Licensing, marketing and retail expert/opinion leader Tony Lisanti, provides insight and perspective for the top headlines of the week. “Licensing and Merchandising Report” is a must read for top execs who want objective, straightforward and authoritative analysis.

Top Analyst Reviews Cherokee and Brand Licensing

Eric Beder, founder and CEO of Small Cap Consumer Research, initiated coverage this week of Cherokee, Inc. and brand licensing. Here are some of Beder’s top line insights from the report:

With the recent challenges resulting from the termination of its longstanding partnership with Target and the acquisition and subsequent sale of Flip Flop Shops, Cherokee is making changes and progress toward improving it business and market position worldwide.

Cherokee is poised to capitalize on multiple growth opportunities and to resolve overhanging debt issues, we believe the company is once again on track to demonstrate the strength of the brand licensing model,” Beder reports. “We are initiating coverage of Cherokee, Inc. (CHKE), a leading brand licensor, with a Buy rating and price target of $1.75, or 6.0X our FY20 (January) EV/EBITDA. With 1QFY19 results demonstrating clear progress after a challenging FY18, we believe the company is positioned for a more normalized FY19 with a return to positive EPS and revenue growth in FY20.

Beder adds, “We believe Cherokee has the potential to surprise as the company moves to more normalized operations and begins to see the gains of refocusing on the traditional licensing model.”

According to Beder, Cherokee is a more diversified business today with four major brands and 54 licensing agreements in 80 countries than it was in the past when its business was primarily two major DTRs with Target and Tesco. Cherokee’s four major brands are Cherokee, Hi-Tec, Tony Hawk and Liz Lange. Beder reports that in FY18, the namesake brand and Hi-Tec accounted for over 70 percent of total sales (excluding results from the recently divested Flip Flop Shops franchising operations).

Beder explains how CEO Henry Stupp and his team have refocused the company on the “core values of vision, agility and scale, which led to the creation of the 360-degree platform to enable Cherokee to widen their partner base and create a more complete and cohesive brand partnership to drive growth.”

Another insightful part of the report is about the brand licensing business model. While Beder points out multiple reasons why the brand licensing business model is a viable one, he also points out that it has not performed well over the past several years.

“Publicly traded brand licensors have been among the worst investments,” Beder points out. “Since 2015, the Small Cap Consumer Brand Licensor Index, consisting of the four publicly traded brand licensing pure plays (Cherokee, Iconix (ICON), Sequential Brands [SQBG] and Xcel Brands [XELB]) has declined over 80 percent, versus a 29 percent increase for the S&P 500 Index.

The bottom line here is that while these brand licensors continue to have strong positions for their popular brands, they do face retail, consumer and global challenges and are working diligently to strengthen their core businesses. Cherokee’s initiatives are a strong example of this.

For more info, contact Small Cap Consumer Research.

Walt Disney Ups its Offer for 21st Century Fox

As Mickey Mouse gets to know Bart Simpson and Avengers connect with X-Men, Bob Iger and Rupert Murdoch already know each other and may very well be working together in the future. The Walt Disney Company responded to Comcast’s $65 billion bid last week by upping its offer to $71.3 billion, which is almost $19 billion more than its original offer made last December.

Now, the focus is back on Comcast as to whether it will make another offer, what the offer will be and what it will include and whether it will sway the Fox board. It will be a few weeks before Fox makes a decision and any potential deal is finalized.

As I previously reported, the Fox portfolio of franchises that include The Simpsons, X-Men and a huge film library, reinforce the simple credo that content is king, and companies are more than willing to pay for it.

Kmart Opens in Sears (and vice versa)

The first question to ask regarding this variation of a ‘shop-in-a-shop’ strategic move is: “Why?” It seems that once again the struggling venerable retailer is simply looking for quick fixes to drive sales as part of its turnaround efforts. This week a 10,000-sq. ft. Kmart convenience store—offering popular groceries, snacks, health and beauty and pet products—opened inside of a Sears store in Brooklyn, N.Y.

Conversely, Sears will also begin opening a small appliance shop selling higher-end merchandise in Kmart stores. Are you kidding! Are shoppers looking for high-end appliances in their local Kmart store? Probably not.

The bottom line is that no matter how the retailer attempts to leverage both brands and believes in the respective brand synergies, it’s hardly the solution for its ongoing turnaround. If it does in fact show some positive signs of increased sales and customer traffic, maybe it’s the beginning of the merger of both retailers into one concept. A move that perhaps is long overdue, and maybe too little too late.

Miami OKs Largest Mall in U.S.

At a time when traditional malls are closing, Triple Five Group has been given the nod to build the largest mall in the U.S. Of course, it’s not your traditional middle America type mall, but a 6 million sq. ft. entertainment complex. The $4 billion American Dream Miami will be similar to and bigger than the American Dream Meadowlands in Rutherford, N.J., that has been under development for more than a decade and will finally open in spring 2019. It features a Nickelodeon theme park, DreamWorks Water Park, Big Snow America ski park and chalet, NHL size year-round ice skating rink, plus more than 100 restaurants and 300 retail stores. It will also be bigger than Triple Five’s Mall of America.

These mega concepts are also providing more opportunities for brand owners to showcase their IP and products as well to millions of consumers. Instead of several small malls and strip centers, the aim is to create one multi-purpose destination for local consumers within several hundred-mile driving distance as well a go-to place for American and international tourists.

GameStop Plays the Sale Game

GameStop confirmed it is in discussions with third parties regarding a potential sale. This should come as no surprise to most licensing executives as the video game/electronics retailer with 7,200 stores and ThinkGeek, has been under intense pressure as the gaming market shifts to direct downloads.

Over the past several years, the retailer has made a big push in merchandise sales and licensed products, but apparently that hasn’t been enough to grow its overall business. Frankly, its stores are difficult to merchandise and, in many locations, not large enough to incorporate impactful displays. But the retailer does have a very strong base of rabid fans who crave the related game merchandise.

GameStop remains committed to the collectables merchandise business. The company announced on Wednesday that former Walmart Stores’ merchandising veteran, Dawn Henry, was named vice president of its ThinkGeek division reporting to senior vice president, Janet Bareis.

Perhaps a robust slate of game releases later this year and into 2019, along with a yet-to-be-named new top executive, and possibly even a new owner or restructuring of sorts at some point, will help GameStop in the near term as it works to secure its future. 

Quote of Week

With regard to the Supreme Court decision on Thursday about internet sales tax: “Today’s decision culminates years of tireless work by the retail community to reverse a pre-Internet era rule that distorts free markets and puts local brick and mortar stores at a competitive disadvantage with their online-only counterparts. This was the right case and the right time for the Court to act, and we couldn’t be more pleased with the outcome.” — Deborah White, General Counsel for the Retail Industry Leaders Association and President of the Retail Litigation Center.

Best Move of the Week

Puma hired Jay-Z as president of its basketball operations to handle creative development and marketing. In addition to his many accomplishments an entertainer and entrepreneur, remember that Jay-Z is founder of Roc Nation Sports, and a licensed sports agent. He could have a very strong influence on Puma’s overall business, as well as its licensing business, over the next few years.

In the Field

My weekly spotlight of licensed products at retail

Jurassic Park Debuts in Target and in Theatres

With today’s theatrical debut of Jurassic Park: Fallen Kingdom, Target is ready and well-prepared with more than 75 exclusive products in toys, apparel, bedding and home. The film has already grossed $450 million worldwide, according to boxofficemojo, and is expected to top $140 million at the box office in its opening weekend. It will likely become one of the summer’s and year’s biggest hits. And you can almost bet that there will be more to come. It’s a juggernaut film and licensing franchise for NBCUniversal.

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