RTR Rising!

Posted by Carol Spieckerman on October 05, 2011

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The Q&A and sidebar discussions after my presentation at last month’s LIMA Retail & Brand conference in New York showed that the future of DTR (direct-to-retail) brand deals is a burning issue in the licensing community – and for good reason. “DTRs” not only diminish or, in some cases, eliminate the role of licensees, they often favor pure brand marketing firms over traditional licensors.

Yehuda Shmidman, CFO of the brand marketing standard-bearer, Iconix Brand Group, also gave a presentation at the conference. His account of the Iconix’s meteoric growth, particularly with its DTR brands such as Candie’s, Op, and Danskin, validated retailers’ receptivity to the company’s model, which allows them to make Iconix brands their own, often leveraging their own internal sourcing and design capabilities.

With its brand portfolio now generating $12 billion in global annual retail sales, Iconix has grown to become the second largest licensing company in the world, with an appetite for brand acquisitions that shows no sign of abating. Of course, that spells more DTR deals, which will mean less shelf space for those who operate in Iconix’s diverse categories and demographic sweet spots. Iconix didn’t invent the DTR model (that credit should arguably go to Cherokee or Loblaw’s), but they have definitely taken it to another level and, in the process, inspired any number of companies to follow their no-inventory, low-overhead example.

But as threatening as DTRs may seem, retailer-to-retailer deals (which I call “RTRs”) have the potential to become a far greater menace, as retailers become more determined than ever to see their private brands proliferate and their owned brand investments pay off. RTRs allow retailers to expand and control distribution of their private brands, which actually monetizes their brands’ equity while building it at the same time. What’s not to like?

I predicted the acceleration of the RTR model a few years ago when Safeway began quietly making some of its private brands such as O Organics available to other retailers. When I asked Alex Petrov, co-founder of Safeway’s Better Brands Alliance (the entity that manages their RTR business) about their plans at last week’s Private Brand Movement conference, he called RTR a “selective” strategy. The topic was conspicuously absent from his presentation at the event, but whether or not Safeway chooses to downplay their RTR efforts, a growing list of retailers are being quite unapologetic about ramping theirs up.

When Sears created a separate $1.8 billion entity to house its DieHard/Craftsman/Kenmore power brand triumvirate in 2007, I posited that it was setting up a strategy to monetize these brands outside of its borders. Flash forward to 2011, and Sears has inked RTR deals for Craftsman with both Ace Hardware and Costco and has just announced its first RTR deal for the DieHard brand with Meijer (which was preceded by a wholesale deal with Schumacher Electric).

Office Max makes some of its private brands, such as DIVOGA and TUL, available to other retailers, but they also offer their retail partners a more robust package. This can include several additional capabilities that Office Max has either built internally or developed through strategic outsourcing, including design, sourcing, in-store marketing, and category management (which may include non-Office Max brands). Now, Office Max products are available in over 4,000 store locations, including Lowe’s, Food Lion, 7-11, and many others, with presentations that vary from small sections to branded shop-in-shops. Only 900 of these 4,000 locations are Office Max stores, so it’s no wonder that, during his presentation at the Private Brand conference, Mike Kitz, Office Max’s VP of brands and product development, said that the company only had to do the math to realize that they could “change the game.”

When Amazon began making the Kindle available to retailers on terra firma, I didn’t hear anyone call it an RTR, but that is exactly what it was.

Retail pundits’ complaints that RTR deals are acts of desperation perpetrated by retailers on shaky ground (a common jab at Sears) or cannibalistic brand-killing schemes won’t curb the momentum of the model. Like private brands before them, RTRs will likely follow a “scoff, admire, join” trajectory.

Bottom line:

  • Traditionally, licensors and licensees have positioned their brands as better alternatives to retailers’ owned brands. That argument is past its prime in the era of RTRs.
  • To compete against RTRs, companies would do well to align with the benefits that they offer. How do your brands elevate and increase the equity of retailers’ owned brands?
  • Are you exploring private brand co-branding opportunities with your properties? If so, you’ll expand right along with retailers’ owned brands. If not, you’ll be competing against them.

Want to continue the conversation? We welcome your comments!
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