YEAR IN REVIEW: A Hard Look In The Mirror

Not to draw too large a comparison between the situation of the Ewing-less Knicks and the year that just passed for the sports licensed category, but both can be described with a single phrase: "A year of transition."

The industry, faced with the loss of a major manufacturer for the second year in a row and continued flat sales, took a hard look in the mirror and, based on its self-assessment, started to hammer out new ways to conduct business.

"Clearly when you lose two of the key players [first Starter, then Pro Player] in the market, it is not a positive sign for the industry," said Stu Crystal, vice president, consumer products for MLS and a former employee of Starter. "But it wakes up the leagues and demonstrates they need to be partners and not just look at short-term revenue and who's the highest bidder. Now they are setting up programs where, if the licensees focus and do a reasonable job, they can be successful."

One component of the new approach to business has been to reduce the number of licensees. Leagues have been paring down their lists of partners, with numbers cut almost by half in some instances.

"When you reduce your licensees, you reduce the amount of product that's out there, and increase the creativity of those that remain," said Chris Heyn, senior vice president of the NBA's global merchandising group.

A manufacturer's ability to get product to market was often a key factor in determining its fate. Being able to capitalize on hot markets was essential to success in the last year. Companies set up for quick turnarounds, like Gear For Sports and Majestic, thrived. The events themselves helped out as well, with opportunities like the St. Louis Rams' surprising football season and MLB's Subway Series.

In addition, licensees tried to exert greater control over their destinies by instituting vendor "micromanagement" programs. Haddad, for example, has been working with retailers to help manage their assortments and get the right product in place at the right time. "There's more of a strategy now with managing," said Jack Haddad, president, Haddad Apparel Group. "Every league will get bigger sales if retailers are willing to pay attention to managing inventories."

Product-wise, fans seemed to rebuff fashion and return to basics. "General fan merchandise is less important than authentic merchandise," Heyn said. "Core customers want what's on-court."

The other leagues agreed that fan preferences ran toward the authentic side last year. Besides jerseys, the headwear category was very strong, with CLC and MLB in particular reporting outstanding sales. Electronic games also were consistently cited by the leagues as top-selling items.

While many manufacturers report the licensed business is still difficult, most licensees believe the worst is behind them.

"We've seen the bottom, and we're turning the corner in the overall licensed business," said Mark Hampton, president of Nike Team Sports.

TAKING STOCK: Losing Players

Few public companies are engaged in the licensed business today. Those that remain have had the luxury of other business segments-branded apparel, non-apparel-to fall back on when licensed struggled. Nike is well off its 52-week high, although footwear and troubles in Europe can be blamed for the difficulties. VF Corp. met estimates for its just-passed quarter and is stable and strong. Champion is to be sold by parent Sara Lee Corp. any day now, part of SLE's strategy to divest itself of non-core businesses.

FUTURE WATCH: A New You?

With some fundamental changes in their business strategies, industry executives will now discover if they made the right moves.

Most believe vendor management programs have a good chance for success. "I believe it is a foreshadowing of things to come," said Brian Jennings, group vice president, consumer products marketing, NHL. "To manage a category efficiently, buyers have to pay attention to individual achievements, milestones, winning teams. They're pushing the onus onto the manufacturers, while giving more access to store information like never before. It's a template to be used in the future."

In addition to the assist with managing assortments, retailers will look to vendors who can get them product in a hurry.

"Retailers will work with licensees who can turn product, those who can react quicker and in-season," said Karen Smith, director of marketing, licensing and outfitting for Champion.

The leagues' culling of their licensees should help ensure that retailers will have fewer, but better, partners to choose from.

Along with a continuation of the trend toward fan merchandise, many predict a market for more expensive apparel.

"The trend seems to be more toward better items with more detail and higher price points," said Faust Capobianco IV, senior vice president, Majestic Athletic. "It offers retailers more options."

Co-branded kids' apparel, with kids' specialists partnering with authentic sports brands, also is expected to do well.

Industry watchers will be keeping an eye on the WWF which, under the direction of former NBA licensing exec Donna Goldsmith, is looking to expand to upstairs markets, and the XFL. The league, debuting in February, has eye-catching logos and plenty of marketing resources.

Perhaps most importantly, the leagues and licensees need the support of the retailers.

"We have to energize retailers to see the opportunity of getting back into the sportswear business and show them that margins can be good," said Chris Heyn, senior vice president of the NBA's global merchandising group. "The opportunities are many. There are a lot less people in the business and those who are left are finding success."

"Licensed seems to be gaining momentum again, driven by demand from fans who are coming back to it," Capobianco said. "Retailers can and have recommitted to the business. Our customers have become more profitable, and even lean on it now as a growth category."