22 February 2007

The Power of the Brand

Feb. 22, 2007, 8:53AM
Iconix to Buy Danskin Brand for $70M

© 2007 The Associated Press

NEW YORK — Danskin Inc., a maker of women's active wear, and Iconix Brand Group, owner of apparel brands including Candie's and Mossimo, on Thursday said Iconix agreed to buy the Danskin brand for at least $70 million.

The deal is expected to close in March.

A contingent payment of $15 million, payable in cash or stock, is triggered by the brand exceeding some revenue or performance targets. If it is paid in Iconix stock, and the stock appreciates during the earnout period or after, Danskin could earn up to an additional $7.5 million, Danskin said.

Danskin will enter into a license agreement and continue to operate the Danskin wholesale business, including retail stores and Danskin.com.

Iconix said the acquisition will be self-funded from the company's cash reserves.

Iconix shares added 57 cents, or 2.6 percent, to $22.17 in morning trading on the Nasdaq Stock Market.

The significance of this transaction is that Iconix is a company that specializes in managing brands. That's all they do - buy companies for the right to control their brand (presumably well-known, which we all learned in business school carries value in and of itself), and then license out that brand to whomever they choose. I find this interesting since this is apparently the 'next business paradigm', dealing exclusively with brands and labels. Apparently, now Iconix will be able to slap the Danskin brand on whatever product they choose, whether it be manufactured in Canada, the Philippines, or Burkina Faso. I see an inconsistency in what will be available to consumers. I should probably read up more on this, but doesn't this seem weird? I guess it's the next big thing, but being the 'corporate traditionalist' that I am, I remember the days when a companies' brands were controlled by that company which required consistency in product offering and manufacturing sources. Ah, how I long for the good ol' days.

What do you think of this disassociation of a brand from the company that created it?


AM said...

Dear Reid,

The business model of Iconix isn't that new. Perry Ellis has been a "licensing operation" for decades and Calvin Klein and Ralph Lauren would not be profitable without licensing.

You are right, quality control - over both product and processes - is essential to brand management. And the same applies when a brand is licensed.

Usually, the licensor has complete control over the brand. It is his choosing to exercise it carefully, or to just "slap the brand on whatever product".

Cheers, AM

Reid Dalgleish said...

Thanks for that information, AM. I appreciate the insight from someone who knows much more than I on this subject!