They all do it: Whether German cult shoe brand, Italian luxury brand, French sporting goods retailer, even the American basketball professional league – they enter into special-purpose relationships in order to promote market entry or market penetration and ultimately to achieve an increase in profit. How else would the National Basketball Association come up with a shoe – or fashion company Tom Tailor come up with a shoe collection?
License partnerships are a welcome opportunity for licensees to gain economic added value from brand awareness, manageable costs and the marketing know-how of the licensors. On the other hand, they gain advantages by expanding their product portfolio, opening up new markets and redistributing economic risks.
License to Success
Brands play a fundamental role in positioning a company on the market. They represent an attitude to life with which end consumers identify. The successful development of a brand is characterized by a well thought-out corporate identity, constant maintenance and immense financial expenditure.
If a company decides on a license partnership, those responsible should carefully weigh the advantages and disadvantages – professional license management proves to be essential. As a long-standing licensee in the shoe sector for the brands Tom Tailor and Tom Tailor Denim, Christoph Gessner, Managing Director of Supremo Shoes and Boots Handels GmbH, knows the aspects to be considered and summarizes the most important ones in the following five insights:
1. Be critical when choosing a partner
If you are smart, you will choose a brand with appeal that needs no explanation and that licensees can easily integrate into their portfolio. Both license partners should be similar in their brand orientation in order to preserve authenticity from existing customers. Entrepreneurial parallels also accelerate growing together with the partner and facilitate communication – this ensures rapid progress with a view to the work processes.
2. Don’t pay any price
Licensees pay a fee for each product sold – in the shoe industry, the license fee in the mid-price segment varies between seven and thirteen percent, with the latter number marking the pain threshold. In addition, both parties negotiate an individual turnover threshold. If licensees fail to meet this contractually stipulated goal, there is a risk of high costs. Companies are advised to meticulously include the scope of all expenses in the price calculation for the end product. At the same time, high license fees mean high purchase prices for consumers and harbor the risk of reduced competitiveness and loss of sales.
3. Be realistic about yourself and your company
If you want to enter into a license partnership, you should be aware of your own entrepreneurial capacities and not swim too far. The willingness to buy and cooperate with existing customers must be coordinated in advance in order to avoid difficulties with regard to sales targets.
4. Don’t let your partner ensnare you
The company providing the mark should back the licensee. The more pronounced its marketing activities are, the more helpful it is for the license partners. Advertising a brand and increasing its level of awareness in this way ranks high on the list of priorities. End consumers remember brands that they encounter regularly on all channels.
5. Look in the right places
Contacts to possible license partners can be made through existing business relationships, licensing agencies and trade fairs. The inclusion of new licensed brands is also conceivable, with entrepreneurs paying attention to potential industry overlaps.
Weigh opportunities and risks
Entering into a license partnership initially has many advantages: New customer groups, markets and product ranges can be opened up, entrepreneurial activity on different sales markets reduces economic risks. Licensees benefit from the licensor’s existing networks and distribution channels.
In the best case, dynamic development of such a purposeful relationship can even lead to the dissolution of a license agreement in order to achieve both higher sales and increasing profits with full control. Nevertheless, potential economic dangers must not be ignored. The corona pandemic in particular has led companies of all kinds into turbulent waters and triggered economic crises.
Exponentially growing, dizzyingly high freight costs coupled with disrupted supply chains increased the existing problem. Time and again, partnerships fail because of these challenges, even to the point of terminating their business operations. I recommend companies interested in a license partnership to check carefully whether they can meet the obligations arising from such a relationship, such as fees and sales targets, at any time. Otherwise, the financial fiasco threatens quickly. Including all recommendations, company owners can soon experience a small economic miracle.
About guest author Christoph Gessner
Christoph Gessner is one of two senior managing directors of Supremo Shoes & Boots Handels GmbH. He completed an apprenticeship as a tax clerk before pursuing a career in the shoe industry. After completing a second apprenticeship in a shoe store, the native of Marburg succeeds in joining ANWR Schuh GmbH as a junior buyer. In 2007, Gessner moved to Supremo Shoes & Boots Handels GmbH as a collection developer, sales manager and assistant to the management. In 2019, the son of a businessman and a nurse was appointed as an additional managing director alongside Wawi Weichhart.