Let Brands Be Brands


Date January, 2017

The Limited. Quiksilver. Pacsun. Wet Seal. Aeropostale. In the past year or so, bankruptcies of mall retailers have repeatedly made headlines. Each time, we hear about how e-commerce is an existential threat for these brands. We hear that plummeting mall foot traffic has all but destroyed their chances for survival in the 2010s. Often, we hear that they shouldn't bother restructuring, but should just sell off their inventory and shut down for good.

Aeropostale's main creditor, a private equity firm, was pushing this plan after Aeropostale filed for Chapter 11. I know because I was in the room, trying to negotiate a deal that would allow Aeropostale to survive as a brand, despite closing many of its stores.

What that private equity firm didn't understand was that even if Aeropostale's brick-and-mortar locations weren't profitable, its brand was still worth a lot. And in the 2010s, there are more ways to monetize that brand than ever — with or without operating hundreds of physical retail stores.

What's in a brand?

Brands are powerful — so powerful, in fact, that they can redefine our very reality. A brand can actually make food taste better: in scientific studies, children consistently identify carrots labeled with a McDonald's wrapper as tastier than identical carrots with no branding. Branding can reduce the placebo effect and even alter people's religious beliefs.

It's no surprise, then, that brands are increasingly important to a company's bottom line. According to some estimates, as much as 30 percent of an average public company's market capitalization is derived from its brand. And today, more and more companies are looking to capitalize on those valuable brands through licensing. Automakers' logos appear on t-shirts in hip clothing stores; fashion labels lend their names to shoes and perfumes. In 2015, global retail sales of licensed merchandise reached $262.9 billion, up 14 percent from 2012.

To retain its value, a brand doesn't need to be beloved — it just needs to be well-known. A 2015 Nielsen survey found that 6 in 10 consumers prefer to buy products from “familiar” brands. Consumers are also deeply loyal to the brands they know, even over long periods of time. The last 13 years have seen enormous cultural disruption — from the invention of the iPhone to the launch of Facebook — yet studies show that brand loyalty among consumers has remained almost totally stable.

In fact, in an era of information overload, brands can help cut through the noise. If a brand was popular a decade ago, it's more than likely that it still has fans today — or at least enough name recognition to start building a whole new fanbase.

To save troubled retailers, focus on the brand
There's more than one way for a mall retailer in financial trouble to capitalize on its brand. Sometimes, all it takes is knowing your customer. Big Data offers insights into more than just shopping habits — marketers can find out which zip codes their customers live in, what type of car they're likely to drive, whether they're married with children or single, even which political issues are important to them. All of this information can be used to craft more authentic — and effective — marketing campaigns, which might be all that a struggling brand needs.

But for many retailers looking to rise from the ashes, merely revitalizing the brand isn't enough. Maintaining inventory, managing a complex supply chain, and operating unprofitable brick-and-mortar stores — all of these make it near impossible to reduce balance sheets, which may be a prerequisite for reinvention. That's why some troubled brands are opting to shed these obligations altogether, becoming what we like to call an assetless brand company (ABC). They license out the manufacture and distribution of their core products to other firms, leaving themselves free to focus on what brands do best: nurturing and growing their connection with customers.

After a financial retooling, brands can relaunch stronger than before. Just look at Betsey Johnson. When the designer filed for bankruptcy in 2012, many thought her brand was gone for good. But Johnson got help from Steve Madden, who acquired the brand's trademark, assumed its debt, and installed Johnson herself as creative director. By focusing on her brand and letting her partner handle the rest, Johnson was able to bring her signature quirky style to a younger, more modestly budgeted crowd. Her brand can now boast $200 million in annual sales, up from $150 million pre-bankruptcy.

A happy ending for Aero
Licensing out your operations to become an ABC doesn't always mean leaving brick-and-mortar behind entirely. Aeropostale, for example, decided to stay in mall retail. In a deal brokered by several organizations, including my own company Gordon Brothers, Aeropostale agreed to license out the operations of 229 stores to mall developers, and close the rest. This greatly reduced Aeropostale's cost burden, allowing the company to refocus on maintaining the brand and grow the business into new areas.

This new model is already showing results. In late October, the CEO of Simon Property Group, one of the mall developers operating Aeropostale stores, told investors that his company's investment was already turning out to be more profitable than expected.

So don't start listening to the naysayers yet. Paired with the right business model, a strong brand can accomplish a lot — even a full revitalization.