collection of eyewear and accessories, along with other licensed products including mugs, bags, keyrings and other products. The first of these opened in Galeries Lafayette Beijing. SmileyWorld also partnered with BestSeller Fashion Group China for t-shirts, polo shirts, dresses and sweatshirts that are being sold through BestSeller’s 1,600-store Selected retail chain. It also landed an agreement with C&A for footwear, dresses, and t-shirts that will be sold through stores in China.

•U.S. retailer Build-A-Bear Workshop opened its first store in China at the Shanghai Disney Resort in June and is weighing expanding its presence in the country, says a company spokeswoman. While the first store is owned by Build-A-Bear, the company is considering franchising in China as a means for speeding growth, Build-A-Bear CEO Sharon Prince John has told analysts. 

•Iconix Global Brands is planning to boost its business in China, a market that accounts for 4% of its annual revenue, CEO John Haugh told analysts. “There is no one size fits all in that market,” Haugh said. “There is a big opportunity that is more than 4% and we have a team on the ground there so we can run faster than others.”

•LMCA’s forming of Oasis Lifestyle Asia earlier this year will focus on fashion/entertainment brands, potentially expanding its business from a base in corporate branded hardgoods. The first of deals are expected to be signed late this year, potentially setting the stage for some products in 2017, says Williams.

•Sesame Workshop signed with IMG China to seek licensees for toys, fashion accessories, food and beverage, housewares, skincare and beauty and book publishing. Sesame opened an office in China in 2013 and has been building its brand through syndication of its U.S. programming, a Chinese New Year special co-production with CCTV Children’s Channel, and online video platforms that reach 100 million viewers. Sesame initially had toys withHasbro (plush), but it later pulled back to focus on its Sesame Street English centers – more than 150 centers in 67 cities – and live touring show). It has had apparel agreements in the past in China and is seeking to sign 2-3 new pacts for 2017 that would broaden the brand’s reach to teenagers, says Sesame’s Zhu. Sesame also is considering a theme park for China.

“Licensing is becoming more integrated into the eco-system,” says Zhu. “As the income levels rise in China, the consumer perception has changed and has driven the desire for more distinctive IP with heritage and quality being the most attractive features. And for brands breaking into the market, you still need to have brick and mortar so that people can touch and feel the product.”

Yet amid growing demand from consumers, issues remain with local product development and distribution. Many local manufacturers remain structured for exporting products and lack the distribution need to get products to consumers, says Williams. Brand management skills among local licensee also remain in “limited supply,” says Williams.

“The inherent challenge in the burgeoning licensing industry in China is that the number of products seeking access to China’s billion-plus consumers far outstrips the available resources required to develop the products and make them, by several orders of magnitude,” says Williams.

Chinese consumers are increasingly seeking same-day delivery of products purchased online, a desire increasingly fulfilled by having local licensees, says Alfilo’s Yizan He. The issue of delivery times is increasingly being addressed by e-commerce companies, many of whom already may provide support for Tmall and JD.com retailers, setting up single brand web sites to sell licensed products, says Williams.

“Given the market size, IP owners need to tailor their licensing programs for China in terms of product categories, retail channels and marketing plans,” says He. “Another factor is consumer expectations. Chinese consumers are pampered with same-day delivery for online purchases and that is only possible with a local licensee.”

Local licensees also are moving to attract consumers by developing products in niches left open by major toy suppliers such as Mattel and Hasbro. For example, as Hasbro is introducing new Transformers toys or Mattel is unveiling a new Barbie line in China, Hong-Kong-based King Bee Toys may focus on creating costumes and accessories not provided the larger toymakers, says King Bee’s Jacqueline Vong.