The Inside Scoop on Exclusive Merchandise

Exclusive merchandise can be a major point of differentiation for a cataloger. Unfortunately, obtaining an exclusive license or exclusive rights to an item is usually complicated or costly. But catalogers have come up with ways to offer proprietary merchandise without obtaining exclusive license rights.

Leery of licensing

To obtain an exclusive license — say, the exclusive rights to Harry Potter widgets — marketers contact the licenser or license owner. From there, says Laura Liebeck, executive editor of New York-based License! magazine, prospective licensees must negotiate the terms.

“The language of licensing agreements, exclusive and otherwise, is very elastic,” Liebeck says. Some licensers may charge an upfront fee in addition to royalties and guarantees. (Whereas royalties are payments based on the quantity of licensed merchandise sold, guarantees are predetermined costs that must be paid regardless of how much merchandise is sold. In other words, the licensee is guaranteeing the licenser a certain amount of income, even if the licensed product fails to sell.) Other licensers might not charge anything up front — but they’ll probably demand heftier royalties. What’s more, licensers require licensees to adhere to strict rules regarding the use of the license, such as the precise dimensions of a licensed artwork.

While all licensers charge a royalty for their licenses, exclusive and otherwise, Liebeck says that there is no standard percentage for the royalty.

Even if a cataloger were willing and financially able to agree to pay the guarantee and royalties, some licensers are hesitant to grant exclusive rights. “We generally do not grant exclusives, because we’ve determined that it normally does not prove to be prudent,” says Cliff Hackney, vice president of licensee acquisition for Albany, IN-based Paws, the sole licenser of products featuring the Garfield cartoon cat and the publisher of the Garfield Stuff catalog. “By and large, catalog companies [in addition to many retailers] are not big enough for us to give exclusivity to, since our contracts are usually long-term with large guarantees.”

Paws typically licenses its products to companies such as card and gifts manufacturer/marketer Hallmark and larger direct marketers that sell collectible merchandise. Even then, “we’ve agreed to grant categories of products to collectibles direct marketers, rather than grant them exclusive license agreements,” Hackney says. For example, Paws will grant one marketer of collectible plates the right to produce plates adorned with the Garfield image, one marketer of collectible thimbles the right to emblazon Garfield on thimbles, and so on.

“It’s mainly a gentleman’s agreement that says competitors are not allowed to launch products in those categories,” Hackney says, though there’s no legal recourse if they do.

Where there’s a will…

Because of costly guarantees, business-to-business cataloger Computer Expressions does not seek exclusive licenses from companies. The Philadelphia-based manufacturer/marketer sells computer-related accessories, including mouse pads and CD cases, which feature licensed characters such as Pokémon and the Power Puff Girls. “We don’t ask for exclusivity from licensers, because requesting it puts a lot of pressure on us to perform,” says Lori White, director of marketing and licensing.

But White explains that a company can obtain a license for an exclusive design without obtaining the exclusive license for a product. For example, Kmart may have a license for one type of Power Puff Girls mouse pad, White says. But Computer Expressions, which also has license rights to Power Puff Girls, could continue to manufacture Power Puff Girls mouse pads so long as it doesn’t use the same design as Kmart. If the Kmart mouse pad is rectangular, for example, Computer Expressions’ could be circular.

Catalogers can also opt for private-label merchandise in lieu of an exclusive license, says Leila Griffith, president of Jacksonville, FL-based Leila Griffith Consulting. For example, XYZ gifts cataloger can contact a manufacturer of gourmet coffee beans and arrange to sell the beans as an XYZ-labeled product. The arrangement does not preclude the vendor from selling the coffee beans to other catalogers and retailers, but as far as the consumers are concerned, only XYZ catalog sells the XYZ-brand beans, making them in effect exclusive.

Burr Ridge, IL-based personalized gifts cataloger Personal Creations takes another approach: It asks some of its vendors to redesign merchandise so that the cataloger can personalize the items for customers. “Sometimes a manufacturer has great products that aren’t so great for personalization,” says merchandise coordinator John Christopher. “So we’ll ask them to leave an area on the merchandise blank to enable us to paint or engrave it.” The cataloger can then sell the product as an exclusive, since the merchandise was altered for the company, though it does not prohibit the vendors from selling the original versions of items to other catalogers or retailers.

Such arrangements account for only about 1% of Personal Creations’ merchandise, Christopher says. A number of its products are purchased ready for customization. Many of the company’s T-shirts, sweatshirts, and frames are standard products from vendors that it then customizes inhouse with heat transfers, engraving, or other methods.

Developing your own exclusives

The majority of Personal Creations’ exclusive designs — about 20% of its overall merchandise — is designed inhouse. But Christopher says it goes outside for the manufacturing of some of its inhouse designs. “A lot of our afghans and throws we develop and design inhouse and have a manufacturer make them for us, although the manufacturer cannot then use our designs for any other vendors,” he says.

Gifts cataloger The Paragon is no stranger to this tactic. “We’ve found that the more we have to do with the development of an exclusive item, the easier it is,” says Steve Rowley, president of the Westerly, RI-based mailer.

Rowley says that vendors are less likely to grant exclusivity on an existing item than they are to agree to produce an exclusive design for a cataloger. “If a vendor already has the item in its product line, it’s hard to demand exclusivity or expect the vendor not to sell it to someone else unless you buy it in huge quantities,” Rowley says. To that end, Rowley says The Paragon works with both small and large vendors to manufacture exclusive merchandise designed by the cataloger.

Exclusive licenses from smaller vendors

While the costs of and rules involved in obtaining exclusive licenses may be prohibitive to many catalogers, smaller licensers such as local artisans can offer catalogers a unique product and a less-complicated exclusivity agreement. “Working with a smaller vendor or artisan may not be nearly as stressful as working with a large licenser,” says merchandising consultant Leila Griffith, president of Jacksonville, FL-based Leila Griffith Consulting.

Say you work with an artist whose prints have sold well in your catalog, and you’d like to offer some of those designs on home products. You can contact the artist to propose the offer of an exclusive license to a throw blanket. “A cataloger could give the artist the parameters, such as size and color, and the artist would come back with a design,” Griffith says. Rather than require guarantees and royalties, an artist might sell a design outright. “The artist could sell the design for $500,” she says.

But Griffith cautions that catalogers carefully consider who would manufacture the item. “Producing your own can be a nightmare. Throw manufacturers, for instance, typically have their own designers,” she says.

By the same token, the manufacturing time for a large quantity could be longer if the vendor or artisan runs a small operation with limited help. As a result, regardless of what type of merchandise is being licensed, Griffith says catalogers should work at least a year out from putting the product in the book.
MC

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