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Revenue Focus: Licensing With Fanatics’ Swallow & Fermata Partners’ Eiler

By Derek Eiler, Brian Swallow
5 min read
Since its formation in the early 1980’s, universities have benefited from the massive growth of the sports licensed products industry, resulting in a consistent royalty stream funding athletic department and university scholarship budgets. Collegiate licensing programs benefited from the globalization of the supply chain as factories around the world began producing a dizzying array of merchandise in the 1980’s and 90’s. From the basic college t-shirt to a complex collectible product with the most intricate detail, college alumni and fans have benefited by celebrating their loyalty on products spanning cradle to grave. Today’s fan can now purchase a college logoed baby pacifier all the way to a carved wooden casket emblazoned with a university seal – each carefully reviewed and approved by campuses nationwide.

 

Industry pioneer Bill Battle founded the college licensing industry in 1981 that has since delivered nearly $2B dollars in royalties back to college campuses. Yet today, the industry is being affected by the same market forces that have altered many other industries, from newspapers to books to taxis and now apparel. The disruptive force of the internet is once again challenging university brands to think differently about how their fans consume licensed merchandise. Not a day goes by without a business headline summarizing store closings from well-known brick and mortar retailers or a new technology to deliver goods to consumers faster, more efficiently, or smarter.

 

With continued upheaval in consumer behavior being driven by these rapid digital advancements, sports properties and universities are being forced to adapt strategies to align with this consumer evolution. As such, the sports licensing industry is undergoing a rapid shift that is seeing universities seek long-term revenue stability, while also looking to take advantage of these shifts in fan consumption behavior. In just the past few years, universities like Texas and Ohio State, and more recently Georgia and Kentucky, have created innovative licensing business models that have generated millions of dollars in incremental guaranteed royalty income to assure revenue stability and growth long into the future.

 

In parallel, the long-time e-commerce partner for most athletic departments, Fanatics, has been building a unique product sourcing engine behind the scenes that it has recently deployed as an integral component of new long-term agreements with the professional leagues. Fanatics has quickly become the leading change agent in the sport licensing industry, with a business model that will provide universities an opportunity to think differently about their brands – and how those brands engage with fans via licensed consumer products. During these changing times, it is critical for Athletic Directors and other senior administrators on campus to remain aware of the changing landscape and how the right partnerships in the space can ensure future growth to accelerate the success of the past four decades.

 

Brian Swallow of Fanatics has been at the forefront of this revolution in e-commerce – from his early days in the business when Fanatics (then a mall-based retailer) shipped its first box of Florida Gator product to an interested fan from outside the state, to today, when he sits in the middle of this massive transformation that is impacting consumers of sports merchandise at every level of the market. Swallow’s insights below on the consumer evolution in this sector and how universities can think differently about reaching their alumni and fans in this rapidly evolving world are key for leaders throughout college athletics.

 

Q&A context: Brian Swallow (SVP, Strategy and Business Development – Fanatics)

 

What competencies did it take for Fanatics to become a world-class online retailer?

 

The licensed sports industry is undoubtedly one of the most difficult spaces in which to flourish from a retail perspective.  There are so many moving parts: product development, licensing, manufacturing, merchandising, marketing, technology/mobile, fulfillment and customer service.  Of course, this is all on top of the unpredictable nature of sports, which dramatically impacts fan demand as teams and players get hot, sometimes overnight.

 

We’ve assembled a world-class team of retail and technology experts with highly-focused category acumen.  I’ve been so impressed with the leadership of both Michael Rubin (executive chairman) and Doug Mack (CEO), and their unwavering efforts to build and support such an impressive team of executives and associates who share a common vision of both growing and innovating the industry.

 

This evolution has seen us grow from a B2B online retailer into a multi-faceted, technology driven consumer company that partners with more than 300 schools and professional teams around the world. In addition to eCommerce, our capabilities now include multichannel-integrated event and team retail across all leagues; an industry-leading tech, data and mobile platform; international capabilities that provide a global sports retail platform; a rapidly growing memorabilia and collectibles business; as well as a vertical manufacturing engine built for the on-demand economy that brings much-needed agility to the industry, enhancing both assortment and speed-to-market of merchandise for fans.

 

How does Fanatics constantly monitor the latest marketplace trends to stay ahead – or appropriately aligned with – the consumer adoption curve?

 

Our business is extremely fluid as fans’ preferences can change many times throughout the course of a season.  We have an unbelievable group of buyers and merchandisers who use a treasure trove of data-driven weaponry to help our partners stay ahead of hot opportunities and fashion trends to stay in stock on key items 365 days a year.  Fanatics Branded, our in-house apparel division, also continuously introduces new designs and styles into the marketplace, while our domestic manufacturing capabilities allows us to quickly chase hot teams and players to combat licensed sports retailers’ biggest challenge: staying in stock.

 

Mobile sales continue to increase for all retailers. What has Fanatics done to provide a first-class mobile user experience and how will it use the information it collects from mobile purchases to deliver relevant messages for subsequent sales?

 

With technology, mobile and social media all contributing to a surge in real-time expectations, fans have never been more in charge of their choices and now expect to be able to get what they want exactly when they want it.  The investments we’re making in mobile are aimed to help our school and team partners meet that immediate demand since today’s economy requires the fastest, most efficient mobile experience to leverage in-the-moment purchases when fan passion is highest.

 

We no longer think about desktop vs mobile. We’re a phone-first company and think only about personalization and responsive design that looks good on any screen.  With mobile now being our top platform for both traffic and sales, we A/B test everything on mobile first so it can quickly be determined what new features resonate well with fans and then propagate winners across all platforms. After bringing our app development in-house a few years back, we made major enhancements to both our mobile optimized web sites and top-rated app, with the goal of combining cutting-edge technology with a great sense of design to make the user experience fast, efficient and as friction-free as possible. We also rolled out really slick SDKs to better integrate our shopping experiences into our partners’ mobile apps.

 

Since mobile, enhanced data and on-demand capabilities are the backbone of continued growth for Fanatics, we recently opened a West Coast headquarters in Silicon Valley to be able to tap into that area’s elite talent base.

 

Brick & mortar closures have been headline developments over the past calendar year. Amazon’s growth also continues to be top fold news. How is Fanatics competitively positioned to not only sustain against Amazon’s ubiquity, but gain online market share?

 

It’s true that the brick & mortar space is seeing challenges across most retail categories. Consumer behavior is more dynamic and fluid than ever before, as it’s influenced by factors not seen a decade ago. Better access to information, social media, the pervasiveness of mobile devices and better overall eCommerce & fulfillment experiences all contribute to this shift.

 

In order for the brick & mortar space to grow, retailers must embrace technology and create great integrated omni-channel retail experiences for their customers.  Event and in-venue retail is one of the fastest growing areas of our company.  As a tech company, we provide fans and our partners with a seamless shopping experience across online, mobile and physical store locations with features that include consistent prices both online and in stadiums as well as access to our massive online inventory and made-to-order capabilities to provide faster replenishment and an endless aisle.

 

As far as growing share online, we will continue to evolve and innovate.  From a product perspective, we are developing dynamic new lines of exclusive merchandise to complement our assortment, as well as making massive investments in tech, mobile and our vertical manufacturing engine to help grow the industry overall with faster speed-to-market of fan gear.

 

Some online sites are already providing same-day deliveries. Is that an area Fanatics will look to move into? Do sports fans (and consumers in general) care about expedited delivery if the product offering and/or price is better than the competition?

 

We recognize the importance of quick delivery and are making a significant capital investment in a new state-of-the art distribution center in Las Vegas that will open this June. This building, which adds to our other regional facilities strategically located around the world, will be over 400K square feet, have advanced automation, and will be a true omni-channel distribution center. It will fulfill orders, manufacture apparel, replenish retail events, and serve as a wholesale distribution hub. As far as same-day delivery, we recently formed an alliance with Uber to explore ways to scale real-time delivery of fan gear. What started as a successful test in LA around the Rams’ first NFL game in that market in 22 years led to on-demand delivery of World Series championship merchandise immediately following the Cubs’ historic victory with delivery time averaging less than eight minutes. We followed that up with more same-day delivery executions after Clemson’s victory in the College Football Playoff national championship game and the Patriots’ Super Bowl win a few weeks ago. We see extremely high demand for this service and look forward to continued testing and iteration to enhance on-demand delivery for sports fans.

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