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What exactly is fashion licensing? When people go “the money in Dior is in the licensing,” are they talking about perfume, cosmetics, etc.?
Great question. Licensing in the fashion industry is when a brand (ex. Dior) gives permission to a company (ex. Luxottica – who makes eyewear) to use their name on merchandise.
Why would a brand license out their name? Brands (the licensor) frequently license out their name to a company (the licensee) who can produce goods that require specialist manufacturing or distribution. For example, eyewear and sunglasses are specialty products that require a particular type of production and are distributed differently to a fashion brand’s core products (clothing, shoes, and bags.) So the licensee will create the product (under the guidance of the licensor, of course) and distribute it.
What kind of products are usually licensed? Almost all eyewear, cosmetics, beauty products, perfumes (except Chanel, read about their perfumes here), and timepieces are licensed. These are items that require specialist manufacturing and are sold in a wide range of places, like airports, drug stores, etc… which require a different distribution network than typical high end clothing and accessories. Other products that are sometimes licensed are lingerie, hosiery, umbrellas, jewelry, homewear, and technology related items. Some companies also license out their brand for specialist clothing collections in particular markets, for example, I believe Marc Jacobs has a few licenses in Japan that produce clothing under the Marc Jacobs (or maybe it is Marc by Marc Jacobs) label which are only distributed in that market. (Update: see the link below to a Fashionista article that talks about some licensed products in Japan.)
Who benefits from a licensing agreement? The licensor benefits from the royalties that the licensee will pay to them. They also benefit from wider brand awareness that is normally associated with a larger product range. For example, you can easily grow your customer base by offering lower priced products like sunglasses and perfumes as they are more affordable to a larger group of people, compared to high end clothing. The licensee makes money by selling the licensed products, and when they have a strong portfolio of brands, they can easily attract more licensors and more customers.
Who much control does the licensor have? That depends on the contract but licensors must maintain a very strict level of control to ensure their brand is properly represented. For example, with a perfume license, the licensor would work with the licensee’s “noses” to develop the scent, and they would also work on the packaging and marketing. The licensor will normally have an agreement that means they need to approve almost everything.
What’s the downside to licensing agreements? When a licensor doesn’t have enough control of their licenses, their brand can be damaged. For example, when Rose Marie Bravo took over at Burberry and began rebuilding their brand, one fo the first things they did was buy back a ton of licenses. Apparently they had over 200 licenses that were damaging the brand, like chocolate teddy bears covered in Burberry check-printed foil – and they were “official” merchandise. By buying back all of the crappy licenses, they were able to regain control of the brand.
Further reading: a great article from Fashionista on Monday about some questionable designer licenses in Japan.