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Ecommerce

The Low-Down on Amazon Merch Collab

Ask any licensing executive what they think is the next big meteor to hit the business and you’ll get one answer: Amazon. At this year’s Licensing Expo in Las Vegas, Amazon VP Nicholas Denissen gave a keynote address where he revealed an out-of-this-world Amazon projection—the global licensing industry will grow to $1 trillion in the next ten years. Part of that increase, of course, will be thanks to initiatives like Amazon’s Merch Collab program.

Simply put, Merch Collab will bring to life the original promise that brought many companies to licensing—the closest thing to a passive income stream on a shoestring budget. A brand will be able to sit back and simply collect royalties, with everything else—design, production, manufacturing, shipping, customer service—taken care of.

In response to a written list of questions, an Amazon spokesperson noted that “brands have full control—they set the rules, they own the IP, they can come and go as they please.” There is still work to do, obviously. Brands can (and should, in our opinion) provide assets, rules, and guidance to designers. Brand controls for manufacturers additionally include the ability to set up an “acceptable sampling process”.

In return, brands get to access a dynamic pool of talent that has cut their teeth on niche, flash-sale merchandising with relatively little buy-in. The flip-side is that brands won’t get the experienced guidance that they might get with an agent or even by working alongside a manufacturer.

What Amazon gets, in addition to a cut of the profits, is even more consumer search, buying, and retail trends data—plus, insight into how brands order their licensing affairs. In the long run, the ecommerce site might be leverage such insights into generating algorithms for new designs, cutting out the designer middle-man entirely; developing its own brands; or even developing its own consumer goods.

What Are the Goods?

While most of the focus has been on individual designers whom the ecommerce giant has invited from its Merch by Amazon program, third-party manufacturers will also have a role in Merch Collab, especially if they already sell on Amazon as a Merchant. Amazon Merchants already sell licensed merchandise through the print-on-demand program, but they are responsible for striking these agreements themselves and submitting proof of such agreements.

The initial set of products is limited to t-shirts, long sleeve shirts, hoodies, sweatshirts, and (recently) PopSockets—essentially, the print-on-demand goods currently available to Amazon Merch designers. The difference is that the standard royalty Amazon currently assigns to its Merch designers will now be split roughly 1:2 between the designer and the brand.

Brands are able to set prices as high as they wish, although Amazon does set a floor. Note that the following royalty rates are based on retail sales price, not the standard of a manufacturer’s sales price (which is then marked up for retail sale):

  • T-shirts: $19.99 (18% brand royalty / 9% designer royalty) – $28.99 (28% / 14%)
  • Long sleeve shirts: $24.99 (10% / 5% ) – $34.99 (19% / 12%)
  • Hoodies: $41.99 (10% / 5% ) – $51.99 (17% / 8%)
  • Sweatshirts: $35.99 (10% / 5% ) – $44.99 (18% / 9%)
  • PopSockets: $14.99 (10% / 5% ) – $18.99 (18% / 9%)

Amazon will also allow third-party manufacturers to bring their own consumer goods to the Merch Collab program, with additional fees tacked on to the regular Merchant referral fees as well as optional fees such as shipping, storage, and processing (required, in some cases, when participating in the two-day shipping program). As the sellers of their products, manufacturers will set prices, informed by brand recommendations.

According to TLL calculations, brands will enjoy a higher royalty payout per item if they strike a deal with a third-party manufacturer through the Merch Collab program than if they signed a “normal” licensing agreement. The variable question is one of control, scale, and credibility—while Amazon has significant visibility, it is hard to imagine why a manufacturer would opt-in unless they had virtually no shipping logistics set up.

Interestingly, manufacturers will not necessarily have access to a design catalog of images that designers have created for a brand on the Merch Collab program but instead will be treated as if they were designers.

Who’s Doing It?

While the Merch Collab program actually launched in March of 2017 (with Neil DeGrasse Tyson and a select group of invited designers), its public launch at Licensing Expo was somewhat hasty. The information pages, for example, featured multiple spelling mistakes and sparse details. (This remains true at the time of printing.)

Brands listed as part of the program at the time of launch were Neil deGrasse Tyson, Shane Dawson, Annoying Orange, Rick and Morty, and Impractical Jokers.

For Rick and Morty, Merch Collab is just one part of a greater omni-channel program that “compliments and expands on the current offering and fan experience,” according to Cartoon Network Enterprises VP Peter Yoder. With the first wave of Rick and Morty designs already up on Amazon, Cartoon Network plans to frequently update the range of new product designs and continue to sell Collab merchandise alongside its current third-party licensees and partners.

“Both can reach our fans in different ways, with different products and designs, and at varying price points,” Yoder notes. The company will look to expand its Merch Collab portfolio to other brands that “would be a good fit”.

Is This For Me?

Every brand should be pursuing an omni-channel marketing and retail strategy, and for some, selling on Amazon generally, and Merch Collab specifically, might be the perfect move.

For example, brands that have established a strong ecommerce presence might nevertheless also list on Amazon to boost discovery among consumers who would be attracted by free two-day shipping.

On the flip side, brands that are established in brick-and-mortar and seeking out greener pastures will have the opportunity to test an ecommerce program.

For brands with a robust merchandising program and an established network of agents, they might prefer to outsource the production of relatively simple t-shirts and spend their own brain power on developing new and exciting revenue streams.

Oddly enough, Merch Collab is not the platform for new players seeking to launch merchandising programs. Despite the fact that it would seem to be an ideal service for players who don’t have the necessary resources, leverage, or experience to sign licensing deals (or self-manufacture), the service is instead geared towards larger brands that might have a significant following but don’t have the time to deal with the details of merchandising.

For example, Amazon limits the number of social media influencers and celebrities on Merch Collab by setting a relatively high cut-off mark of 100,000 subscribers. And royalty payouts, at least for the regular Merch program, occur at every $100 (roughly 15-30 sales per month for a brand).

Although Amazon states that it is open to “all brand types, including major entertainment brands, musicians, consumer products, and social influencers,” it has not released its guidelines for new brands.

What’s Going on With Copyright?

If a brand likes a created design, and wants to incorporate it into more products or marketing outside of the Merch Collab platform, it will have to buy out the copyright. According to the standard contracts Amazon signs with designers and brands, ownership of all newly created copyrightable images by designers belongs to the retailer.

According to the platform, automatic designer copyright assignment to Amazon enables both designers and brands to benefit from the commercialization of Collab designs off-Amazon. In a way, Amazon holding the copyright is simply an issue of convenience—if they want to use any designer-created images off of the platform, brands can buy out the IP with a lump sum payment to the designer.

The standard contract suggests a buy-out option ranging from $5,000–$100,000, depending on the royalties earned by the designer. Brands may alter the default terms so that there is a $0 payout; according to Amazon, this flexibility is meant to “enable any novel reward structures that brands and designers may agree to in the future.” A spokesperson noted that “we don’t expect that the commercialization fee for designers will ever be zero.”

Additionally, if brands withdraw their merchandising licenses by leaving the Collab program, the ecommerce platform will not sell any designs that it still (technically) has the rights to. Brands also have the option to de-list individual designs at any time without leaving Collab altogether.

What About the Designers?

Amazon is currently accepting applications from current Merch by Amazon program participants on a rolling basis, having opened up applications to the entire pool of designers during Licensing Expo.

While early reactions from designers are largely mixed, the general consensus is that it will take anywhere from six months to a year to gauge the success of the Merch Collab program. For designers, there are a lot of cons that might only be marginally outweighed by the star power/volume selling of select brands: the loss of being able to market their own brands, the loss of control in being able to set prices, a dramatically reduced royalty per item, and the risk that their designs will not get chosen by brands.

For some designers, it makes much more sense to simply strike out and do their own merchandising deals—especially when they have type of practical distribution skills gleaned from Amazon, Etsy, Redbubble, Shopify, and all the other print-on-demand platforms they participate on. These are the micro-licensees targeting, for example, social media influencers with under 100,000 followers, and building out targeted programs with under a dozen products.

To get a better sense of what the scale of a program on Amazon Merch Collab might look like, we assembled a picture of average weekly sales figures for the last four weeks based on self-reported sales figures by merchants on forums like Reddit and public Facebook groups. None of the sellers included in this analysis have indicated that they sell licensed merchandise; TLL assumes that most sales captured here are for original designs.

For sellers who indicated that they do sell licensed merchandise through the Merch program, however, average monthly sales can range anywhere between $3,000 to $33,000 a month.

Just 14% of the surveyed sellers list over 500 “designs”, a term which is roughly parallel to SKUs in that multiple designs can include color and style variations for one original base image. Many focus on just one or two products, however, with the most popular offering being t-shirts, because the high retail sales price of hoodies necessarily means that unit sales are lower. While Amazon allows designers to list over 1,000 designs, just 1% of those surveyed actually listed that number.

What is interesting to note is that many sellers rely on constantly updating their stock of designs to hit hot trends, trends keywords, and new niches. A wide range of stocked designs is essential, because, on average, just 5.5% of all available designs are sold every week.

In any given week, some sellers report that just one t-shirt design makes up 60%–80% of their total sales—and that its popularity can fall off just as quickly in the next week.

Unsurprisingly, sellers with over 500 designs for sale sold a higher number of units and the most unique designs. The ratio of unique designs that sold well, however, was the lowest amongst all the groups at 2.5% compared to 4% for sellers stocking 101–500 designs and 8.4% for those with 100 or less designs. While Amazon allows higher-ranked designers to stock more units, most of these sellers surveyed reported filling one-half to three-fourths of their available slots.

Many sellers noted that even last year, the ratio of designs sold was much higher, with up to 50% of active unique designs sold each week (some cast blame on Amazon’s algorithms for the decline, others noted the influx of lower-quality designers spamming the marketplace).

Average Weekly Sales of Amazon Merch Merchandise, U.S.,
Four Weeks in mid-June/July 2018
Note: Figures calculated from four weeks of self-reported sales from Amazon Merch sellers.
Live Designs Being Sold Average Weekly Sales Share of Designs Sold Share of Sales Returned Share of Total Sellers
Over 500 56.5 2.5% 2.6% 14%
101–500 33.1 4.0% 2.5% 46%
100 or Less 6.0 8.4% 0.7% 39%
Total 25.8 5.5% 1.8% 100%

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