Why Have Ralph Lauren’s Licensing Revenues Been Declining In Recent Years?
Ralph Lauren grants its product licensees the right to manufacture and sell at wholesale, specific categories of products under the company’s trademarks. International licensees are given exclusive rights to distribute particular brands or classes of products and operate retail stores. Each licensing partner pays Ralph Lauren royalties based upon the sales of the products, subject to a minimum payment for the right to use the trademarks and design services. Approximately 44% of Ralph Lauren FY 2015 licensing revenues were earned from four of its largest licensing partners: Luxottica Group, L’Oreal, Peerless, and Hanesbrands. The following table lists the company’s largest license agreements.
RL’s licensing segment forms a small part of the company’s overall revenues. Furthermore, its contribution to the top line has been declining continuously over the years. This decline has been a result of increased focus by the company on directly owning the licensing business. This has been done in order to have a direct control over its brands. While the number of stores operated by licensing partners has increased, the company has been actively transitioning some licensed businesses to wholly-owned operations.
The decline in revenues can be attributed to the transitioning of its business to wholly-owned operations such as:
1) Australia and New Zealand Licensed Operations Acquisition
- In July 2013, the company transitioned the Ralph Lauren-branded apparel and accessories business in Australia and New Zealand to a wholly-owned business.
- RL acquired certain net assets of Oroton Group/PRL Australia for $15M.
2) Chaps Menswear License Acquisition
- In April 2013, the company transitioned its North American Chaps-branded men’s sportswear business from a licensed to a wholly-owned business.
- RL entered into an agreement with its licensing partner – The Warnaco Group – to acquire certain net assets for ~$18M.
An interesting point to note is the substantial increase in margins for the segment over the five year period. This has reflected reduced operating expenses as a result of the transition of certain licensing agreements to wholly-owned operations.
While licensing is an important channel for many fashion retail companies, many such players are trying to get control of their brands. An outlier in this is Calvin Klein, wherein over 50% of its revenues are traced to their licensing royalties.
Have more questions on Ralph Lauren? See the links below:
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- How Did Just The Month Of February Make Ralph Lauren One Of The Worst Performing Companies, Amongst Its Peers?
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- Ralph Lauren: Year 2015 In Review
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- Will Ralph Lauren Stock Trade Lower Post Fiscal Q3?
- Ralph Lauren Q2 Preview: What Are We Watching?
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- Ralph Lauren Stock Slumped 14% In Last Ten Days, What’s Next?
Notes:
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
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