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Issue Date: Vol. 43, No. 8 August 2003, Posted On: 8/26/2003


Licensed Products Continue To Gain Market Share In Bulk Vending Channel


Hank Schlesinger
swag@earthlink.net

U.S.A. - Take an obscure comic strip in a specialty automotive magazine and license its characters for bulk vending. What do you get? The answer, of course, is one of the best-selling products in the history of the bulk vending industry: "Homies."

 

With more than a 100 million of A&A Global's "Homies" figurines out in the market, it's worth noting that the license, as A&A's Brian Kovens has said in the past, was "built in bulk vending."

 

"There were no 'Homies' movies, television shows or comic books with mass distribution," Kovens pointed out. "And many consumers, to this day, don't realize that the figurines are a licensed item."  Indeed, it's safe to say that the "Homies" license has overtaken the core product.

 

One need only to review the entire line of "Homies" and related series to see that they are not only extremely detailed, but also boast an authenticity that taps directly into the popularity of "hip hop" urban culture. It should also be noted that the appeal of "Homies" seems to be nearly universal, crossing over from the niche Hispanic market to mainstream. And, the fan base of these figures is not confined solely to children. They have been popping up in cubicle workspaces and offices across the country.  In the world of licensing, they are that rarest of all products , a niche item that crosses the boundaries of culture, sex and age. They are, in short, a licensing grand slam.

 

What accounts for their popularity? The concept is what marketing gurus call "fully realized." That is to say, the original comic strip, which appeared in Lowrider magazine, provided an opportunity for David Gonzales to develop and refine the characters in terms of personality and "back-story." Indeed, the back-stories or bios of each character are listed on a website dedicated to the world of "Homies."

 

And, not insignificantly, the "Homies" series are also highly collectible.  

 

For those interested in understanding licensed products, the "Homies" phenomenon represents not only an unparalleled success as bulk vending merchandise, but also an excellent model of what makes a successful licensed product. As bulk operators and suppliers know all too well, success is not always assured just because a license is based on a big budget movie or long running television series.  Fame, as many of the contestants on reality television shows can personally attest, does not automatically translate into marketability or "money in the bank."

"Homies," it would seem, contain the key elements of a successful product, which are: depth of concept; timeliness; and collectibility. In short, they were the right product at the right time. 

 

LICENSE TO THRILL

 

"Licensing in my opinion sells products. I think licensed stickers are the reason stickers have done well in the recent past," said Fred Simon of The Amusement Factory (Van Nuys, CA). "There have been great licenses and I think sticker operators have benefited from that. They've opened locations and attracted more types of customers."

 

Greg McPhail, sales manager for the supplier Actionmatic Ltd., agreed with Simon. "Licensed products definitely do sell a little better than regular products, especially if there's a collectible factor," he said. "If the kids can see it on TV and then they can see it in machines, and there's a series of eight or 10, it definitely does have an advantage over most generic items."

 

According to McPhail, although many popular items post strong earnings at the beginning of their cycles, popular licensed products show particularly strong numbers at the start. However, McPhail is also quick to point out that significant differences exist between flat vendibles and capsuled merchandise when it comes to licensing.

 

"Stickers and capsuled products are totally different worlds, totally different ball games," he explained. "Sticker people aggressively pursue licensed items while the toy people pursue licensed items, but not as aggressively. That's because it's very expensive. The toy market doesn't take the extra cost very well. Stickers are produced relatively cheaply, so you can pay a large licensing fee, add it to the cost of your sticker and still have a very competitive price. When you take a capsule item, you take the price of the item and then on top of that add a large licensing fee, plus you have to put it in a capsule, it becomes too expensive for the operators to want to touch it, so they shy away."

 

Because operators don't have the luxury of incrementally changing consumer price points, every cent added on to a product eats away at the bottom line. Phrased differently, the perceived value added to a product by a license has to generate enough sales volume to make up for the extra cost of the product to the operator. And, even then, operators and manufacturers are working within a very narrow window of "suitable" prices. "I could put gold nuggets in a capsule," said one supplier. "And if I couldn't sell them for the right price point, operators wouldn't buy them."

 

McPhail is also quick to point out the paradox inherent in the licensed sticker versus licensed capsuled item. "With capsuled merchandise, the collectibility comes more into play than with stickers," he said. "People generally don't collect stickers, but I have customers building shelves for the licensed figurines and mugs we sell. Collectibility is definitely a factor." So, while stickers and other flat vendibles may very well provide a better format to absorb the extra costs associated with a license, capsuled merchandise may in fact be a much better format to stimulate the collector in bulk vending patrons.

 

Is it any wonder that manufacturers of capsuled merchandise are cautious when taking on a license? Not only is the investment in the license often substantial, the profit margins can shrink considerably.

 

FLAT LICENSES

 

"If you look back over the years, there have been a few big hits in licensing," said Mike Applebaum of Cutting Edge Industries (CEI), a leading supplier of flat merchandise. "We go in and out of it. If we look at history in our industry in the last 10 years or so, the number of licenses that have been successful have been far and few between. More often than not, they have been failures that have not lived up to expectations, so it's a very iffy, expensive proposition to get heavily into licensing."

 

Applebaum, like almost all suppliers in bulk vending, has stories about the license that under-performed. This is particularly true for movies, where the license is almost always chasing a short-lived situation. "A movie might be in the theaters for three or four weeks," he explained. "And you can't time it, because you don't have control over when operators are going to put the product into locations."

 

That is to say, just a week or two can mean the difference between a good selling sticker and a dud. In all fairness, operators themselves are often constrained by service schedules when it comes to getting product into the machine. According to at least one industry insider, stickers with a movie license have to be in machines as close to the opening weekend of the movie as possible. A month early and there is the chance of sacrificing sales of current big sellers. Two weeks after the opening weekend of the movie might be too late.

 

Compare this life cycle of a product to some generic items, such as Smiley Faces, Alien Heads or, more recently, Ovals. While many of these products did not "blow out of machines" during the first several months, they did build steadily over an extended period until finally dropping off.

 

Another factor that is not to be underestimated when it comes to licensing is the changing nature of pop culture itself. Movies, of course, are cycling through faster than ever, but so are pop stars. The hot new act that fills stadiums with screaming fans one month may be playing weddings and bar mitzvahs the same time next month. That's a bit of an exaggeration, of course, but it illustrates the fickle nature of young consumers.

 

And many of the hottest acts on the rock concert circuit may be inappropriate for the younger patrons of bulk vending. The incendiary rap star, Eminem, being just one example that comes to mind.   

 

According to Myrna Dorfman of Allstar Distributing, another supplier of flat vendibles, television properties represent a longer lasting alternative to movie licenses. "I think there is more success with television," she said. "A lot of companies, myself included, bought licenses based on movies , and they bombed. So even when we had Spider-Man, operators were very reluctant to buy them. But sure enough, people thanked me, however that license was also supported by the comic book."

 

Dorfman has also had luck with her line of SpongeBob SquarePants stickers, based on the hit cable television show as well as Yu-Gi-Oh cards and stickers that are supported by both a television show and a popular strategy card game. She has also found that a license for the Simpsons television show is still generating sales in Canada.

 

"It seems as if it's a cycle. Five or six years ago, people were only buying licensed products," she said. "Then there weren't any good licenses, and they were buying generic. They refused to buy licenses, because they got hurt with them. Now it's just the opposite. Sometime in the future there's going to come a time when there won't be hot licenses around and it will go back to generic merchandise."

 

HERE TO STAY

 

Despite the continued debate on licensed products among operators and suppliers, there can be little doubt that licensing has become a permanent fixture in bulk vending. This is remarkable since it was not that many years ago that high-profile, licensed products first began showing up in a serious way in the industry. While they had appeared in bulk vending previously, in some cases as far back as the early or mid-1960s, never had the licenses been either so timely or well executed. And clearly, they have served to propel bulk vending into the cultural mainstream.

 

The only question that remains is the origins of future licenses. As "Homies" proved, bulk vending currently has enough distribution "muscle" to create a trend independent of film, television or MTV. Assuming that bulk vending suppliers continue to purchase licenses based on well-known entertainment properties, they will certainly keep their eyes out for the next "Homies" as well.

 

"The market is so fragmented today," said one supplier who spoke on the condition of anonymity. "We, as an industry, are dealing with so many different markets and customers. So I can see a license coming from Mexico or even Japan in the future. Maybe there would be cross-over, like with the 'Homies,' but even if there isn't, I can see operators in Hispanic neighborhoods buying a Mexican pop star or movie star sticker."

 

Indeed, this would be consistent with what those in the licensing industry say, when they point to an expansion of licensing within different industries. Brands and companies that would not have thought of licensing their logos, products or names just a few years ago are now exploring the concept as a way to not only generate additional revenue, but also promote their product. If it is not hard to imagine a company such as Gucci or Chanel licensing a sticker, it is just as easy to envision a licensed bulk vending line boasting logos of FUBU or Nike.


Topic: Bulk Vending

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