Iconix: Licensed to Build Brands
By Tom Ryan
Iconix Brand Group Inc., which last week reached an agreement to acquire the Rocawear urban label for $204 million, is turning the apparel-branding model on its head.
Formerly called Candies Inc., the Manhattan-based company had a nice run during the disco era as a trendy juniors footwear brand. By the nineties, the brand had fallen out of favor and became best known for a controversial ad featuring former MTV star Jenny McCarthy sitting on a toilet.
In 2004, Iconix switched from a manufacturing to a licensing model. The move included licensing the Candie’s brand to Kohl’s as an exclusive and launching an aggressive acquisition spree to acquire a stable of labels to license. It bought Badgley Mischka in 2004; Joe Boxer, London Fog, Mossimo, Mudd and Rampage in 2005; and Ocean Pacific in 2006. In February 2007, it reached an agreement to acquire Danskin for $70 million.
CEO Neil Cole–brother of shoe designer Kenneth Cole–calls his approach to fashion “a 21st Century business model.”
The strategy has some advantages. As a pure licensing company, Iconix is spared the cost of operating factories or arranging sourcing as well as owning inventory, helping to make its margins among the highest in the apparel industry. The company itself has to only cover advertising and promotional support for its brands.
“It’s the prototypical MBA model–high margins, no working capital, no inventory risk,” Eric Beder of Brean Murray Carret & Co. told the New York Post.
For 2006, revenues (representing royalties from the licensing deals) catapulted to $87.7 million from $30.2 million in 2005. Earnings doubled to $32.5 million from $15.9 million.
The move to a licensing model appears well timed since many department stores and discounters are looking for exclusive labels in order to differentiate their stores from competitors. Private labels also tend to provide fatter margins for retailers.
So far, four of Iconix’s brands have licensing deals with retailers: Mossimo (Target), Joe Boxer (Sears Holdings), Danskin (Wal-Mart) and Candie’s (Kohl’s). The biggest is Mossimo, which has become a core apparel brand for Target and is largely credited for showing others how to succeed at the mass level.
However, most of Iconix’s brands are licensed across categories–mainly apparel, footwear and accessories–for the wholesale trade. For instance, its luxury brand Badgley Mischka has 12 different licenses alone selling 15 different categories.
With the close of the Danskin and Rocawear deals, Iconix will have 11 brands generating about $5 billion in retail sales off of 143 licenses. They include some turnaround situations (London Fog, Ocean Pacific) as well as strong brands looking for the next stage for growth, particularly Rocawear, which will continue to be run by rap mogul Jay-Z.
Mr. Cole said Iconix’s stable of brands provides diversity, as will future acquisitions.
“We truly believe we are only just beginning to realize the potential of our unique opportunities,” Mr. Cole told analysts on a conference call. “I am confident that in a short period of time, Iconix will have the largest market share of any company in the fashion business and that we will continue to have a highly leverageable platform that can deliver strong and sustained organic growth for our portfolio of brands and that we can continue to add powerful new brands that can further diversify our holdings.”
Discussion Questions: What do you think of Iconix’s business model? What do you see as some of the opportunities and challenges in pursuing a pure licensing model for fashion brands?
- Iconix Brand Group Announces Definitive Agreement to Purchase Rocawear – PRNewswire-FirstCall
- Darling Doubts – New York Post