Is Sports Licensing Losing Its Cool?

Sports licensing has officially lost its buzz. The declining popularity of sports licensed gear was noted by Hibbett Sporting Goods, which last month announced that softness in the category was partly responsible for weaker-than-planned second quarter results.

"We had planned for licensed apparel, particularly pro licensed apparel, to soften starting in the third quarter," says Mickey Newsome, Hibbett's president and CEO. "Unfortunately, the momentum in this category, including college licensed apparel, has slowed down more dramatically and sooner than anticipated."

The news prompted Banc of America to cut estimates on both Foot Locker and Reebok. "Licensing apparel is slowing too fast," notes Banc of America analyst Robbie Ohmes.

The decline is not coming as a big surprise, since the industry had long suspected that sports licensing sales would eventually slow down. Many of the recent gains had been extremely fashion-driven, marked by strong demand for high-priced authentic and retro jerseys.

"It was so hot for two years," says Andy Hyman, owner of Distant Replays, which operates a store in Atlanta as well as a Web site that sells throwback jerseys. "It was more than you could ask for."

Nevertheless, many retailers are still encouraged that the fan part of the business has remained strong. "I think we all hung our hats on the fashion and retro trend craze, and certainly we knew that was not going to last forever," says Bill Townsend, VP at Pro Image. "Now we're back to more of a fan-based business."

The shift reflects the cyclical nature of the sports licensing business, with the industry's similar fashion rage in the mid-'90s being a case in point. The latest change is most evident as many of fashion's tastemakers, such as rap artists and sports stars, are not wearing jerseys as much. Hyman believes the shift was sparked last September when rapper Jay-Z released a song with the lyrics, "And I don't wear jerseys, I'm 30-plus." Hyman also believes "a lot of fake merchandise" hurt demand.

But fan shops see some plusses. Although liquidations of high-end product will impact the market, many shops expect to benefit as many fashion-oriented retailers drop the sports licensing category to focus on the next hottest thing. Fan shops are also encouraged by strong demand for MLB and NBA product, and expect a big bonus from the surge in trade activity around the NBA this summer, including Shaquille O'Neal and Tracy McGrady. Elsewhere around the leagues, there is some concern regarding a possible NHL lockout, but a good business in NFL merchandise is expected.

"The fashion side of the licensing business is definitely deteriorating, but the fans will always be there, supporting their teams," says John Yokoyama, national buyer at Just Sports USA.

Although Hyman is seeing the strongest demand coming from core fans seeking less expensive merchandise such as T-shirts and caps, sales of high-end jerseys are now running steady after a tough spring. He adds that although his store benefits from its popularity with well-heeled rappers and athletes, there's still strong demand for unique jerseys. Hyman cites blowout sales for Mitchell & Ness' Shaquille O'Neal Orlando Magic rookie jersey, as well as Nike's release of Jordan's Bulls rookie jersey, and Jordan's number 45 Bulls jersey that was issued when he returned from his first retirement.

"What we lost is that wannabe fashion person who didn't even know what fashion they were wearing," says Hyman. "But fans will always be fans."