Luxury Brand Management: A World of Privilege, 2nd Edition

CHAPTER 11

Licensing Strategy

Although it is a subject that is almost taboo, licensing activities play a major part in the economic balance of the luxury industry. Obviously, some brands are clearly against any licensing activities and never develop them, for example, Louis Vuitton, Hermès, or smaller brands like Robert Clergerie (Cartier could also be in the list, but they have cigarettes that are manufactured by a former sister company of the Richemont Group). For many years, Chanel had no licensing contracts, but today they have a licensing deal with Luxottica for Chanel optical frames. By licensing, we mean to farm out the production and the distribution of a line of products under its name. When one just uses an outside manufacturer, we speak of subcontract manufacturing. When one gives the distribution exclusivity in a given territory, we speak of distribution contracts or franchise agreements. In this chapter, we will deal exclusively with the cases in which a firm subleases its production and distribution to an outsider who is in charge of developing and manufacturing the product as well as selling it, using all systems available including advertising, promotions, and public relations.

This licensing activity sometimes represents a large part of a brand’s income. For example, for Courrèges or Balmain, license royalties amount to more than 50 percent of total income. If they canceled all their licensing contracts, these firms would have no other option but to go bankrupt. ...