Brand New Goods

  • A man walks into a major department store in Paris wearing Caterpillar boots, a Jack Daniels cap, Club Med shades, a Cadillac polo shirt and Marlboro jeans. He smells ruggedly of Chevrolet aftershave. He buys a set of Le Cordon Bleu cookware for his wife and a Jeep radio-CD player for himself. To pay, he flips opens his Harrods leather wallet and whips out a Jaguar Visa card. He's branded to the hilt, and the embodiment of European consumerism for the new millennium.

    U.S. corporations, from General Motors to Coca-Cola to Lockheed, have garnered huge benefits from going beyond mere export trade and licensing their brands abroad to manufacturers of high-quality consumer goods, ranging from apparel to toys to foods. Licensing's allure is obvious. It offers companies new revenues that require little if any capital outlay. It's an ideal way to protect trademarks from infringers. And it's an invaluable marketing method because it can enhance a brand's image and lead it to new markets. Corporate brand licensing has grown from practically zero in the mid-1980s to a $26 billion industry worldwide. But while most of the industry is either located in the U.S. or dominated by American brands, international competition is finally heating up--especially in Europe, according to the Licensing Industry Merchandisers' Association.

    A growing number of European companies, including Club Med, Harrods, Aston Martin, Pernod-Ricard and Land Rover, have taken up the licensing game and are signing agreements at a furious pace. European companies are beginning to grasp that if they don't act quickly, U.S. brands could soon completely overrun their markets with new waves of licensed goods. Even a pioneer like Coca-Cola, which has been licensing in Europe since 1986, views the continent as wide-open territory. "We feel like we've only scratched the surface in Europe," says Coke spokeswoman Susan McDermott. Equity Management, the largest U.S. licensing agency, which handles licensing chores that include research, legal work and quality control for its client corporations, gives some measure of the new American interest in landing on European soil. Most of Equity's 100 or so clients are eyeing Continental markets or have already taken the plunge. Says GM's trademark-and-copyright counsel Ken Enborg: "Europe is on the verge of a corporate brand-licensing explosion."

    A similar boom hit the U.S. in the mid-1980s. Then only one U.S. company in 10 bothered with brand-extension licensing. Now 65% of FORTUNE 500 companies have licensing agreements, says Glen Konkle, Equity Management's chairman. Back then, licensing was primarily the province of Hollywood studios that owned the rights to popular cartoon and movie characters like Bugs Bunny and Luke Skywalker; professional sports teams and athletes; and a few fashion designers. But companies like GM had begun to realize that many of their brands had additional value.

    Even in those days, GM was spending $2 million to $3 million a year to fight trademark-infringement cases on the periphery of its main line of business, trying to rid the market of unauthorized Chevy baseball caps and Corvette T shirts that were obviously striking a chord with consumers. That's when it hit Enborg that it would be easier--and more profitable--for the automaker to meet the obvious market demand for those goods itself by licensing its brand names to handpicked manufacturers. Today, GM has more than 1,200 licensing agreements generating annual revenues of $1.1 billion. They cover everything from clothes to colognes.

    One of the high-profile tycoons looking to follow the American example is Mohamed Al Fayed, owner of Harrods, London's famous department store, who says he wants to copy the success of American licensed goods like the Jaguar Collection and Calvin Klein that are sold in his store. "The American brands really have no assets apart from their names, which they put on other products and designs," he says. "I want to follow that example." This November, Harrods' lines of premium-priced fine jewelry, watches, fragrances, leather goods, foods and linens will be available to consumers. "There is unlimited value in the name Harrods," Al Fayed says. Harrods and Club Med have hired executives with American licensing experience to oversee their efforts.

    Jaguar, the British luxury automaker, is one of the godfathers of European licensing, but it is also just beginning a new wave of expansion. Jaguar began with a line of designer eyeglass frames 15 years ago. Today its licenses cover such products as clothes, fragrances and footwear. The company has just opened mall boutiques in the U.S., France and the Netherlands.

    "It is a way to let others pay for all the things you'd like to do [with the brand] but your shareholders won't pay for," says John Maries, general manager of the Jaguar Collection. For even smaller but ultra-exclusive companies, like sports-car maker Aston Martin, licensed products can help boost a low profile. Aston Martin has only recently launched its licensing program. And, befitting the producer of a car made famous by James Bond, it's sticking with toys for big boys. Its two initial products are expensive model cars and a Sony video game.

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