What message is being sent to licensees?
Before I get started, let me be very clear that I have absolutely no clue regarding the actual agreements between these two companies or the actual thought process behind the decisions that either company has made in regard to their licensing arrangements. More importantly, I do not know the sales performance, quality of garments produced, nor management qualifications of either party in regard to the dress shirts program. I am simply playing devils advocate and stirring up questions... Yes, I like to provoke thought on occasion (even if it is not soundly based). Anyway, with that said, here goes...
At first glance when I read the press release, Perry Ellis International Announces It Will Resume Manufacturing Dr... my first thought is that either the licensee has not sold as many units as expected OR the licensee performed better then expected. If the "licensee" performed better then expected possibly the "licensor" believes they can make more money cutting out the middle man (cutting out the licensee). Certainly, the licensee pays a fee, but possibly the licensor can make more based on the margin between the cost price and selling price of the dress shirts. In other words, they may believe they can make more profit if they internally produce, market, and sell the dress shirts themselves then the amount of profit they would receive from licensee fees. Again, I am not sure if this is the case in this situation, but IF sales performance was "good", does ending a licensing agreement send a "bad" message to companies that license popular brand names. Are you going to pull my license if you find you can make more money without me???
Here is portion of the press release, "Perry Ellis International announced yesterday that it has agreed with Smart Apparel (U.S.) Inc. to end its license agreement for men’s dress shirts under the Perry Ellis and Perry Ellis Portfolio brands. Under the amended agreement Smart Apparel will continue to manufacture and distribute Perry Ellis dress shirts until December 31, 2010. Effective January 1, 2011, Perry Ellis International will take over all aspects of its dress shirt business. Smart Apparel will continue producing Perry Ellis International’s tailored clothing including men’s suits, suit separates, and sport jackets, which are available at major department stores nationwide."
I guess my question is, "Why has Perry Ellis decided to take the dress shirt business in house?". Why not continue to use Smart Apparel or possibly another licensee. IF they are bringing the division in-house to make more money, "what message does that send to other licensees?" Isn't that saying, "thank you for promoting our brand and pushing our product into as many doors as possible. Now that things are going well, we don't need you any more". By the way, I am simply using Perry Ellis as the example because I happened to read that press release today. Certainly, "many" other companies have similar situations between licensee and licensor.
Lets keep in mind, that the licensor is not necessarily a bad guy. As the licensee utilizes a brand, they have an opportunity to meet buyers that they may not have had the opportunity to meet if they were marketing their own (not so popular) brand name.
By the way, possibly it was Smart Apparel who decided to end the license agreement... I am really not sure.. Maybe Perry Ellis raised the licensee fees. Maybe Smart Apparel had too much business on their plate to manage the dress shirts. Again, this blog post is pure speculation. If anyone knows the facts or cares to take a guess you are welcome to express your point of view in the comments section of this fashion blog post.