Has Authentic Brands Group created a new brand-building model?

Discussion
Sources: Authentic Brands Group
Jul 16, 2021

In the initial public offering prospectus for Authentic Brands Group (ABG), Jamie Salter, founder and CEO, describes how he came up with his company’s licensing platform that “deconstructs and reconstructs” the traditional brand building model.

“I came to realize that most brands were structured for a different era — before the speed of digital and the complexity of global; antiquated, and ultimately difficult to retool as the market and the consumer evolves,” wrote Mr. Salter in a letter to shareholders. “Being best-in-class in every competency at every step of the value chain is an impossible task for most teams, but that’s what defines success in the traditional model.”

Mr. Salter, who previously spearheaded the formation of Hilco Consumer Capital, describes his company as “brand owners, curators and guardians.” The platform combines the operational and financial benefits of a traditional brand licensor with the brand development, marketing and long-term value approach employed by successful brand owners.

Under the model, ABG retains brand ownership and approval rights over marketing strategies, product development and use of data. Licensee partners bear the capital, manufacturing, inventory, markdowns and distribution responsibilities.

“We are a licensing business and are purely focused on brand identity and marketing,” Mr. Salter said. “This unique approach allows us to:

  • Unleash brand performance through reimagined storytelling and staying ahead of the distribution curve.
  • Create a sustainable, strong royalty model with recurring, asset-light growth.
  • Drive a flywheel of successful revenue and brand growth that fuels free cash flow to invest in additional brands.
  • Focus most of our time, efforts and resources on building incredible brands.”

One area of investment has been digital, where ABG’s marketing capabilities serve as the basis for brand development.

ABG has completed over 30 acquisitions since being founded in 2010 including partnering with Simon Property Group and others to acquire stakes in Forever 21, Aéropostale, Lucky Brand, Barneys, Brooks Brothers and Eddie Bauer. It has a 17 percent stake in J.C. Penney.

The company said it signs a core licensee partner agreement before an acquisition is executed, in most cases, “significantly de-risking the successful execution of the intended strategy and providing upfront visibility into the future revenue, profit and growth potential of acquired brands.”

DISCUSSION QUESTIONS: Does Authentic Brands Group’s licensing model better set up brands to pursue digital and global growth than traditional models? How would you rate the model’s pros and cons for acquired brands and retailers?

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Braintrust
"An aggressive strategy, indeed. But in reality, it needs the weight of time to determine success as none of the brands in the portfolio are that unique."

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5 Comments on "Has Authentic Brands Group created a new brand-building model?"


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Carol Spieckerman
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
2 months 7 days ago

I’ve followed Authentic Brands closely as “one to watch.” Authentic Brands is reinventing traditional licensing by clearly delineating licensor/licensee accountabilities, taking a hands-on approach to marketing, particularly digital marketing, and mitigating risk by acquiring brands that already have deals in the pipeline. Moreover, Authentic Brands is offering plug-and-play brand portfolios to new brand power brokers like Simon Properties. No more speculative, one-off deals and rolling the dice on retailer interest. This allows retailers, and now developers, to get up and running quickly and provides even more reassurance to potential licensees. Authentic Brands is also not shying away from retail/wholesale hybrid acquisitions like Lucky Brand, providing additional reach and relevance to the company. Past attempts at building licensing power houses have crumbled (see: Liz Claiborne) or struggled (Iconix) for a number of reasons that Authentic Brands is remedying. It’s a great model and one that others will no doubt attempt to follow.

Jeff Sward
BrainTrust

In the article the paragraph starting with “Under the model…” goes on to describe a decades old model. Signing a core licensee partner agreement before an acquisition is executed might be a new twist, but then it sound like the model reverts to a very long standing licensor/licensee relationship, albeit with new digital tools and social marketing opportunities. ABG gets a lot of credit for being a great student of the market and taking advantage of the plethora of opportunities the recent market turmoil has provided. Now comes the hard part — execution at the store, mall and e-commerce level. And the execution is in the hands of the licensees. Mr. Salter is very clear that ABG is “purely focused on brand identity and marketing.” That leaves a lot of very important work to be done by the licensees, and it’s still a very tough market out there.

Lee Peterson
BrainTrust

An aggressive strategy, indeed. But in reality, it needs the weight of time to determine success as none of the brands in the portfolio are that unique or in some cases, even relevant. If we’re discussing this three years as “the strategy that changed retail” it’ll be champagne popping time. But until then, I’d keep my powder dry on the accolades.

Venky Ramesh
BrainTrust

Watch where the Gen Zers are shopping and what brands they are endorsing. Chances are we haven’t heard of many of those brands. Chances are they are not one of the brands in the Authentic Brands portfolio. Their portfolio companies know a good deal about managing their current operations, but where they definitely need help is in figuring out how to get themselves in the consideration set of the Millennials and the neo-Millennials (Zs) and become a cool Instagrammable brand in their mind. This is where ABG could help – so my two thumbs up on their strategy.

Craig Sundstrom
Guest

Mr. Salter tapped all the cliches — I’m particularly fond of “flywheel … of revenue growth” … maybe he should trademark/license that? 🙂 — but I think it’s a little early to decide whether it “works” or not.
My take on it — based on the rather skeletal description given — is that they seem to be trying to shift all the heavy lifting onto the “partners,” while retaining the benefits (is that actually a “partnership”?)

Whatever one want to call this, it seems like it can only work with really strong brands … something which I’m not convinced ABG possesses. We’ll see.

wpDiscuz
Braintrust
"An aggressive strategy, indeed. But in reality, it needs the weight of time to determine success as none of the brands in the portfolio are that unique."

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