Licensing has had a significant impact on the luxury sector, allowing Western brands to enter new markets in distant corners of the world. Through licensing, the licensor or trademark owner hopes to increase their revenue and build brand awareness. But, beginning in the late 1990s, the practice of licensing went downhill because of quality and design problems and the omnipresence of certain products, which brought about brand dilution. Consequently, after years of negative press, many professionals forgot about the positive benefits of licensing and how it can create win-win situations. Today, however, though a large number of luxury and premium brands have licensing agreements for their accessories and cosmetics lines, it seems like the newer practice of collaborating may be taking root.
Licensing versus collaboration
Younger consumers won’t remember that there was a time when fashion collaborations seemed impractical and utopian. In 2002, when the Takashi Murakami x Louis Vuitton collection dropped, collaboration hype was just starting to take off. Today, collaborations are the rule of law, with Target partnering every year with a new fashion designer, Louis Vuitton teaming up with rap sensation Kanye West (2009), and Versace and Lanvin working with the Swedish fast-fashion retailer H&M (2011).
The growing popularity of collaborations is explained by the dematerialization of luxury, which, according to Amati & Associates, “entails that our perception of luxury — and our definition of luxury — are changing and evolving toward a less material domain, with new forms of luxury emerging.” This concept explains why the uber-wealthy segment is less interested in conspicuous consumption and luxury shopping sprees, and as a result, heritage houses have been forced to expand toward new consumer segments. Therefore, this trend has accelerated a return to licensing on one hand while also enhancing event-oriented collaborations.
According to Steven Ekstract, Brand Director at Informa Markets, collaborations are a type of licensing. “For the luxury marketplace, these collaborations are usually limited run drops and specifically designed to create a buzz around the brands participating,” Ekstract says. “The limited run makes them difficult to get and therefore in higher demand.”
Why licensing is a vital process for the future of luxury
As Fashionbi notes, “eyewear and cosmetics are the most licensed product groups in the fashion and luxury industry,” and eyewear companies like Luxottica and Safilo have become major players in the eyewear licensing business because of their partnerships with luxury brands such as Dior, Chanel, Ralph Lauren, and Tiffany& Co.
Most consumers see cosmetics and eyewear as a gateway to the world of luxury because these goods come at a lower price point. For instance, The Fashion Law has shown how 60 percent of Chanel’s revenues come from its beauty line, and the same publication also mentioned that one of Givenchy’s top-selling products from 2017 was lipstick given the high cost of their garments. It must be noted that licensing power players like Coty, Luxottica, and Interparfums, perform even better than some established luxury brands. Yet thanks to these profitable deals with Coty and Luxxottica, heritage houses such as Dior, Burberry, and Bulgari have earned massive royalties that have helped them achieve unprecedented growth.
In today’s globalized world where “digital technologies are constantly changing consumer behavior,” luxury brands are fighting for relevance. Therefore, building a loyalty-inspiring brand becomes a survival imperative. In other words, after seeing the success of lifestyle brands such as Lululemon Athletica and Ted Baker, the luxury sector is embracing the way these companies have built aspirational identities that customers continually return to. But to achieve that, Forbes says brands need to offer a “distinct experience, largely because they own and operate their own stores, along with wholesaling through third-party retailers. This allows them to control the retail experience and provide the customer with a singular, concrete brand image.” Because of this, luxury brands that want to become lifestyle brands see licensing as a prerequisite.
The biggest challenges in the licensing process:
- Losing authenticity
Ralph Lauren was the quintessential American brand, practically inventing the American preppy aesthetic, but since the turn of the 21st century, the company’s image has taken a series of various blows. Nowadays, most experts agree that unfortunate licensing agreements have diluted the brand, such as low-quality polo shirts produced in developing nations that found their way into department stores all across the United States. But by embroidering the company’s logo on inexpensive garments of questionable quality, Ralph Lauren has brought about the decline of its brand.
The Kering-owned Gucci label understood the risks of extensive licensing deals, so in 2014, it brought its eyewear segment back in-house. According to Reuters and The Fashion Law, “The group said it wants to be involved in every step of the business from design and marketing to sales, but would continue to outsource manufacturing.”
- Selecting trusted partners
In an interview with Pamela N. Danziger from Forbes, Ira Mayer, the publisher and executive editor of The Licensing Letter, underlined “the need for the licensee to be fully aligned with the brand in the program’s overall goals and objectives.” According to Mayer, Tiffany & Co. found a strategic partner that is deeply rooted in the perfume industry in Coty. The company provides a comprehensive distribution network, a global expertise in the beauty sector, experience, and consistency — all of which were necessary to partner with one of the world’s most important luxury brands. On the licensee’s side, selecting a questionable partner that doesn’t promote ethical practices can quickly compromise the integrity of any luxury brand.
- Brand equity dilution
As The Fashion Law points out, Calvin Klein vs. Warnaco Group is a great example of everything that could go wrong in a licensing agreement. In the 1990s, when Calvin Klein was at the top of one’s game, it entered a licensing agreement with Warnaco Group, but, according to a lawsuit filed by Calvin Klein in May 2000, Warnaco was accused of distributing “Calvin Klein jeans-wear through unapproved discount outlets, such as warehouse clubs such as Costco and BJ’s.” Instead of reaching new consumers and expanding the brand into new categories through a successful licensing agreement, Calvin Klein became highly commercial, and soon lost its glamorous image and aura of exclusivity.
Clearly, licensing has potential challenges, but luxury brands can minimize their risks by selecting partners that upgrade their services and goods. And for licensor evaluating potential partners, they should look for brands that promote the collaborative mindset and situations where both sides can come out as winners.