International licensing agreements make more sense now than ever.
As the demand for skateboard products continues to grow internationally, companies are seeking additional legitimate channels for their goods. Licensing agreements are one tool brands have used to meet the demand.
A licensing agreement is a contract between the owner of a trademarked brand, the licensor, and a third party, the licensee. There are many factors in an agreement that need to be addressed in order for both parties to benefit from it. Generally, the licensor controls most aspects of the brand’s image–marketing and promotion–while the licensee handles production and distribution. In the skateboard industry, most licensing agreements are limited to apparel, which many companies find too complex and problematic to efficiently produce.
A few years ago Zoo York found itself at a financial crossroads and ventured down the licensing pathway. At the time, Zoo was a very small operation comprised of a couple employees plus the principal partners, so a domestic licensing agreement made sense. They felt if they could find the right partner with experience and resources, Zoo would be able to evolve into a legitimate apparel brand. Although Zoo York’s licensing agreement came to an end because of internal problems at the partner company, they feel that licensing the brand gave them enough exposure and momentum to handle apparel production on their own. “It was a way to grow the brand faster and with more authority than we would’ve been able to internally,” says Zoo York partner Adam Schatz. “We had the benefit of having a very good relationship with them, and having them really focus on us.”
On the surface, a licensing agreement appears to be an easy way to get paid, but it can require more work than first anticipated. Schatz felt a need to constantly police Zoo York’s licensee on a number of fronts, including execution of designs and opening distribution channels. “Trust is really of paramount importance,” says Schatz. “And not just trusting the people, but trusting the interpretation of your presentation as close to accurate as it can be.”
Rookie Skateboards is another New York company that considered a licensing agreement, but after eight months of negotiations, Rookie pulled the plug on the deal for numerous reasons and moved forward without a licensee. “The biggest deal breaker for us was that we wanted a certain promotional and advertising budget from them,” says Lyons. “We wanted a certain amount of goods we could give our team, give away at contests, and wear ourselves so we wouldn’t have to buy them.”
Although Rookie closed talks on the agreement, they’re not adverse to the idea of signing a licensing agreement. “We’re talking about licensing in Australia, Japan, and in other international markets,” says Lyons. “I think it’s more ideal to have several different licensing things going on where you’re not putting all your eggs in one company, and you’re not letting one company take it.”
Osiris recently signed a licensing agreement with its German distributor, Rough Distribution, to produce apparel for the European market. With the dollar’s strength pricing U.S. goods farther out of most European consumers’ reach, Osiris’ deal with Rough helps reign in production costs and import tariffs. “The whole thing fits well into our overall goal of making Osiris a quality brand that has worldwide recognition,” says Osiris President Tony Magnusson. “If you want to build a worldwide brand, I don’t think certain types of licensing work that well because your effort is not unified, and I think that’s especially important now that the world is a smaller place.”
According to the agreement, Rough Distribution is obligated to produce a majority of Osiris’ apparel line for the European market and pay a minimum licensing fee to Osiris regardless of the volume of product sold.
The royaalties that licenses earn are far less than normal apparel margins. “The biggest problem I’ve faced was the idea of making seven percent on the sale of this good, as opposed to our normal margin,” says Magnusson. After a little calculating, though, he realized Rough could increase the volume to make up for the lesser margin, top-quality apparel would reach the consumer at an affordable price, and Osiris wouldn’t have to fund or facilitate production.
Zoo York, Rookie, and Osiris share the same concerns. Licensing apparel–or any product line–can jeopardize a brand’s reputation if the licensor relinquishes too much control, or if the licensee fails to observe the limitations of the agreement. When policing the terms of a licensing agreement demand more time and effort than managing production and distribution oneself, it’s time to either find a more suitable licensee, or just bring production in-house.
Control over distribution channels is another concern. Because Rough Distribution is already a skateboard-product distributor, Osiris doesn’t have to worry about their apparel appearing in strange mainstream stores that would jeopardize their image. But Zoo York, on the other hand, had to monitor their licensee consistently, approving the new accounts and trying to keep the distribution as focused as possible. This is a major issue because the licensee’s goal is often to broaden the distribution as widely as possible in order to maximize their profits.
A license agreement isn’t exactly free money, but it’s one way to increase revenue and exposure of your brand–particularly in international markets where licenses have a better sense of local trends. “It’s finding the right relationship with a company and feeling confident with what they’re doing,” says Rookie partner Catherine Lyons. “And also feeling that they understand what you’re trying to do.”