There is no question that manufacturers and importers have some very real and difficult challenges in this economy. The retailers continue to hammer their wholesale costs lower, while at the same time production suppliers and overseas factories are ratcheting up prices due to rapidly rising material and labor costs. Even shipping has gone through the roof. As the hard costs of manufacturing go up and selling prices go down they need to look wherever they can to recoup some of that loss, and soft costs – such as the royalties paid to product designers – become prime targets. Seems to be a bit of that going around lately.

Of course we really have no one to blame but ourselves. As a nation we have pushed the lowest price model forward until it has become the prime reason to buy – made in the USA, or locally produced, or retailer ethics, or quality, or any of those attributes that were once important to a buying decision now all take a backseat compared to low price. One needs to look no further than the exponential growth of the mass market discount stores for proof.

Here is the problem – let’s say you have a contract coming up for renewal that is paying you a 5 percent royalty. Your licensee is looking to cut costs, so they propose that they renew the contract at a lesser rate, say 3%. “Times are hard” you are told, “and this is only 2% less than what we were paying you. Our costs have gone up 10 to 15% – what’s the big deal?”

Um, not exactly a fair trade:

A 2% reduction on a 7% royalty is a 28% reduction in your pay.
A 2% reduction on a 5% royalty is a 40% reduction in your pay.
A measly 1% reduction on a five percent royalty is still a 20% reduction in your pay. If you worked in an office or warehouse and the boss came in and announced you were getting a 40% salary cut would you be sticking around?

We have seen all of these situations and worse. We once had a client ask to chop the royalties on an existing contract because, as he said, “You have made enough money on this product”. It was still selling well – he just wanted to cap our royalties. (No, it didn’t happen). We will be the first in line to help our clients stay competitive and work toward an equitable solution so we can all succeed, but that is the key – it needs to be equitable for everybody involved.

Of course every case is unique, but it is always a difficult decision to hold the line, and possibly end up walking away, because you believe that what you are providing is fresh, contemporary and valuable in today’s market (let’s hope it is…). Just make sure you know exactly what you are giving up before you agree to give it up.

(I hope you are old enough to remember “Blowin’ in The Wind”, and if not, well, skip the title and get back to geometry class.)

We have been hearing a lot lately about the ongoing erosion of the “flat art” projects. By flat art I mean that group of products that are not 3D, or shaped, molded, textured, woven or whatever – we’re talking mostly, but not exclusively, about paper here, items such as gift bags, wrap and tissue, paper tableware, napkins, gift boxes, and so on. (Greeting cards do remain an exception). We are hearing it from clients, other agents and even established artists who are not with Two Town – there seems to be a significant reduction in both the number and the size of these projects. What is happening here?

A few possibilities:

– Our clients tell us that they are just not producing what they used to – as one paper tableware mfr told us: “We used to do 7 or 8 collections a year, now its 2 or 3”. And when they do produce one, it is in much smaller quantities. Royalties on a paper collection at Target used to be worth several thousand dollars, now it may be only hundreds. Target, WalMart, the various Dollar stores, CVS, Walgreen’s, Party City, grocery and others are all competing to see who can buy the goods at the lowest price, and then are doing only one run and re-setting their aisles every 60 or 90 days. A few years back we had the best selling juvi BD bag in Target for over 2 years running – now it would be thrown out in a few months just on principal because that is the current retail model (ours was still on top when they dropped it…).

– Much of the art for these flat art projects, particularly gift bags and paper tableware, is now sourced through “cattle calls” – those “call for design” requests that are sent to untold dozens of artists and agencies, often complete with detailed art direction. I have seen more than one of these address books, and the odds of your design being chosen from the hundreds and hundreds of similar designs that will be submitted continue to be diluted as more artists get added to the lists. Some of the flag companies have jumped on this bandwagon as well.

– Retail outlets are disappearing. We had a client tell us last week in Atlanta that just a couple of years ago they had 3000 retail outlets, and they now have 1500. Many of the old school gift stores and smaller boutique stores are no more, in large part because of the bottom dollar pricing at the stores listed above. Some categories (scrapbooking, calendars, checks) have peaked and, while still selling, will continue to settle in at lower levels.

– The overseas manufacturers are slowly getting better at designing and supplying (royalty free) basic shelf goods direct to the retailers, effectively cutting out some of the stateside suppliers – and of course their designers.

So, the question is how do you adjust for this? What are your experiences?

We just finished up 4 days in Atlanta at the gift market and are quite happy to have a ton of follow-up to do – it was a really good show. We went into this market with more appointments than ever before, 3.5 days of running from one end of the place (three buildings, 14 to 20 stories, each one FULL of showrooms…) to the other and loved (almost) every minute of it. It was a strange show in many ways, we heard from some clients that they were having a great show, some a so-so show and even one who unfortunately was having one of the worst ever. Traffic did ebb and flow quite a bit, although I thought it was kind of slow even for a July market and it was way down on Sunday.

What I am taking away from this show is that the clients we saw were almost all looking for that new…something. We need a new angel collection, we need a new wildlife artist, we need a tweener line, have you a good Halloween?…there was not much “fill-in” work being sought, they were looking to find new and fresh lines to bring to market. We had prepped our books for a gift show, heavy on collections and concepts, and that will definitely pay off. We also noticed that there was not a lot of new “wow” product – almost none actually, which of course may explain why they are all looking for fresh new lines. The scrapbookie/pattern mix/collage look (coupled with inspirational messages) was EVERYWHERE, much of it virtually identical, so I suspect you can look for that to go away as it becomes even more overdone.

All for now, my feet hurt and I think I hear a well deserved glass of red wine calling my name….

I love to write down snippets of conversation that seem particularly penetrating or insightful, a habit I picked up from a college roommate who would do it at parties and then read them back at the end of the night…not particularly discerning statements but always hysterical. Trade shows are generally fertile ground for new tidbits of wisdom, most of these are from the last couple of months:

When an artist doesn’t know what to do next they go back into the studio and paint the same thing again even though it has not been working.
– a licensing agent discussing how difficult it is to get fresh work

I tell ‘em “just paint more pictures”.
– another agent in the same discussion

But are they even looking at their art first?
– one of the first agents in the industry in a discussion about art coaches

It’s very cluttered out there.
– a manufacturing client discussing art submissions

I used to have several licensors making 3 figure royalties – now I have none.
– a manufacturing client who licenses a large number of artists

We spent our art budget buying art outright in Europe so we won’t be licensing much of anything this year.
– a client that always licensed a large number of designs every year

They won’t buy it because they haven’t heard of it.
– a brand marketing consultant while discussing a new collection

I don’t care what you’ve done – what are you going to do?
– a top agent in a discussion about finding new artists

Google is the ultimate equalizer.
– in an SEO seminar

Your brand is what your customers say it is, you do not get to define it.
– in a branding seminar

Wow, can this person draw.
-an agent describing what they want to say upon opening a portfolio

Have any comments or perhaps some of your own to add? Let’s hear them.

We are always amused whenever the latest announcement is made by some manufacturer that some celebrity is now licensed for…potatoes, mattresses, handbags, furniture…go ahead and pick one, it really doesn’t matter. The truth is that a fair number of these “celebrity licensors” have nothing to do with the product, and I would not be surprised if many of them could not even pick out their own licensed items in a store. Having never seen them, don’t cha know. Even knowing how it all works, I was somewhat surprised when I received my first Paula Deen newsletter today – that they claim I signed up for. Hmmm…

I DID email the Paula Deen organization a few weeks back, but it was definitely not to sign up for their newsletter. Which is quite well done, by the way. I contacted them after the Homefires rug fiasco (where many of Paula’s “licensed” rugs were obvious copies of the Homefires rugs) and I suggested that Ms. Deen should consider a public apology and perhaps try to make amends for the apparent design theft – which I suspect she knew nothing about – and in response they have signed me up for her newsletter. Not quite what I expected, but then it sometimes IS all about the money – no matter what the commercials tell us.

And I was actually hoping for a pan of her brownies.