Transitioning to an all-licensing model has become a go-to option for fashion (and other) labels facing financial hardship. Most often this move comes after the challenged brand is purchased by one of the leading management groups, whose business model is to buy up struggling IPs and turn them around through a licensing-only approach. But it can be a viable strategy for existing property owners as well.
This formula has been in the news of late, with a number of initiatives coming to light in the last few months:
- Last week, Esprit announced it planned to move to a full licensing and management model. The brand is in the midst of insolvency proceedings in Germany—one of its headquarters locations along with Hong Kong—for the second time in four years. It has closed many of its operations across Europe, where it is looking for investors or a sale; in Asia, it is trying to divest its Chinese subsidiary and discontinued two businesses in Hong Kong. The company, which generated $15.5 million in licensing revenue in 2023, suffered a net loss of $243 million last year and owes millions in debt.
- Also last week, Authentic Brands Group announced three new licensees for Ted Baker—United Legwear and Apparel, Peerless Clothing, and BCI Brands—that will help form the core of the U.K.-based label’s North American business. These follow the signing of Aldo in May 2023 to produce footwear, handbags, and small leather goods for North America and the brand’s e-commerce and then-more-robust physical retail operations. ABG acquired Ted Baker in 2022, and the latter has remained in turmoil. Its retail partners in the U.S. and Canada filed for Chapter 15 bankruptcy earlier in the summer and plan to shutter all stores in the region. It lost its U.K. and European retail licensee, AARC, in the spring, leading to the closure of some stores in Europe and the U.K., before seeing its European business go into administration in April. In July it said it would close all of its U.K. stores by early fall.
- In June, ABG announced it would acquire the Champion brand from HanesBrands for a minimum of $1.2 billion and, as is its strategy for all the brands in its portfolio, convert it to an all-licensing model. According to HanesBrands, a public company, Champion generates $2 billion in annual revenue, with 60% of that attributable to North America. But the brand saw a 23% drop in global revenue and a 30% decline in its U.S. business in 2023. ABG said it was in discussions with several potential licensees and was planning to rejuvenate the Champion brand by following a plan similar to the one it established for Reebok’s turnaround.
- Marquee Brands, which purchased Destination Maternity’s Motherhood Maternity and A Pea in the Pod businesses during bankruptcy proceedings in 2019, announced in July that it had rebranded the business as Motherhood and would reenter bricks-and-mortar retail through a deal with Kohl’s, supplied by new licensees Towson Downs for maternity apparel and Gelmart International for maternity intimates. The business had been operating online-only during the five years since the acquisition. A company called the Hatch Collective, founded after Marquee’s purchase of Destination Maternity, handles operations for the brand, while Marquee owns the IP.
Back in February, brand management firm WHP Global teamed with fashion and lifestyle label Guess? in a 50/50 joint venture to acquire rag & bone’s intellectual property. This situation differs from the others in that Guess? acquired the label’s operating assets and, with rag & bone’s existing management team, serves as the global master licensee, paying a royalty to the joint venture. At the same time, it maintains a 50% share of the intellectual property, through the joint venture, with WHP. This case also stands apart from those above in that rag & bone, a private company founded in 2002, is not in obvious financial straits, generating revenue of about $250 million and EBITDA of $18 million in 2023. The company had 34 stores in the U.S. and two in the U.K. at the time of the transaction, with products also available in other retail outlets worldwide.
Transitioning to a model that relies entirely or primarily on licensing can be complex and involve a number of different kinds of financial transactions and deal structures. The upsides of such a move include less need for capital expenditure, the potential for a more scalable business, category and geographic expertise that can boost sales, the hope of increases in operational efficiency, and the possibility of more stable revenue streams, among others. All of these are appealing to brands that believe they still have value to consumers but are struggling to survive under their current strategic blueprint.
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