Despite a slowly growing economy that currently lags behind its counterparts in the European Union, Italy’s licensing industry is holding its own.

Licensed goods generate approximately US$3.95 billion in sales at Italian retail and account for roughly 16% of Western Europe’s US$25.4-billion market, according to International Licensing: A Status Report 4th Edition, published by EPM Communications.

The market is expanding and The NPD Group’s Italian E-Pos data reveals the licensed toy market may just be on the cusp of exploding. Year-end figures show the country’s licensed toy market grew by 26% to US$167 million in 2005, capturing 25.7% of its US$650 million toy market.

While Disney’s Winnie the Pooh is the top draw in licensed toys, other properties burned up the bestseller chart last year. Driven by the summer ’05 release of Batman Begins, toy sales of Batman licensed by Warner Bros. shot up a jaw-dropping 491%, while Rainbow’s Winx Club and Disney’s Power Rangers were no slouches in the growth department either, posting 351% and 228% gains, respectively.

Francesca Proserpia, NPD Group account executive for toys, says action figures have been a dynamic category for the last three years and make up the bulk of licensed toy sales in the region. She notes licenses in the market tend to skew towards boys as more product offerings at lower price points are available than with girl-skewing merch.

But the girls market has experienced significant changes in the past 18 months or so since Winx burst on the scene. According to Rainbow CEO Iginio Straffi, Winx fashion dolls now claim a 36% overall market share, besting Barbie’s 31% and out-selling rival Bratz (25%).

In general, school-aged kids drive the market for child-centric properties. This may explain why stationery and back-to-school items are also key categories – often generating more retail sales in Italy than in bigger territories. Straffi says in the short two months of the back-to-school selling period, for example, Winx non-toy merch generated US$7.2 million at retail.

Publishing, not surprisingly, is also big. Some 55,000 kiosks that sell comics, books and DVDs are spread across the country, stationed from city corners to village hilltops. Italy is Disney Publishing Worldwide’s biggest market for branded kids magazines and the company even runs its global comic book and magazine publishing activities from offices in Milan.

Licensed food and confectionery sales are also blossoming. Licensed chocolate treats and cakes sell well around Christmas and Easter, while Halloween has started to drive some categories’ sales, particularly gifts, novelty items and candies. In fact, Maurizio DiStefano, general manager of agents, markets, and Switzerland for Warner Bros. Consumer Products Italy, says he’s looking at getting into the space with the company’s best-selling properties in the coming months.

Preschool licensing, on the other hand, is something of a slog. Winnie merch essentially dominates; the little golden bear is the top kids property in the country bar-none. But it’s a small demo. DiStefano points out that only 500,000 kids are born each year and the birthrate’s been flat for about a decade. And preschool properties that have performed well in other markets never seemed to cut it in Italy. ‘Italians just don’t like anything puppet-driven or claymation-based,’ observes Bruno Maglione, president of London’s Marvel International. ‘The whole British preschool phenomenon never made a mark [in the region].’

As for retail prospects, the landscape is notoriously fragmented. Most of the big European retailers are situated in the north, while independently run mom and pop stores occupy the south. Italian-owned Intermedia, which runs retail chains Rinascente and Bennet, commands a mere 17% market share. ‘There’s no one big retailer that will take your t-shirt and sell it across Italy,’ says Maglione. ‘You have to work with 10 different companies.’ Francesca Gianesin, sales and marketing director for Disney Consumer Products in Italy, agrees. ‘It’s not like Wal-Mart where you can go to Bentonville, have a discussion and get your SKU listed in all the Wal-Mart stores,’ she says.

European retailers tend to cluster in the north because there are fewer regulatory restrictions and its population has more disposable income and a greater purchasing power. Naturally, this affects the types of products licensors sell in each region. Disney, for example, will sell a US$180 Mickey Mouse-shaped television set in the north while merchandising lower-priced items such as hair accessories, underwear and socks in the south, Gianesin explains.

This fragmentation creates more work for licensors and is clearly much less efficient, but there are some solid distribution options, Maglione says. For larger licensors, striking a deal with the Giochi Preziosi Group is a viable route to take. As a toyco that manufacturers a wide range of products, Giochi has its own retail shops and distributes goods to other retailers, making it possible to build a decent retail presence through the company. And as the top children’s advertiser in the country, the toyco also wields a lot of power in terms of what properties broadcasters will air. ‘No one else has that reach over so many categories relevant to character merchandise,’ says Maglione. (Like in many other parts of Europe, TV remains the primary driver for children’s properties.)

However, the retail landscape is changing. As the economy suffers and consumption decreases, the central government – once keen on protecting small shops – is transferring certain areas of trade to local bureaucrats. It is expected they’ll give the greenlight to build new hypermarkets and supermarkets in the center and the south of the country. ‘That’s why the south is now called the land of opportunity,’ Gianesin says. The south is expected to become a target for French and other European retailers such as Carrefour and Coop to expand their retail reach. Meanwhile, Italian retailers are banding together, keen to not lose out on market share.