The last time we took a temperature read of the licensing climates in the big-five Euro territories, it turned out to be just weeks before the global economy took a nosedive. Certainly, the signs of the economic downturn were already there as we carried out research and interviews over the course of the summer of 2008. So two years later, as the news emanating from major financial centers indicates it’s time for cautious optimism, it seemed like a good time to check in with the European consumer products market. How are kids licensors and licensees faring in the UK, France, Germany, Italy and Spain? Well, keep reading.

The UK looks for green shoots as economy thaws

While the road has been rough, there is reason to breathe a bit easier about the UK economy. After entering its worst post-war recession in 2008, the UK economy grew by 1.1% in Q2, representing its fastest growth in the past four years. Although there are real fears that the rise in the price of commodities and the British pound’s performance will adversely affect consumer spending, many licensors surveyed believe the worst days are behind them.

‘Customers are still buying and there has really not been a noticeable drop in retail sales,’ says Graham Saltmarsh, UK licensing director for Turner CN Enterprises.

Paul Bufton, GM of Warner Bros. Consumer Products EMEA, agrees. ‘There is definitely a renewed sense of positivity and that we’re coming out on the other side of this crisis,’ he says. ‘I think the risk-aversion we’ve experienced at retail is easing ever so slightly.’

The good news is also reflected in an 8% jump in toy sales in the first six months of 2010, according to the latest numbers from industry tracker The NPD Group. The UK outperformed its neighbors in the category, registering the biggest percentage increase in Europe.

In terms of retail, however, the UK licensing industry has yet to experience the last of the fallout from the 2008 collapse of high street retailer Woolworths that took a significant chunk out of licensor and licensee bottom lines.

‘Woolworths’ demise had a big impact on the licensing market in the UK,’ says Clare Piggott, VP of Nickelodeon Consumer Products UK. ‘There has been a major ripple effect. I think it’s fair to say that a great deal of that Woolworths spend just has not rematerialized.’

Bettina Koeckler, SVP of licensing for EMEA at Chorion, says her company has also felt the bite from Woolworths’ failure, but the situation is improving – it’s even had some positive side-effects. ‘I think it left a big gap in everybody’s numbers,’ she says. ‘When it comes to toys, I know Woolworths’ volume hasn’t been completely divided up just yet, but it has forced retailers and licensors to work closer together to drive traffic into stores.’

While the high street continues to try and make up the loss, UK-centric online portals such as Play.com, with its individual branded sections, have started to make some noise. There has also been a spate of pop-up shop opportunities emerging. ‘Our Harry Potter pop-up shop at the London Eye was massively successful,’ reports Bufton. Although he is hesitant to release any numbers, he says the merchandise sold through last year.

Property-wise, in a market known for its lack of shelf space and risk-averse retailers, the safe bets still seem to pay off. Blockbuster IP like Dora the Explorer, Superman and Thomas & Friends continue to rule the roost. And more UK-focused brands like Peppa Pig and Mr. Men have also found reliable success in a market where both consumers and retailers are watching their pennies.

Perhaps the most interesting innovation on the retail front over the past few months was one borrowed from the format of popular Brit reality TV series Dragon’s Den, in which hopeful inventors pitch their ideas before a panel of entrepreneurs. Retailer Argos reportedly held a one-day event recently where it invited licensors to pitch their properties and product lines directly to the mass-market chain’s buying teams. ‘Argos really showed a willingness to explore new areas,’ says Piggott. ‘It was great to be able to get direct feedback instantly.’

French licensing on a slower track to recovery

As the EU market shows overall signs of recovery from the global economic crisis, France continues to lag a bit behind. According to France Customs Office data, the country will post its seventh-consecutive yearly trade deficit and the second-largest for the territory at US$25 billion by year’s end.

‘It takes France a lot longer to get started again economically – we’re a conservative country,’ notes Marina Narishkin, MD at CPLG France. ‘From a licensing perspective, when things aren’t going well, consumers clam up and shelf space closes to untested properties. There’s a lot more reticence now than in the past.’

And the reticence of typically conservative retailers is extending to licensees, who still aren’t seeing pre-crisis levels of turnover. ‘Even if they are very enthusiastic about a brand, manufacturers are not prepared to pay a high minimum guarantee, preferring to pay royalties dependent on sales,’ says Brigitte Legendre, director of consumer products at Paris-based Moonscoop.

That preference could account for the uptick in royalty rates recently noticed by licensors. ‘Since April, we’ve seen an increase in royalties, which is very positive,’ says Narishkin. ‘We were at 11%, but the economic crisis drove rates down to 8% or 9%. Today, big properties can still command 12% and sports properties 14%, but that’s very high for the market.’

When it comes to blockbuster properties in France, few have been bigger than Dora the Explorer. ‘Dora is still on the market, but losing share. There’s a real lack of girls properties and we’re all waiting for the new hit,’ says Legendre, who’s hoping Moonscoop’s preschool series Chloe’s Closet (France 5 and Playhouse Disney) can fill the void. With a Bandai toy range set to debut in 2011, the program focuses heavily on playsets, drawing on the show’s dress-up themes.

But don’t count the reigning preschool princess out quite yet. ‘Managing a property like Dora and getting people to understand where the right level is can be challenging,’ says NCP VP Laurent Taieb. ‘It’s tough to move from being a smash hit on-air to a very good property. Partners tend to only see the decline, but we’ve got to keep in mind that Dora is still the number-two preschool property in France [NPD Toys ePOS – January to June, 2010].’

That growth-and-decline dynamic is something the French market is witnessing with licensed product categories as well. ‘Last year, the economic crisis didn’t affect publishing – forecasts were increasing,’ says Legendre. ‘But now, all of the publishers are in trouble.’

She adds that DVDs and video games, once strong categories, are losing ground due to TV competition and piracy. Hoping to buck that trend, CPLG’s Narishkin is betting on Ubisoft’s The Raving Rabbids. Moving a video game property straight into licensing without TV support is a first for the French market, but CPLG has already signed 15 licensees and is looking for more.

As for trends on the rise, direct-to-retail deals are gaining momentum, with Carrefour as the most active retailer, though not all licensors are convinced of the strategy’s market relevance. ‘It can be good for certain product categories, or even across retailers on short-term blockbuster film programs,’ says Narishkin. ‘But for long-term brand- building, DTRs may not be the answer in France,’ she contends.

In contrast, Warner Bros. Consumer Products France is pursuing DTRs for its portfolio of evergreen brands, including Looney Tunes. ‘Direct-to-retail is definitely a growing trend, and what is new is that it is going beyond the traditional categories into areas such as food,’ says WBCP France executive director Anoush Kevorkian. ‘Major players including Systeme U and Carrefour have launched massive programs. For example, Systeme U has introduced over 100 SKUs to date with Looney Tunes Active.’

Sports licensing to kick-start a subdued German market

When we last took a temperature read on the kids licensing landscape in Germany, it wasn’t exactly sizzling, with a dropping birth rate, lower levels of discretionary income and falling sales in the licensed toy market. Flash forward two years and the needle has moved only very slightly into warmer territory.

According to the German Federal Statistics Office, the country’s retail sales levels remain subdued, hovering at the lower end of revenues measured since 2004.

‘We are dependent on the US market in the toy category, but the economic crisis that the US and UK have faced hasn’t hit our market quite as hard,’ says Christoph Ahmadi, director of marketing and sales for German kidcaster Super RTL. ‘We didn’t have high growth, but not as much of a drop, either.’

The territory’s largest licensing category – apparel – is also facing downward pressure from a lower-valued US dollar, an issue compounded by increasing cotton prices. ‘It has become very difficult for many licensees to receive orders from retailers in the apparel category because the pricing is a challenge,’ says Uli Stoef, CEO of Munich-based licensing agency m4e.

According to Andreas Niedergesaess, VP of Nickelodeon Consumer Products North, the pricing challenge affects all categories in the German licensing market. ‘Buyers are asking for new properties without taking on any sell-through risk. This means that licensees are really under pressure because of their purchase order on voluntary acceptance of returned goods, which will also have an impact on pricing,’ he says.

Increased margin pressure on German licensees is causing many to become more selective in acquiring licenses, so licensors need an established brand to convince partners to dig into it or must be willing to take on some of the risk themselves. ‘Sometimes as a licensor, you must finance and deliver the product to retailers yourself – a trend that is changing the landscape,’ says Stoef.

Licensing, however, remains a key sales strategy for German retailers, with both CNA and The Metro Group (which owns hypermarket chain Real), as the most active in the traditional retail space. RTL’s Ahmadi notes that pharmacy chain Mueller has organically grown its licensing business over the past couple of years since its entrée into toy sales five years ago, but Toys ‘R’ Us still sits atop the licensed toy heap. Stoef shares that view, noting that TRU understands the power of brands and what licensing can bring to retail in terms of margin and traffic if executed correctly.

Dominance of traditional retailers aside, it’s discounters like Kick and online retailers that are driving growth in the sales of consumer products, licensors say. ‘Discounters have been the most aggressive retailers over the last few years, doing huge numbers in toys, games, home video, gifts, apparel, accessories and consumer electronics categories,’ says Niedergesaess. ‘Consumers are aware that products from discounters generally offer good quality due to high testing standards.’

Ahmadi notes that online retailers have become more active in the last few years, particularly Amazon, and not just in publishing but toys as well. ‘We have completely focused our business on online toy retailers,’ he says. ‘They are growing and so is their relevance.’ Niedergesaess says this trend, and Amazon’s strength, is prompting brick-and-mortar retailers to look into online opportunities to increase sales.’

In terms of licensed product categories, apparel is strongest, and despite noted challenges is posting double-digit growth according to licensors. ‘In Germany, the only figures you get are for the toy and video markets,’ notes Rinsche. ‘So if you look at apparel, a significant category for licensing, we do not have any numbers beyond our own brands.’

According to German research firm Icon Kids & Youth, computer and interactive hardware and software remain the number-one products in terms of usage, with mobile applications a growing category. ‘Consumer electronics, along with fashion, look like very positive new categories for licensing depending on the price point,’ says Niedergesaess.

Movie and TV licensing, particularly when it comes to preschool, are still key drivers in the German licensing market. ‘Animation properties are doing well, but there is a trend towards live-action properties, as girls ages 10 and up – a developing target group – are less likely to watch animation,’ says Niedergesaess.

Not surprisingly, sports licensing took center stage this year, with licensing for FIFA and the German Football Federation taking the market by storm thanks to consumer interest in the World Cup. ‘Panini is forecasting 110 million sticker packs sold in Germany alone, with seven to eight million for trading cards,’ says Stoef. ‘It’s a huge revenue stream for licensing.’ That revenue generation allows sports licenses to command a 15%-plus royalty rate – well above the standard 8% to 12% in other categories.

But is the overall licensing market growing in pace with the sports category? Not quite. ‘Licensing is still growing at a rate of 6% overall, in line with our main property, SpongeBob SquarePants,’ says Niedergesaess. ‘The German market is underdeveloped in comparison to France, the UK and the US, so there is still potential to grow further. And the industry has moved into new fields such as fashion, sports and celebrity licensing.’ Super RTL’s head of merchandising and licensing, Hendrick Rinsche, concurs. ‘We are still under-represented when it comes to licensing – there should be more growth potential for our market,’ he says. ‘But German mothers are conservative, so it’s not easy to increase share of licensed product sales in households.’

Italy inches upward

Hard hit by the general economic malaise, Italy has shown some signs of recovery; news that will be welcomed by all mining the territory for consumer products revenue.

According to numbers just released from the country’s national statistic bureau ISTAT, Italy’s economy grew for the second consecutive quarter. Its GDP was up 0.4%, matching Q1’s rate of growth. On a year-to-year basis the Italian economy expanded 1.1% from 2009, and industrial production for Q1 was up 7.8% over 2009’s figure.

Maurizio Disterphano, GM of WBCP Italy, agrees that things are looking up after some tight times. ‘In the retail environment we’re seeing the first signs of increased consumption by Italian customers,’ he says. ‘Recovery is surely more conservative than in the industrial sector, but overall the growth should impact positively on the distribution environment this year.’

In the toy market, Italy lags behind other European countries, registering a 2% growth in toy sales in the first half of 2010, according to the latest NPD numbers. However, after the long recession any positive uptick is being heralded by those in the industry.

‘The markets are still feeling the effects of the global economic situation,’ says Stefano Salis, Italian territory manager at Turner CN Enterprises. ‘Consumer spending is comparatively low and this inevitably influences our licensing activities. Retailers remain risk-averse and are focusing on tried-and-tested brands rather than new properties.’ However, he does report that IP such as Ben 10 and Bakugan are performing well in the tough market. And Flor, a telenova aimed at girls, is a somewhat newer IP that has found an audience and backing at retail.

WBCP’s Disterphano says that the major retailers are backing the IP owners classic catalogue. ‘Buyers have reduced their branded product range since the onset of the crisis,’ he says. ‘In the past it was possible to find the same item for five or six different properties…now it’s more like two or three…Very often they went for the safe choice and the evergreen brands.’

This is good news for WBCP and its robust stable of vintage IP, as Disterphano reports solid growth outside of the traditional apparel category with notable increases in sales of personal care, food & beverage, and toy items.

Milan-based Sanrio Licensing president Roberto Lanzi also reported that moving beyond flagship property Hello Kitty’s traditional strength in apparel has been a winning move for the company in Italy.

‘There is a lot of interest in other categories from homewares to electronics,’ Lanzi says, adding that the discount tier of retail is exerting its power. ‘Their business is increasing and they are now looking at licensing with more interest.’

As for retail growth, although the country is still very much ruled by the fashion houses and mass-market retail, online retailers and kiosks – which stock periodicals, snacks and small novelty items – continue to grow market share.

‘In the last few years, kiosks have been the most outstanding channel for us,’ says Salis. But there is a drawback in that the small retail outlets have very limited shelf space. ‘We’re quickly arriving at a saturation point,’ he contends. Similarly, Disterphano says kiosks remain a big business, but online is growing fast, too.

Spain starts to see the light

In many ways Spain’s continuous economic troubles have taken a backseat this summer to its glorious runs at the World Cup, Formula 1 Grand Prix and the Tour de France. ‘Winning a championship, or three, actually does have an effect on consumption,’ says Nickelodeon Consumer Products’ Taieb, who overees the Spanish market along with France. ‘People are feeling happy,’ he explains. ‘It’s not a main driver, of course, but it helps.’

It is understandable that any piece of good news is worth clinging to in an economy that is just emerging from its worst slump in 60 years. According to the Bank of Spain, GDP rose 0.2% from the previous quarter in Q2, representing the first expansion since early 2008. As well, consumption rose by 0.7% from the previous quarter, faring about half a percentage point better than the government had predicted. Another positive sign is that the toy market grew 6% during the first six months of the year, according to NPD. The increase is the second-largest in the EU behind the UK.

According to Maria Doolan, brand and business development manager at Madrid-based Zinkia, the news for licensed products in the territory is getting better. Retail is beginning to realize that in a tough economy consumers like to stick with familiar brands.

‘The Spanish market is still quite depressed, but you can see there is a big appetite for a good licensed program,’ Doolan says. Zinkia’s program based its property Poyco has continued to grow across all categories in a tough retail market.

‘Retailers are looking for the next big thing, but it has to be a really big thing,’ notes Doolan, adding that the retail environment is becoming more open to cross-promotions and servicing different tiers of consumers.

‘The bigger mass chains like Carrefour, Hypercore and Toys ‘R’ Us are becoming more innovative and organized,’ she says.

The good news is that with increased immigration shoring up the population over the last few years, the emergence of DTT kids channel CLAN TV, and the diversification of predominant retailer El Corte Inglés, the stage was set for a blockbuster program to emerge. Enter SpongeBob SquarePants.

‘SpongeBob is just on fire, it’s the place to be,’ says Taieb. ‘I have seen this phenomenon only once before with Dora in France in 2007. It’s like the magic that only happens once in a lifetime, but it’s happened twice.’

According to Taieb, the demand for SpongeBob merch started ramping up in the spring, and by June it had become the number-five license in the country. ‘We were nowhere a few months ago and now we can’t keep up,’ he says, adding he doesn’t really know why the IP took off when it did.

That said there are still many stumbling blocks on the way to total recovery for the European nation. On July 1, the government raised the VAT tax from 16% to 18%, a move that critics say could curb consumption. As well, the Spanish government has continued to withdraw public works programs and restrict designated economic stimulus dollars – moves that have contributed to the country’s decade-high unemployment rate of 20.1%.

And unlike some of its European neighbors, Spain’s retail environment is still heavily dotted with mom-and-pop shops (estimates indicate they represent 40% of retail sales), which make it difficult for licensed goods to achieve full distribution. ‘Although there is a good network of wholesalers, there are thousands of shops,’ says Taieb. ‘It makes certain avenues unavailable, like direct-to-retail.’