Regular readers of Branding Strategy Insider know we welcome and answer marketing questions of all types. Today's question comes from Ryan, a senior analyst with a private investment fund in New York City, New York. He writes:
"First question: I read today that Sears is thinking about licensing its Kenmore, Craftsman and Die Hard brands. Could you hazard a guess as to (i) the range in licensing fees such brands might generate, and (ii) the prospects that someone of substance would be interested in licensing those brands given their present distribution?"
Ryan, thanks for your question. My thoughts as a brand licensing strategist…
(i) Range of fees would go from $7.5 MM – $45 MM over three years (after commercialization commenced).
(ii) Prospects of someone interested – I think interest could be high based on my assumptions below. The key is how to not compete with the parent brand. After all, those brands are why people go to Sears.
Kenmore, Craftsman and Die Hard are mid tier brands that have a long history and substantial brand equity. Moreover, the brands are closely tied to the Sears name. While there may be some confusion generated in consumers’ minds if these brands were licensed for distribution in other channels, I still believe they would perform well.
Royalty rate: These brands should command somewhere between 5% – 10% depending on the product category, the channel and the region.
Products/categories: I see two routes here –
· existing products licensed and sold into new channels and regions and
· new categories licensed into Sears/Kmart and new channels like Home Improvement, Automotive, Mass, etc.
Licensing Fees: Base assumption is each brand extends into 5 new categories/channels
Aggressive: Sales per new category or channel averages $5 MM in Yr 1, $10 MM in Yr 2 and $15 MM in Yr 3. Under this scenario, there would be $150 MM cumulative sales for each brand or $450 MM total revenue. Based on 10% royalty rate, the royalties earned would be $45 MM over the three year period.
Conservative: Sales per channel average one-third of the total revenue or $150 MM. At 5% royalty, the fees earned would be $7.5 MM over three years.
"Second question: It strikes me that Sears would have first attempted to license the brands to the companies who manufacture the product or to obvious other major manufacturers of similar products before casting about via a brand licensing agent. I’d be interested in your thoughts on that as well, if possible."
Agreed. Their best route is to go with known and trusted suppliers to sell their existing products across multiple channels. This could still be under a private label arrangement as well as under a licensed arrangement. That said, there are probably a significant number of new categories that they could enter that may require new manufacturers or service providers. Don’t forget service providers. This could be a market with great opportunity.
On a related note, we explored a new brand strategy for Sears and Kmart here.
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