Chains play it safe in licensing game

Drug Store News, August 29, 1994 by James Frederick

Retailing juvenile products with a licensed-theme tie-in is a little like riding a tiger: It can be a fast and powerful ride that moves you ahead of the pack, as long as the tiger doesn't stop and eat you for lunch.

For chain drug retailers, that means trying to straddle the lucrative licensed product phenomenon without being swallowed up by huge mounds of unsold inventory tied to outdated licensed characters or themes. It means walking a fine line between opportunism and caution, while keeping an eye on the exit door in terms of fashion trends and order quantities.

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"When you do licensed products, it's always a gamble," commented Ken Fossaceca, GM and sundries buyer for Cleveland-based Medic Discount Drug. "We tend to be very selective."

Most chain drug buyers echo that opinion. Said Bill Carpenter, buyer and import director for 97-store Kerr Drug in North Carolina, "You don't really know which licensed products are going to do well. It is really a roll of the dice."

It's clear that licensed products for kids are big business. Domestic sales of all licensed merchandise grew another 7.1 percent last year and reached a whopping $66.6 billion at retail, according to The Licensing Letter, an industry journal. And sales are on track for another 3 percent to 4 percent rise this year, according to Murray Altschuler, executive director of the Licensing Industry Merchandisers' Association (LIMA).

The juvenile segment of that revenue gusher accounts for a major chunk of both sales and growth. According to The Licensing Letter, domestic sales of licensed toys and games, for instance, blew ahead 10 percent last year, to $7.26 billion. Infant products bearing Sesame Street and other characters jumped 8 percent in sales in 1993, to $2.16 billion.

Licensed stationery/school supplies, meanwhile, gained nearly 7 percent, to $3.1 billion, and licensed HBA sales rose nearly 6 percent to $3.7 billion.

Several factors are behind the surge in licensed merchandise for kids. The most obvious: the success of blockbuster movie themes like Disney's "Lion King" and "Aladdin," along with TV hits like "Barney" and "Mighty Morphin Power Rangers" and evergreen properties like Looney Toons, Superman, Sesame Street, The Flintstones and Barbie. Together, they have helped generate billions of dollars in themed product revenues across a wide swath of categories like toys and games, lunch boxes, school supplies, shampoo, vitamins, greeting cards, gift wrap, gift-ware and apparel.

Among recent entries in the chain drug licensing sweepstakes: a new line of "Lion King" jewelry from AAI; a new line of "Lion King" watches for kids from Timex; Nike's first non-sports-related product license on Mead school supplies; Power Ranger, Magic School Bus and Dudley the Dragon party goods from Hallmark's new Party Express division; and new Sesame Street Tearless Liquid Soap for children from Minnetonka Brands.

Also widening the licensing revenue stream are the growing sophistication of the licensing industry and the ever-more-aggressive partnering efforts between manufacturers and licensing firms as they seek new tie-in opportunities.

Once burned, twice shy

Nevertheless, most drug chains approach their licensed merchandise by erring on the side of caution, after having been burned once or twice by themes that worked fine in the entertainment world but fizzled on store shelves. The list of disappointments includes licenses based on movies like "Dick Tracy," "Annie" and the sequel to "Batman," none of which made a successful transition to retail.

Even "Jurassic Park," which according to its licensors has generated more than $1 billion in related-product revenues, was something of a disappointment in children's marketing. "'Jurassic Park' didn't do well at all, but dinosaurs did [in general]," said Carpenter of Kerr Drug.

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On the other hand, retailers find plenty to like among both old and new licensed themes. "Everybody thought Power Rangers would die out this year, but they are holding on," Carpenter said. "And you still see the Teenage Mutant Ninja Turtles selling, even though they've been around for years."

One chain drug buyer had this simple maxim: "Disney will never hurt you." And James Kays, director of purchasing for Taylor Drug Stores, said he has high hopes for Mead's new line of Nike-themed B-T-S products.

"We're featuring it right on the front page of our circular in the $15 to $30 range, which is at the high end of school supplies, because the Nike name is just so strong," he said.

Nevertheless, said Kays, the Louisville, Ky.-based chain shuns some risky licensed themes in favor of obvious blockbusters and tried-and-true favorites. "Like most of the folks in this business, we go into it very cautiously," he told Drug Store News. "One of the best vehicles for us is tying into the movie and video releases, like 'The Lion King.'

"We've sold a lot of ['Lion King'] stuffed animals from Mattell, and we're also looking for the release this fall of 'Snow White' on video, which we think will be very strong. But with some of the other themed products, we haven't really stuck our neck out."