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Will the Force of Star Wars Overcome the Wider Licensing World?

With the 2015 Las Vegas Licensing Expo not far, far away, John Baulch, publisher of Toy World magazine, sees a looming future in which officially-licensed Star Wars merchandise defeats all comers. Except for, just maybe, the mighty Minions

Photo: Las Vegas InVader: Will there be a Darth of other licences?
Las Vegas InVader: Will there be a Darth of other licences?
Photo: Las Vegas InVader: Will there be a Darth of other licences?
Las Vegas InVader: Will there be a Darth of other licences?

In a matter of days, the global licensing community will be heading to Las Vegas for Licensing Expo (9-11 June), the largest event of its kind in the world. For more than 30 years, the exhibition has given attendees the opportunity to find the latest hot properties, identify trends in licensed merchandise, build strategic partnerships, secure promotional tie-ins and finalise deals.

It's a truly global show, attracting visitors and exhibitors from across the globe. More than 400 exhibitors occupy booths on the show floor, from global giants of the licensing world through to companies selling some of the most unusual and offbeat properties that you're ever likely to encounter.

Licensing is big business, with the toy market exemplifying just how important character merchandise has become in the overall product mix. Over a quarter of toys sold around the globe are estimated to be character-related, with that number growing steadily each year. While certain licences prove to be successful on a global scale, the popularity of other properties varies from country to country. Moshi Monsters, for example, was hugely successful in the UK two years ago, but failed to scale the same heights in other key territories, notably the US.

This mixture of global and local success stories helps to keep the licensed merchandise sector fresh, but it also makes it a notoriously unpredictable area. Last year's hottest licence – Frozen – provides the perfect example of the highs and lows that can be experienced.

In truth, the property had been expected to make minimal impact in the market, even by its owner Disney. When it exploded around the globe, product shortages inevitably followed. This led to a series of predictable events – consumers clamouring to snap up what little product was available, retailers and licensees suddenly aware of the massive potential of this under-developed brand.

As a result, licensees in their droves approached Disney in a bid to secure new Frozen licences, which Disney wasn't exactly shy in granting. By the time licensees had signed their deals, though, developed product and gone through the protracted approval process, customer appetite was already on the wane.

Just as a large number of new licensees were unveiling Frozen merchandise at this year's toy fairs, sales numbers were declining. Retailers were concerned about the sheer volume of new product being shown to them. Wary that sales were starting to dip, many subsequently adopted a cautious approach to their ordering process, leading to oversupply where only six months ago there were huge shortages. With excess inventory floating around, it's perhaps unsurprising that customer fatigue became an issue, with sales dropping off faster than if there had been less product on the market.

It is clear, then, that licensing has always been as much a game of timing and balance as it is a gamble. Everyone wants a slice of the hottest property, but the more licensees that are involved, the smaller that slice becomes. Licensors have turned 'slicing and dicing' – the phrase for granting broadly similar licenses to a selection of different partners – into an art form.

The same is true on the retail front. The risk averse nature of many retail buyers means that they will always back a licence once it has proven to be successful – even if all of their competitors are also backing it. They tend to favour established licences over new, unproven properties. As a result, many licensors and licensees complain of how difficult it is to get a new licence listed by retailers. One licensor told me recently that she estimates the success rate for new licences to be around 10%. To put that another way, 90% of new licences fail. It's a sobering statistic, especially for brand owners.

Photo: Minions: Set to be bought in millions?
Minions: Set to be bought in millions?
Photo: Minions: Set to be bought in millions?
Minions: Set to be bought in millions?
Photo: Moshi Monsters: Not the toys you’re looking for.
Moshi Monsters: Not the toys you're looking for.
Photo: Moshi Monsters: Not the toys you’re looking for.
Moshi Monsters: Not the toys you're looking for.

Certain types of licensed property also tend to go in and out of fashion. A few short years ago, licensees and retailers were largely steering clear of movie-related properties. These licences typically offered a short window of opportunity, with the movie only shown in theatres for a limited time, maybe four to six weeks. Licensees and retailers had to be sufficiently organised to maximise on the opportunity over that short period with perhaps a brief additional opportunity offered by the release of the inevitable DVD.

As a consequence, many retailers saw TV-based properties as a safer bet, allowing sales to be built over a longer period, with far less risk attached. Over the past few years, the pendulum has swung back towards movie licences with a vengeance. The two properties that are heavily tipped for global success in 2015 are both movie-related – Minions and Star Wars.

As both movies are sequels, they are considered to be significantly less risky than brand new franchises for retailers. They will also benefit from greater retail exposure as buyers have a good idea as to the level of business to expect.

To put this into context, so far this year, sales of movie-related toys in the UK account for 14% of the total market, an increase of 55% year-on-year and double that of the same period in 2013. The other side of the coin, however, is that these lines must surely be taking market share from both non-movie licensed toys and non-licensed toys as a whole.

At the peak of its 2014 success, Frozen had taken a significant amount of shelf space from rival brands, both licensed and non-licensed. Retailers reacted to the sudden surge in consumer demand by cancelling orders for other merchandise, freeing up budget to invest in Frozen product. While this is wholly understandable from the retailer's perspective, it did create short-term challenges for those toy companies that didn't have a Frozen licence.

Looking ahead to the fourth quarter of 2015 and the early part of 2016, there are many observers predicting that a similar situation will occur with Star Wars. It is already being tipped as the biggest global licensing phenomenon that the toy industry will have ever seen. It would take an extraordinarily brave retailer to go against the grain and not back this particular property.

If the over-proliferation of merchandise, however, is accepted as a factor in hastening the demise of a property, then it might be worth remembering that Star Wars will almost certainly be the Most Heavily Licensed Property in the Toy Market Ever. A big difference on this occasion may well be the fact that the movie is being targeted at an all ages demographic.

While children can indeed be fickle consumers, Star War's massive pre-existing adult fan-base could prove its trump card. Providing the movie appeals to die-hard fans as well as a new generation, the adult collectors could sustain the brand as a major seller across the rest of the decade and far beyond – the Holy Grail of licensing.

The 'Star Wars effect' will inevitably cast a long shadow over this year's Licensing Expo. With many licensees and retailers already devoting a large percentage of their budget and range to the brand, what impact will this have on other licensors and properties? A number of brand owners have already delayed major projects to avoid clashing with Star Wars. The new Power Rangers movie, for instance, has already been pushed back to 2017. Others will be carrying on with a 'business as usual' approach, hoping that the retail market will continue to support a diverse range of properties rather than putting all its eggs into one basket.

Photo: John Baulch (far right) as Cookie Monster at the 2014 Licensing Expo.
John Baulch (far right) as Cookie Monster at the 2014 Licensing Expo.
Photo: John Baulch (far right) as Cookie Monster at the 2014 Licensing Expo.
John Baulch (far right) as Cookie Monster at the 2014 Licensing Expo.

One thing is for sure – there is never a dull moment in licensing.

The 2015 Licensing Expo runs from 9-11 June at the Mandalay Bay Convention Center in Las Vegas.

John Baulch is Publisher of Toy World,
the leading b2b toy publication in the UK and Europe

Content provided by Picture: HKTDC Research
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