The New ABCs of Consumer Brand Reinvention

Articles

The Rise of the Assetless Brand Company

Introducing the ABC
Brands are powerful—so powerful, in fact, that they can redefine our very reality. A brand can actually make food taste better: in scientific studies, children consistently identify carrots labeled with a McDonald’s wrapper as tastier than identical carrots with no branding. Branding can reduce the placebo effect and even alter people’s religious beliefs. 

It’s no surprise, then, that brands are increasingly important to a company’s bottom line. According to some estimates, as much as 30% of an average public company’s market capitalization is derived from its brand. And today, more and more companies are looking to monetize those valuable brands through licensing—that is, by leasing the brand’s name, logo, or other intellectual property to a third party, who then uses it to market a separate product or service.

These days, thanks to licensing, a brand that’s successful in one sector is likely to show up on products in another. Automakers’ logos appear on t-shirts in hip clothing stores; fashion labels lend their names to shoes and perfumes. In 2015, global retail sales of licensed merchandise reached $262.9 billion, up 14% from 2012.

But for increasing numbers of retailers, fashion labels, and other companies, those practices don’t go far enough. If licensing works so well for products outside a brand’s traditional focus, why not use the same model to manufacture and distribute its core products, too? The brand could delegate obligations like maintaining inventory, handling shipping logistics, or operating stores to third parties. Then they’d be free to focus on what brands do best: nurturing and growing their connection and relevance with customers.

Enter the assetless brand company (ABC), an innovative new entity that keeps a brand’s name, but reduces its balance sheet—and just might be the future of branding in the 21st century.

ABCs: A Way Out for Brands in Crisis?
Because they allow brand owners to focus on brand revitalization, ABCs are an especially good option for companies emerging from crisis. Research has shown that even very highly publicized bankruptcies, like those of automakers GM and Chrysler, have little to no impact on brand perception among consumers. People want to buy the products of the brands they love even when those brands are in distress. 

By shedding the operational complexity and risk that most likely caused that distress in the first place, ABCs provide a unique method for focusing on what matters: the brand. No wonder that companies like Polaroid, The Sharper Image, Linens ‘N Things, and Umbro have embraced an ABC strategy as a way to emerge from bankruptcy.

To retain its value after financial troubles or bankruptcy, a brand doesn’t need to be beloved—it just needs to be well-known. A 2015 Nielsen survey found that 6 in 10 consumers prefer to buy products from “familiar” brands. Consumers are also deeply loyal to the brands they know, even over long periods of time. The last 13 years have seen enormous cultural disruption—from the invention of the iPhone to the launch of Facebook—yet studies show that brand loyalty among consumers has remained almost totally stable. In fact, in an era of information overload, brands can help cut through the clutter. If a brand was popular a decade ago, it’s more than likely that it still has fans today—or at least enough name recognition from consumers to start building a whole new fanbase.

All this is to say that there’s never been a better time to for an established brand to go full ABC. Just in the past two years, such recognizable brands as Martha Stewart, Ben Sherman, Joe’s Jeans, and Aeropostale have looked to the ABC model to better position them for long-term success after emerging from distress. Altogether, ABCs generated more than $25 billion in retail sales annually as of 2015, according to License! Global magazine. 

A Model that Works
As time passes, there are more and more proof points that the ABC model works. Take, for example, Juicy Couture, a celebrity-favorite athleisure brand with revenues upwards of $600 million annually at its 2008 peak. After years of declining sales, the brand sold to Authentic Brands Group in 2013; a year later Authentic shuttered all of Juicy’s physical locations, converting it into an ABC. Authentic has since reinvigorated the brand to focus on a younger audience, licensing its brand to companies like Steve Madden to produce new products, including footwear and fragrances. The tactic worked: the brand saw a net sales increase of 7% between 2012 and 2014.

But there’s more than one way to use an ABC (see Figure 1). Some assetless brands reinvent themselves as e-commerce sites, others as exclusive in-house brands of established retailers. Some, like Polaroid, benefit from reinventing their products themselves. And after a successful relaunch, some ABCs even end up dipping a toe back into retail. This has been the latest adventure for Juicy Couture, which through license partners, recently opened new retail locations in China, India, and South Africa—all countries where retail malls still thrive.

 

Brand


Year


Market


Assetless Brand Strategy

 

Polaroid

2008

Photography

More than 50 licensing agreements worldwide for items including digital cameras, photo frames, photo printers, and apparel

The Sharper Image

2008

Electronics

License agreements with third-party brands like Best Buy, OfficeMax, and Bed Bath & Beyond; independent e-commerce site and catalog

Linens ‘n Things

2008

Housewares

Relaunched as online-only e-commerce site

Fred Segal

2012

Apparel

Licensed products including a fragrance blending kit, surfboards, and bicycles; flagship stores in Tokyo, Yokohama, and LA

Umbro

2012

Apparel

Licensed apparel, e-commerce site; includes deals to supply major British soccer teams

Joe’s Jeans

2015

Apparel

Licensed apparel, e-commerce site; small number of brick-and-mortar boutiques

Martha Stewart

2015

Publishing, Housewares

License agreements with third-party brands like Target, Wal-Mart, and Macy’s; license partners also handle editorial and operations for "Martha Stewart Living" magazine
Ben Sherman

2015

Apparel

Licensed apparel, e-commerce site

Aeropostale

2016

Apparel

Operations of 200+ retail stores licensed to real estate developers


Figure 1. Assetless brand strategies of consumer brands over the last decade. Source: Gordon Brothers Group, Sandow, Sequential Brands Group, Iconix Brand Group.

Though the list of thriving ABCs is long, success is never guaranteed. If care is not taken in the transition, the brand can end up saddled with the same problems as the old. It can drown in its parent company’s debt, or lose its way due to a lack of vision. But if handled properly, the transition can be as easy as ABC.

Three Steps to Building a Successful ABC
A: Have a Vision
Becoming an ABC is all about planning for a brand’s future. But to do that, a brand’s stakeholders need a clear vision of what that future should look like. 

Reimagine brand strategy. A strong brand identity evolves over time, but financial struggles often distract from this important process, causing troubled brands to get stuck in the past. Stakeholders involved in an ABC transition should ask: which aspects of the brand are worth preserving? Which aspects should be jettisoned or evolved? What products make the most sense? Who is the most relevant target consumer and how can the brand reach them?

Reconstruct the business plan. It’s never too early to start thinking about the business side of the ABC transition. Should the brand’s licensed products be exclusive to a single retailer? Or sold through an e-commerce portal online? What kinds of license partners would be a fit—upscale or affordable? Manufacturers or retailers, or a mix of both? Answering these questions in the vision phase can help ensure that your brand displays a coherent identity after relaunch, and avoids pitfalls like overlicensing, which can affect even very successful brands. For example, for years luxury clothing brand Burberry let licensees slap its logo on everything from dog clothes to scotch whisky; in the face of declining sales, they’ve begun buying these licenses back. 

B: Restructure Assets 
It’s very difficult to relaunch a brand that’s still weighed down by its broken business model. A well-thought-out restructuring process maximizes revenue from existing assets and clears the path to a successful ABC transition.

Sell off existing inventory. An efficient and well-organized disposition process is key to creating a healthier balance sheet. However, setting prices low enough to get inventory off the shelves, and still high enough to maximize returns, is its own specialized art. Most companies partner with outside firms to handle the process. A good disposition partner will promote store closings heavily to drive consumer sales, so that merchandise goes out the front door, instead of being diverted to dealers or resellers at a lower recovery. An especially committed asset disposition firm may even buy up excess inventory themselves, taking on some of the financial risk for their partner.

Get out of lease obligations. Leases are the #1 thing keeping companies from closing failing stores, unnecessary offices, or other physical locations. Brand stakeholders or their asset disposition partners should renegotiate leases and obtain rent modifications to get out with minimum financial loss.

Reduce debt. This last, most important step is often more easily said than done. Revenues from the sale of inventory must be used to pay down debt as well as make new investments to reinvigorate the brand (see below). It can be a tight squeeze to do both, but this step sets brands up with the necessary financial health to become successful as an ABC. 

C: Reinvigorate the Brand
A brand that’s been in the news for bankruptcy can often use a rethink to make it look fresh, relevant—and more appealing to potential license partners. This is where having a strong creative vision can make all the difference.

Re-envision the brand. This should mean much more than just fiddling with the logo. An updated brand book should connect with the heritage of the brand while positioning the ABC for the future. A great example is Morgan Silva’s brand book for London Fog, which became an ABC in 2008. The book highlights London Fog’s contemporary look and of-the-moment celebrity endorsers, but it also delves into the brand’s history, reproducing vintage advertising to show how the company’s iconic trench coats have evolved over the decades.

Engage a celebrity influencer. Sometimes a celebrity endorsement can go a long way toward making consumers see a brand through fresh eyes. Polaroid named Lady Gaga its new Creative Director in 2011, recognizing that the star’s edgy, fashion-forward image was a perfect fit for their brand; her “Grey Label” line of photo printers and other devices is still sold today.

Be willing to invest. These marketing efforts involve upfront costs, but they’re not something an ABC can afford to skimp on. A successful reinvigoration is key to shaking the brand identity out of years of stagnation—and finally making the “vision” part of the ABC process a reality.

Work with the best. Once all of these steps have been taken, the table has been set and it’s time for the rubber to meet the road.  The last critical activity is to proactively identify and sign up the best licensees to be true partners in re-launching the brand into the marketplace.  With a solid core group of licensees in place the sky's the limit for where the business can go. 

The Future of ABCs
It’s not news that today’s retail industry is troubled—and the future is not looking much better. As mall foot traffic plummets, restrictive leases keep companies tied to unprofitable stores that drain money, even as these same companies try to build business online. Consumer spending is shifting from goods to services like digital entertainment and experiences, and the prices of those goods continue to slide. When a retailer is already strapped, problems in any link in the supply chain can be hard to recover from. For instance, shipping delays arising from a labor dispute with workers at the port of Los Angeles were one of the driving forces in last year’s bankruptcy of surf apparel retailer Quiksilver, according to the company’s CFO. In this climate, it’s no wonder that retailers in particular are drawn to a business model that liberates them from inventory, stores, and supply chains altogether. 

If ABCs worked for retailers alone, their future would be bright—but the assetless solution has much broader applications. Martha Stewart Omnimedia, for instance, has blazed a trail for ABCs in publishing by licensing out its Martha Stewart Living magazine brand. The estates of celebrities like Muhammad Ali, Elvis Presley, and Marilyn Monroe have become de facto ABCs by licensing the celebrities’ images to various partners. The possibilities for this flexible, 21st-century business model seem almost endless.

It’s no surprise, then, that a new class of firms have emerged to explore them. Brand management companies manage portfolios of dozens of ABCs, and are experts at guiding brands through the transition from asset-heavy to assetless. These creative and committed partners can often participate in every step in the ABC process, from envisioning the brand’s future to writing checks to cover debts and inventory.

Most importantly, though, they remain invested in maintaining brand equity long after the transition to ABC is complete. By carefully vetting potential license partners and constantly iterating on new ways to keep the brand fresh, brand management companies ensure an ABC’s health and longevity. Companies like Gordon Brothers (Polaroid, Linens ‘N Things), Authentic Brands Group (Jones New York, Juicy Couture), Marquee Brands Group (Ben Sherman, Bruno Magli), Iconix Brands Group (London Fog, Umbro), and Sequential Brands Group (Martha Stewart, Joe’s Jeans) have proved their ability to invest in brands’ long-term growth. For brands who do not want to undergo the transition on their own, it can simply be a matter of finding the brand management firm to teach them their ABCs.