"Whoa, Cool Shirt." "Yeah, It's a Pepsi"

More companies are using licensing to extend their brands

Like many other companies, PepsiCo Inc. (PEP ) has never been averse to making "logowear" emblazoned with its brands for the right promotional opportunity--say, Pepsi-Cola T-shirts to be tossed into the crowd at soccer games. But Eli Harari, CEO of apparel maker AmeriCo Group, had greater ambitions in mind when he approached the Purchase (N.Y.) company last year: to create a line of young men's and women's apparel, footwear, and accessories that would serve not as a crude brand billboard but rather reflect the "lifestyles" of Pepsi and Mountain Dew drinkers. "This is not typical promotional license stuff, to stick a logo on a cap and give it away at an event," he says. "The product has to be right even without the label."

Judging by what has emerged so far from the deal signed in March, Harari and his new client are taking that precept literally, readying trendy lines of young men's apparel for next spring that will rarely display more than a wordless Pepsi or Mountain Dew icon tucked away on a tag. The partners hope to move millions of dollars of apparel, while making the brands central to active youngsters' lives.

"CASH AND CACHET." Pepsi's not alone among big marketers in taking a larger view of licensing, allowing outsiders to pay a royalty to create and sell products under the mother-ship brand. They see licensing as a way to extend their brand into new categories and build awareness of the core line. In a softening economy, it doesn't hurt that licensing is a rare brand-building vehicle that generates revenue rather than requiring big outlays as ads do--bringing both "cash and cachet," says Jong Yang, director of North American licensing at Timberland Co. (TBL ) The outdoor footwear company is launching a licensed kids' wear line in the U.S. in the fall of 2002 and is considering selling outdoor equipment under its name. Licensors typically get about a 10% cut of sales above a minimum guaranteed payment.

As a result, corporate licensing is no longer just a low-level activity, run by minor-league executives concerned only with plastering the company name and logo in as many places as possible. Now, "it's seen as a strategic tool to enhance the brand while giving a meaningful revenue stream," says Seth M. Siegel, co-founder of licensing agency Beanstalk Group Inc., which represents Harley-Davidson (HDI ), AT&T (T ), and Coca-Cola (KO ). Recognizing that, agency giants such as Young & Rubicam Inc. are moving to set up their own licensing operations. Beanstalk was wooed by several agencies before agreeing to be acquired in June by Ford Motor Co. (F ) Now it analyzes the licensing potential of Ford trucks, Jaguar cars, even Hertz rentals. Overall, corporate licensing surged 10% in 2000, to $982 million, according to the International Licensing Industry Merchandisers' Assn.

A few companies, such as AT&T, are even betting that licensing can help shift consumers' perceptions of their brand. As AT&T pushes into broadband and wireless services, it wants to shed its familiar but bland image by finding partners who can put the brand into cutting-edge digital products while handling the manufacturing and research and development, says Sara Lipson, vice-president for brand asset management. The phone giant has just launched a line of AT&T-branded CD-ROMs produced by Verbatim Corp. and is eyeing products from baby monitors to a universal TV remote control.

For all its promise, licensing still carries risks. Licensors must find manufacturing partners that will uphold the company's quality standards. They also have to come up with items retailers can sell. Licensees who have been burned on faddish entertainment properties such as the movie Godzilla are more receptive now to tried-and-true brands. Another concern: The economic malaise could stampede companies into emphasizing revenue generation, returning to the bad old days of proliferating tchotchkes that are inappropriate for the brand image. AT&T admits to having made that mistake with generic-looking $3 calculators sold at Staples.

The bottom line is that companies need to be disciplined enough to nix the wrong offers. Deere & Co. (DE ), with a thriving business in die-cast replicas of its farm equipment, drew the line at an apparel maker's idea of producing purple polyester shirts, says Jeffrey T. Gredvig, director of corporate brand management. The choice of material would have provoked cotton growers, who are major buyers of Deere gear. Rejecting that one, Gredvig says, was a no-brainer.

By Gerry Khermouch in New York

    Before it's here, it's on the Bloomberg Terminal.