Why Brand Licensors Have So Much In Common With Shopping Mall Developers

It’s often easier to identify someone else’s problems and suggest solutions than to do the same for ourselves. Analogies can sometimes help us see things more clearly. So, we’ll look at shopping malls, something with which almost everyone can relate. In fact, many brand licensors could learn something by spending more time at the malls.

Imagine you are the developer of a shopping mall. One objective is to find an anchor tenant. The anchor tenant’s presence serves to attract other tenants who, when all tenants are taken together, make the mall profitable and maximizes the value of the property as a whole.

A prospective tenant (other than the anchor tenant) would already have a concept for the business to be operated in your mall. That concept, if well thought out, would include a target audience that may be young or adult, conservative or liberal, affluent or not, and possesses a variety of other socio-economic characteristics which, alone or in combination with others, define that target audience. It is important to the tenant to know whether your mall will, by the nature of the other tenants and the promotion of the mall, attract the tenant’s target audience. The tenant who is wise enough to ask such questions will also want to feel confident that whatever approach is taken by the developer will remain consistent not only throughout the mall but also over time.

Imagine if you had no concept for the mall other than to lease as much space as fast as possible to anyone willing to pay the rent. In the short term, leasing to anyone who would agree to pay the rent might result in many leases being signed and deposits being taken. Cash flow might look very good for a short period. But, without a cohesive image and plan, you could end up with Cartier next to Chuck E Cheese, Ace Hardware next to Home Depot, and an adult video store next to a Christian Science library. With such a disparate mix of tenants, your mall and the tenants may not attract sufficient business for those tenants to stay open and continue to pay rent. So, what looked impressive in the short term will be detrimental in the long run as the mall starts to lose one tenant after another.

Consequently, an important decision you will make is assessing your mall’s target audience and deciding what type of tenant you will try to attract in order to appeal to your desired target audience. You would likely not say to two leasing agents, “You each lease half the space, and I don’t care who you lease to.” First, they might each lease to different types of tenants appealing to a different target audience than you wanted. Second, the tenants may directly conflict or compete with one another -- including the anchor tenant -- as a result of the lack of communication, cooperation and coordination. In fact, many tenants would reject your mall simply because you have no clear concept for your mall and the tenants, and they are unwilling to commit their resources and reputation to such an unknown environment.
Moreover, the tenants who lease space in your mall can either contribute to and reinforce -- or detract from and conflict with -- the image and target audience you desire. The image of the mall, as a whole, is increasingly important as developers advertise their malls wherein they indicate some of the tenants which, not coincidentally, all appeal to the same target audience -- whether it is an upscale mall such as the Aventura Mall or a massive outlet center such as Sawgrass Mills (both in the Miami area).

The value of the mall will more likely be maximized by being fully leased by tenants (a) whose audiences are compatible and (b) that can complement one another within a consistent image promoted to the public.

What does all this have to with brand licensing? Let’s make a few substitutions in our presentation:

Instead of owning a mall, for which you want to maximize total value, you own a brand.

The anchor tenant that attracts the other tenants is the principal product or service upon which the essential value and concept of your brand is based or, at least, related (e.g., if you were a famous musical act, the “anchor tenant” would be your music).

The tenants who are attracted to the mall by the anchor tenant, the concept of the mall and what you do to promote the mall are the licensees of your brand.

With the players identified, the analogy runs like this:

1. Just as the value of the mall is maximized by targeting a distinct audience and creating a definable image, so the value of your brand is maximized by understanding and projecting a clear image to your target audience. A mixed or confusing image can hurt the value of your brand.

2. Just as the goal of the developer is to maximize the overall value of the mall as opposed to the short-term goal of leasing to anyone who can pay the rent, so the goal of the brand owner should be to maximize the value of the brand as opposed to licensing to anyone who will pay a royalty.

3. Just as tenants who feel “out of place” in the mall will leave (e.g., an expensive jeweler may leave if surrounded by discount retailers), so licensees who deliver a high-end product will likely feel out of place if other licensees are producing low discount goods and vice versa; contributing to the difficultly of getting new licensees.

4. Just as the space in your mall can be more desirable and command higher rents when the developer does more to promote the mall to attract customers for all the tenants, so the willingness of prospective licensees to pay a higher royalty will increase as the brand owner promotes the brand to attract customers for them all.

Therefore, when developing a licensing program, the principal goods or services associated with the brand can be thought of as the anchor tenant and your goal, as a licensor, should be to fill your “mall” with tenants (licensees) who are consistent with your desired image and target audience, and who can, with your direct participation, be co-promotive of one another and the primary goods or services.