U.S.A. (August 2007) — The popularity of licensed products, once thought to be a cyclical phenomenon in bulk vending, appears to have matured into an industry staple. It was not that long ago when licensed products in both the flat vendible and encapsulated merchandise segments came and went at regular intervals. At the time, some industry veterans attributed this cycle to what could best be described as a “bandwagon effect,” with suppliers following the lead of one or more successful product lines. As one supplier succeeded with a high-profile license, others would quickly follow suit – but typically with less encouraging results, prompting a return to the less expensive “generic merchandise.”
However, the industry has undergone a significant transformation that not only makes licenses more appealing, it also essentially necessitates them for both operators and suppliers. Chief among the recent changes has been a multi-year, hard-knocks educational process for suppliers that now allows them to purchase and format licenses suited to bulk vending. The current crop of licensed products not only has wider consumer recognition than those of a few years ago, but often a longer shelf life. This is no small thing when dealing with pop-culture trends that cycle through the teen, tween and pre-teen demographics at an ever-accelerating rate. Today’s top-of-the-charts pop star or favorite cartoon character could be tomorrow’s has-been.
“It took the industry a long time to apply the right licenses to vending and understand what products to create,” said A&A Global’s Phil Brilliant. “Today, manufacturers and suppliers are much more astute when it comes to creating licensed products for bulk vending. Most of the early mistakes were simply in product development. Without fully understanding the licensing industry and specific licensed properties, there is no way that compelling product could be created.”
Those early errors, Brilliant explained, were in creating the right products for the licenses. This was particularly true in developing encapsulated goods. “It was easy in flat vending because it’s simple to transfer images to stickers or tats,” he said. “But when it comes to creating three-dimensional products, such as figurines, there really needs to be meticulous attention to detail.”
Industry veterans need only look into the past, when a licensed product consisted of little more than a cheap, injection-molded plastic ring with a stock photograph (usually a publicity still or logo from a popular TV show or movie) stuck on the front. Today’s licensed product – whether it is a figurine or miniature bobble head – is created specifically for bulk vending.
Another reason for the trend toward licensing is a continued need to add perceived value to products in order to increase vend prices. Licenses, particularly those associated with movies, accomplish this via multi-million-dollar advertising and promotional budgets and familiar iconic images. During the past two or three years, the importance of increasing the perceived value of products has never been more important, with operators and suppliers squeezed by rising overhead costs. The cost of licenses also has risen dramatically in recent years, by way of royalties, and guarantees against sales, but it still represents something of a bargain by allowing manufacturers to add value to traditional and proven product formats, such as stickers, figurines and miniature mugs, at a relatively reasonable per-piece cost. And the experts agree that licensed lines are more collectable than most nonlicensed products, drawing young consumers back to the machine to collect an entire series.
“Price points are going up, but sales should follow as the consumer spends more for licensed products,” said David Siegel of Great American Vending (Hauppauge, NY). “I believe there is a lot of value in using licensed products. The consumer gets an item they really like, the operator should see an increase in sales and it gives our industry credibility.”
That credibility, say operators, extends to the location as well as the consumer. While big-ticket generic products may be well known to young consumers, many are mysteries to location management. A Disney or other high-profile license, however, is immediately recognizable to location owners. In the past, operators have reported that in an increasingly competitive marketplace, this recognition has proven to be a deal maker. Operators who have effectively used licensed products to sell into locations report that they take samples with them into the field to show location managers and owners, along with images of machines and rack configurations.
In a standard licensing deal between a manufacturer and a movie or comic book company, the licensor has final approval over the finished product, down to the color schemes. A sticker licensed from a popular cartoon, for instance, has to portray the character in exact detail and in an appropriate manner. This attention to detail both maintains the integrity of the licensed property for the licensor and boosts the value for the bulk vending operator.
“We know that kids have to have good art. So, wherever that art is, we’ll pay for it. Whether licensed or not, it has to be about the art,” said Brand Vending’s Craig Goodman. “For instance, tattoos that are extremely detailed and realistic have created a need and trend that hasn’t slowed down. These are licensed tattoos even though they don’t have SpongeBob on them. The appeal is in the quality, and the quality is in the license.”
This is a relatively new trend in the world of licensed products for bulk vending. It was not so very long ago that manufacturers relied solely on art created “in-house” or by walk-in freelancers of dubious talent for their products. In more recent years, suppliers and manufacturers have begun to seek out artwork that, although not connected with high-profile entertainment companies, is nevertheless licensed from professional graphics houses.
The quality of images, as Goodman explained, is one reason for this trend. However, another equally important reason is authenticity. This is particularly true in niche markets, such as goods for the rapidly growing Hispanic demographic or hip-hop segment. The subtle nuances and graphics trends that continue to evolve simply can’t be faked because young consumers are visual connoisseurs of the latest trends. What may appear to be two nearly identical designs to the non-aficionado of hip-hop or skateboarding culture are as different as night and day to the enthusiast.
Flatline Corp., which has built its reputation as a supplier of innovative flat vendibles, is moving in the opposite direction when it comes to licensing. When the International Licensing Industry Merchandisers’ Association recently held its yearly Licensing International Expo in New York City, Flatline was an exhibitor, alongside Disney, Warner Bros. and the other well-known media conglomerates.
“We exhibited our artwork. Since we design and develop all of our own artwork for our stickers and tattoos for vending, we own tons of intellectual graphic design properties that have value outside of vending. We have been working with an agent who licenses our artwork for other products,” said Flatline’s Ryan Burns. “We feel there’s a bigger potential market out there and we had a fair amount of interest.”
According to Burns, exhibiting at the show was somewhat of a necessary outlet for the company, since developing high-quality artwork in-house is sometimes more expensive than procuring an outside license. Also, since Flatline has a reputation for reacting quickly to current trends, its designs have a significant marketability.
Although many operators remain wary of products based on movie licenses, which usually have a short lifespan, Tomy Yujin Corp. has built its strategy around a combination of “evergreen” licenses with long life spans and these types of properties.
“Our strategy has been a combination of evergreen licenses, such as Winnie the Pooh and Disney Princesses, along with short-life-cycle licenses like Ratatouille and Transformers,” said TYC’s Amanda Newhard. “This allows for a wide variety of consistent sellers. We also try to work on a global scale when selecting licenses. So what is popular in Peoria is also popular in Paris.”
Newhard added that operators are becoming less fearful of the $1 price point that her firm’s products command. When TYC first entered the U.S. bulk vending industry, the $1 price was an issue. Sure, they were quality products with high-profile licenses, operators said, but a $1 price wouldn’t fly. Some took to mixing TYC figurines in with merchandise of lesser quality.
Now, Newhard reports, there is much less resistance on the part of operators. “It feels like the industry is moving in the direction of the higher price point to maintain margins, and licensed products allows them to do that,” she explained. “We’re seeing a lot of smaller operators expanding their routes with our products. At first they just order a few cases, and then try them in their locations and see how well they sell. I think they’re also seeing larger operators getting into the $1 vend, and are following suit. We’ve seen a lot of growth from smaller operators expanding with our machines and products. The Pooh license brought a lot of operators in, and they followed up with some of the movie licenses.”
As Siegel points out, even a top-tier license doesn’t guarantee robust sales. Operators need to stay aware of their route’s demographics. “The most important feature for determining trends is your demographics – the market you operate in,” he said. “A license like college football may sell really well in Florida or Texas but do really poorly in Maine.”
This is particularly true, according to industry experts, when dealing with products based on entertainment properties. Operators not only have to correctly time the product rollout to hit the “sweet spot” of optimum consumer appeal and character awareness, but get the products in the machines where they’ll reach the target market. It’s safe to say that the Disney Princesses line from TYC would not sell through in a biker bar, but should be offered in supermarkets or locations close to grade schools. Likewise, once a license has run its course, it should be rotated out of the machine quickly.
“There is no one specific licensed product that is an automatic winner. It’s important when considering licenses to include such factors as the target demographics, lifecycle and, of course, the vendible product itself,” Brilliant said. “However, we have seen a steady increase in licensed products in vending, and I believe that trend will continue. As the price points go higher, licensing is going to help products sell through.”
Will licenses come to dominate bulk vending? Even the most ardent supporter of licensed products is skeptical of the proposition. With the $1 vend becoming increasingly common, new categories of products are expected to enter the supply chain. These would include an increasing number of battery-based products that feature light-up LEDs or small sound chips. However, for the smart operator who plans carefully, licensed products will continue to represent a valuable product category.