California Apparel News

L.A. apparel makers rely on specialists to boost image

Hot Kiss was in business for seven years before it signed its first licensing agreement, for handbags, in 2001. Since then, the Los Angeles-based junior-apparel manufacturer has signed agreements for swimwear, footwear, childrenswear, accessories and socks.

Hot Kiss is one of an increasing number of apparel companies looking to diversify their brand images through licensing. The benefits are obvious—licensing allows apparel makers to strengthen their market shares by crossing into new lines of distribution and by building brand recognition.

But there are risks involved.

A strong brand image can provide an appropriate umbrella for many products, but veteran licensors advise manufacturers to proceed cautiously.

“One product can make the other stronger—it’s all about brand awareness,” said Robert Margolis, chief executive officer of Van Nuys, Calif.-based Cherokee Inc. “But if they don’t apply the appropriate controls, it could hurt the brand’s image.”

Originally a manufacturing company, Cherokee became a brand-licensing company in the mid- 1990s. Today, the company is strictly a licensing company for its Cherokee and Sideout brands.

Maintaining consistency

Maintaining a level of consistency in design, quality, packaging, demographics and distribution is a top concern for many companies that license their brands. For some, the way to ensure consistency is by turning to companies that have found a particular product niche. Companies such as Maxine of Hollywood, Lunada Bay, Pacific Connections, Brown Shoes and Manhattan Beachwear have made a name for themselves with licensed swimwear, apparel, footwear and accessories.

“This is an era of specialization,” said Margolis, who deals in retail direct licensing with major retailers around the globe. “Ideally, the licensor has expertise in manufacturing the products they’re familiar with and should align itself with experts in each category so those products will be competitive in the market.”

Los Angeles-based Manhattan Beachwear, which signed a licensing agreement six months ago to produce trendy swimwear for Hot Kiss, is expecting the line’s sales to reach between $4 million and $5 million for 2003.

Striking a balance between producing licensed apparel and its own in-house labels keeps Manhattan Beachwear’s sales on track, said Lisa Keen, director of sales.

The 17-year-old company has produced swimwear for Hobie for more than 15 years and has a small stable of in-house swim brands, including Surfside, VM Sport and Ocean Avenue.

Staying in or going out

Some apparel companies including Lucky Brand Dungarees and Self Esteem, have set up their own in-house licensing divisions.

“The brand is so hot, we get a lot of people contacting us,” said Marcy George, director of licensing for Vernon, Calif.- based Lucky Brand, which is a division of New York-based Liz Claiborne Inc.

The contemporary denim company currently holds 10 licenses, including swimwear, men’s and women’s leather apparel, men’s accessories, women’s accessories, children’s, fragrance, eyewear, socks, intimates for men and women, and footwear.

Lucky Brand said there is still plenty of room for growth, particularly in the bed and bath category; however, it is taking a temporary break from licensing.

“We have a lot on our plate right now because we grew so quickly,” said George.

Other companies are turning to consultants like Mick Mankowski, who launched his Santa Barbara, Calif.-based apparel consultancy, SJ Licensing, two years ago. Mankowski introduces apparel manufacturers to potential licensees. In other words, he’s a matchmaker.

The number of apparel makers who want to diversify their brands’ offerings is increasing, according to Mankowski, who was previously president of licensing for Santa Monica, Calif.-based accounting firm Stonefield Josephson. SJ Licensing has about 32 clients, including labels Hot Kiss (for domestic licenses), Carlos Santana, Z. Cavaricci, Cotton Stuff and Elle Girl. Mankowski’s clients range from major apparel manufacturers and specialized companies to accountants, attorneys and members of the factoring community.

“It’s in their best interest to help their clients diversify,” said Mankowski. “Licensing is a perfect vehicle for both parties to succeed.”

But Mankowski cautions: “It’s not like you can put two companies together and hope it works out. It’s important for vendors who specialize in a particular product to know that a company has a strong knack for merchandising.”

Most apparel companies start out slowly, with one or two licenses to see how they do, said Mankowski.

“[Retailers] want to know the manufacturer’s reason for product growth and they look for leadership,” he said. “And, good financing doesn’t hurt either.”

Decent exposure

There are substantial benefits for licensees, as well.

For companies that manufacture licensed products, alliances with big brand-name apparel makers give them a strong footing in the marketplace and new channels of distribution.

“Licensing positions you strategically in the market. It becomes product— plus it gives you that incremental advantage. You pay royalties, but you get exposure,” said leather-product manufacturer Martin Terzian, chief executive officer of Ontario, Calif.-based Pacific Connections Inc.

Terzian’s company produces leather accessories for Hot Kiss, Field and Stream and Mary Kate & Ashley, among others.

Terzian said one of the benefits of being a licensee is showing his product alongside other brand offerings at trade shows, which results in a cohesive presentation.

“The buyer has to first relate to the brand before they buy the product,” he said. “It’s easier to understand the brand if the products are all presented together. Retailers who have success with certain brands want accessories to go with them.”

Pacific Connections’ sales revenues currently exceed $150 million, said Terzian. Licensing makes up roughly 25 percent of the company’s business, and the rest is composed of private-label handbags and accessories for retailers such as Target, Mervyn’s and Kohl’s.

Two years ago, Pacific Connections entered a licensing agreement with Hot Kiss to produce leather handbags and accessories.

“We were their first licensee, and we are proud that we had the vision and insight to recognize the potential,” said Terzian. “Our decision to license Hot Kiss was mainly because of the company’s commitment to build the brand.”

Being familiar with the industry you want to license is also helpful, said Terzian, adding that his company produced a “healthy” amount of private-label junior apparel for Wal-Mart, Kmart and J.C. Penney before licensing Hot Kiss.

After 25 years in the business, Terzian said he has encountered his share of apparel makers who just couldn’t get their licensing businesses off the ground.

“If a license fails, it’s because the brand was not focused, disciplined and not properly supported,” he explained. “And, in most cases, the intent and motivation of the licensor was more cash flow than brand equity.”

Sidestepping the competition

Retailers such as J.C. Penney and Target have also jumped into licensing as a way to distinguish themselves from competitors.

J.C. Penney recently acquired the exclusive licensing rights to Los Angeles-based contemporary label Bisou Bisou. And Target has had success with its exclusive Mossimo label.

Exclusive licensing agreements mean retailers don’t have to compete with other retailers for the same branded merchandise. And they can set and maintain their own pricing structures for those products, said Scott Krugman, spokesman for the National Retail Federation in Washington, D.C.

“There’s a huge benefit to licensing a popular brand—companies can differentiate themselves from their competition through their product while adding value to their brand image,” he said.