In a widely reported deal announced on January 17, Tailored Brands, a leading omnichannel specialty menswear retailer and owner of the Joseph Abboud brand and trademarks, agreed to sell the Abboud IP to WHP Global, a new brand acquisition and management firm, for $115 million. As part of the deal, Tailored Brands retained the right to sell and rent Joseph Abboud branded apparel under license from WHP in the same distribution channels where the products are sold in the U.S. and Canada.
The deal makes sense for both sides because it serves each company’s core goals. While Tailored Brands sold ownership of the Abboud trademarks, it retained the right to manufacture and sell the same branded products in its Men’s Wearhouse and Jos. A. Bank retail stores under license, thereby preserving a business that exceeds $500 million annually for Tailored Brands. At the same time, WHP Global acquires ownership of a valuable asset, the Abboud IP, a legacy brand with substantial goodwill in the menswear category. WHP Global believes that it can unlock value in the Abboud IP by achieving broader category growth through deals for merchandise in new product categories domestically and enhance global commercialization by expanding product sales into new international markets.
The Joseph Abboud IP asset sale is representative of the evolution of the fashion industry from a business and legal standpoint. The sale demonstrates the current trend of brand acquisitions by firms with access to capital which then seek to license out the brand to create broader appeal and generate greater revenues. IP that was once owned by the great American fashion houses is now owned by leading brand acquisition companies.
The Traditional Brand Licensing Model
Many of the great American fashion houses, such as Ralph Lauren, Calvin Klein, DVF and Donna Karan, among others, were built on licensing as a means to increase brand awareness and derive substantial revenues. Licensing enabled brand owners to expand into new product lines, distribution channels and geographic markets through agreements with manufacturers while maintaining ownership of the IP. The traditional license agreement allowed the fashion houses to maintain tight controls on the quality of the licensed products and the permitted scope of distribution. Licensing deals made financial sense for the fashion houses because they could avoid the substantial cost of manufacturing and distributing products outside of their core lines and instead receive a percentage of revenues from the manufacturer’s wholesale sales to retailers, known as royalties.
The traditional wholesale brand licensing model, which flourished in the latter part of the 20th century and early in the 21st century, has been in a period of deep decline since the 2008 financial crisis as fashion retailers continue to suffer through store closings and bankruptcies. The disruption in the fashion retail market has had negative impacts throughout the industry, as manufacturers have gone out of business and the value of brands has suffered from declining sales and licensing revenues. During this time, the great American fashion houses that once owned IP have now largely been replaced by brand acquisition and management firms that are built on a business model of acquiring brands and licensing them out to manufacturers and retailers.
Brand Acquisition Firms Dominate
Most of the deal activity in the brand licensing space now flows from brand acquisition and management firms like WHP Global, Authentic Brands Group, Sequential Brands, Marquee Brands, Iconix Brand Group, Bluestar Alliance and others. These companies, armed with access to capital from private equity firms, have actively sought to acquire brands in the past five years. Ownership of IP assets is desirable because it gives these firms greater control over the development of the IP; they can own the IP in perpetuity, and the firms can generate greater revenues up front through securitization of licensing royalty streams for the acquired IP.
The brand acquisition firms have a business model built on a strategy of deriving brand value through licenses, direct-to-retail deals and other partnerships in an effort to create branded products in new categories and markets. These companies also drive brand awareness through new marketing campaigns, immersive experiences and direct consumer engagement. In so doing, the brand acquisition firms have essentially replaced the great fashion houses of old with a business model built entirely on licensing out the IP through third-party relationships.
Look for more prominent brands to be acquired by the leading brand acquisition firms in the future, as they are armed with capital and aggressively looking for opportunities.
Jed Ferdinand is the founding member of Ferdinand IP Law Group, an intellectual property and licensing boutique law firm with offices in New York, San Diego, Silicon Valley and Westport, Connecticut, and serves as an adjunct professor at Fordham Law School in New York. Ferdinand IP Law Group was lead counsel for Tailored Brands on the sale of the Joseph Abboud IP to WHP Global.
