Q&A with Neil Cole, CEO of Iconix Brand Group

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We talked with Neil Cole, CEO of Iconix Brand Group. The brand management company licenses its 27 (and growing) brands in exclusive deals with big retailers and wholesalers, allowing them national brand distribution with private label exclusivity and economics. Here’s what Neil had to say about consumer and economic trends, and the importance of true brands.

Q. How was 2010 for you, and looking ahead, what do you see? Is the recession over?

A. We had a great year and a strong fourth quarter with all of our brands. We have 27 individual, unique brands, but last year most were up by double digits. Christmas was better than we expected, so we’re very excited. I think the consumer is consuming, feeling good, feeling like they have a job. I think people are hiring again, but it’s a long slow recovery. It’s going to take a while to get back to where we were a couple of years ago. The industry is going through a dramatic change, with consolidation and all the things you’ve talked about, and will continue to change. Compared to 5 years ago, things are so different.

Q. What about the teen sector, where you have a lot of brands? Isn’t it pretty saturated?

A. Our teen businesses have been good across the board. Teenagers were maybe the last to realize there was a recession, when Dad stopped paying them, and now that Dad’s got some money again, they’re going to spend again. Yes, it’s competitive, but we’re not in the specialty sector, we’re primarily in the big stores. In every industry there are going to be winners and losers. People who are good are winning. Those who don’t have anything new and exciting aren’t.

Q. What is a brand, anyway, and how long is its life cycle? With celebrity and reality stars coming into the picture, it seems like anyone can be a designer today. Have we abandoned the concept of old, authentic?

A. Real and authentic are still important. A brand is when you say it and images come into your head. It means something. A reality star doing vitamins is not a brand. It’s a label. There was always a sea of labels just slapped on to product, but the consumer is smart, and knows what’s real or not. A brand, in my opinion, doesn’t have a life cycle. We look at our brands as brand new every day. You have to keep it new, relevant and exciting or it doesn’t mean anything to anybody. Just because London Fog is 100 years old isn’t the most important thing. No one really cares that it’s 100 years old. They want to know if it’s right today, if it has the right fabrics, styling, etc. Brands are like your children…you have to talk to them, keep them out of rehab.

Q. Speaking of rehab…how is it to work with all these celebrities? Aren’t there risks involved with that?

A. We try not to work with too many celebrities, rather to use them as billboards. I’ve learned a lot from working with Jay [Z., of Rocawear], but it’s not a celebrity spokesman relationship, it’s a business relationship, and he’s a very good businessman, a fascinating person.
I got to work with Madonna, too, who’s brilliant.

\"TheQ. Why do retailers license Iconix brands? Why don’t they just buy or build their own?

A. They have to differentiate. They’re all looking to drive traffic, they’re looking for something that their competition doesn’t have. And, an established brand talks to you, you know what you’re getting. Take Coca-Cola, for instance. It’s just like the slogan says – if you want the real thing. No consumer wants to start from square one when walking through the store. It’s only going to get more important globally.

Plus, you have millions of websites out there, with consumers instantaneously knowing the lowest price of a flat screen TV. So how does a Macy’s deal with that? With exclusive brands.

Retailers need to focus on retailing, and on building the mother brand that’s on the outside of the store.

Our partners are great retailers, but they can’t do everything. They too must have great partners that do the marketing of the brands themselves. With our model, they’re getting better economics, because they’re not having to pay a middleman.

Q. In the apparel category, in mainstream department stores, do you have a sense for how much of the business is private or exclusive brands?

A. It varies, but for some it’s huge – up to 80% of the business. For others, it’s probably 20% and growing. Where it’s been a pendulum swing in the past, I don’t think it’s going back.

Q. Are major department stores looking to open branded specialty stores for their private brands?

A. Some of them are definitely talking about it. In America, there’s no growth. When you have 1,000 stores, your roadmap is pretty set, there’s really no place to go.

Q. And vice versa, specialty stores are opening shops – leasing space – in department stores?

A. Definitely. Wal-mart’s had McDonald’s in it for years. It makes it so that the consumer doesn’t have to leave the store. The retailers have such vast real estate. I think we’ll see more of that.

Q. Do you do all the marketing of your brands in-house?

A. We do a lot of marketing in-house, and we have a lot of partners out around the world who help us – photographers, directors, etc., We have 100 people here working on marketing, PR, social media. I tell our investors sometimes that we’re really an ad agency that happens to own our intellectual property. We focus on the front end of the business and let our partners focus on the back side – products, design, procurement, selling. We’re focused, so we don’t have to worry about the supply chain.

Q. How important is social media?

A. It’s critical today. We work very hard on it, and are starting to fund it in a major way. It’s very difficult – maybe impossible – to reach the consumer on one TV show. When Britney tweets, product sells out. It’s pretty amazing. Madonna’s daughter is writing a blog for us.
It’s also an amazing platform for marketing research.

For our Candie’s Foundation, we had a viral video that got 3 million hits in a week. We didn’t even need to run it as an ad. We coordinate our online efforts with our retail partners. It’s become a real art, and we have 2 or 3 people in each shop – ours and theirs – working together. But whatever we’re doing will be gone in 5 years, maybe less. There will be something new.

Q. You don’t acquire a brand until you have a home for it…What’s the process you go through before buying a brand?

A. We work both sides, there’s not one set process. It’s a matchmaking activity. We know the markets and what people want. We do a lot of research – qualitative, quantitative. We make sure that 80% of America knows the brand before we buy it, and if that number is only 60%, we find out what it will take to grow it to 80%. We want something well-known. A lot of the brands we acquire have a great licensing business in place already.

And the brands we pursue are not always on the selling block – sometimes we go in and convince the owners to sell when they’re not even thinking of selling.

Q. What about wholesale? Do you buy brands with a wholesale business?

A. The last couple of brands we bought were in the wholesale business. We just bought Peanuts, which has about 1,000 licensees. Each brand is unique and different. We’ve learned a lot from Peanuts. We’re selling life insurance, since Met Life is our largest licensee. We have the biggest licensed greeting card business in the world – Peanuts has been with Hallmark for 50 years.

Warner Music – ABC Television – we’re coming out with a new DVD in the Spring. Fashion is a third of that business. America is only a third of the Peanuts business, which is bigger in Japan than it is here.

It’s been a great learning experience for us, a way to learn about growth opportunities.

Q. Other than Badgley Mischka, most of your brands are mainstream brands. With luxury doing so well, are you looking to get into the more upscale area?

A. We have a lot of brands in Macy’s and Nordstrom. Most luxury and designer brands, though, are just not that big. In our model, we’re looking for volume. If we were to find a $30 – $40 million brand and saw a strategy to make it large, we might. For us, sometimes it’s the same amount of work to market a $50 million brand as a $1 billion one, so we need to go for the bigger potential. As the company has gotten bigger, we’re looking for the bigger properties.

Q. What about sports?

A. We have 2 huge sports brands – Starter and Danskin. We’re doing a big event at the Super Bowl – it’s called Starter Field. The idea of doing more sports is very interesting to us.

Q. What about global expansion?

A. Global is critical. We know we’ve peaked in the US, and that America is a zero sum game, and that we need to make our brands global. Our culture dominates music, movies, and will dominate fashion as well. Right now 18% of our business is outside America. Our goal is to grow it to one-third of the business in 5 years. We have an equity partnership with Silas Chou in China who, with his daughter Veronica, is opening single-brand stores for us there. Our brands opened 150 stores in China last year and are set to open 300 this year. We think China will be a huge part of our future. We’re equity owners in 5 companies in China, and our goal is to have equity positions in 27 companies. Not all of them will be successful, but if we have 3 or 4 that could become very big, then we’ll be successful. We also have joint ventures with retailers in South America, Mexico, and Europe. We have 30-40 licensees in South America. We know India will be an important growth market down the road. The partners have big organizations, and they’re making our brands local, but keeping them…iconic.



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