Safe Bet

Bernie Leifer, President and CEO of SG Companies

Succeeding in children’s licensing is a bit like gambling in Vegas: It helps to have a strong stomach, deep pockets and more than a little assistance from lady luck. And, 34 years of experience in the licensing world certainly doesn’t hurt, if you’re Bernie Leifer, President and CEO of SG Companies.

After a 20-year career in banking, Leifer first ventured into the industry in 1981, when he came on board as second-in-command at SG. Three short years later he was named CEO, and since then, he has established a reputation for picking a fair share of winners. He purchased the license to make Power Rangers footwear before the show even aired in 1993, and a couple years later he snagged the right to make shoes for Pokémon, now the second-most lucrative video game-based media brand in the world, behind Nintendo’s Mario
franchise. (Speaking of, SG Companies is launching a line of Mario footwear this fall.)

But Leifer’s biggest winning bet had a much more far-reaching impact on SG, and the industry as a whole: He was one of the first to fully capitalize on character footwear for children. While it’s hard to imagine now, before SG’s expansion into the market, it was rare to spot Mickey or Mario on a kid’s foot. Accordingly, Leifer’s contribution to the category earned the CEO a coveted spot in LIMA’s Licensing Industry Hall of Fame, alongside household names like Walt Disney, George Lucas and Jim Henson.

While he may be an industry scion, don’t make the mistake of thinking  he has a tried-and-true formula for identifying blockbuster properties. His secret to predicting Power Rangers and Pokémon would be a hit? “I honestly don’t know,” he confesses. And he freely admits there have been several misses over the years, as well as a couple of close calls, including a bid to manufacture Star Wars footwear that serendipitously didn’t pan out. “We offered millions of dollars almost 20 years ago, and we didn’t get the license,” he recalls. “And we were fortunate that we didn’t. While they are great movies, in footwear it wasn’t a huge success. It wouldn’t have covered the guarantee.”

“Either I’m very lucky or I’m very lucky. I’m not sure which,” Leifer chuckles. Call it luck or intuition—it’s worked. Since the company’s start as a slipper manufacturing facility in Manhattan in 1896, SG has sold more than 1 billion pairs of footwear at all levels of retail, including mass, mid-tier and specialty—and a lot of that success can be traced back to the savvy changes Leifer made shortly after becoming CEO. Within months, he began importing footwear from Korea, and today SG works with over 70 factories in China, Vietnam, Cambodia, Bangladesh and Indonesia.

“We make everything from high-end leather boat shoes, all the way down to inexpensive flip flops for men, women and children,” Leifer notes, pointing to the company’s wide-ranging portfolio that spans 35 different licenses and brands, from Dockers to Chinese Laundry. In 2006, Leifer realized the company was perfectly poised to add apparel to its resume and launched the SGI Apparel Group, which is responsible for creating the company’s bestselling children’s sleepwear sporting an array of popular properties, including Warner Brothers, Goosebumps, Lego and WWE. In addition, SGI is the exclusive children’s licensee for Harley–Davidson, creating layette, sportswear, accessories and footwear collections sold at Harley-Davidson dealers worldwide and specialty stores nationwide.

“It became pretty evident to me about 15 years ago that retailers wanted fewer vendors, and licensors wanted fewer licensees,” he says of the decision to wade into the challenging world of apparel. “We are a very financially secure and well-run company, and I thought: Why can’t we add other categories beyond footwear? We already have a stellar reputation with retailers and within the licensing community. Why wouldn’t we just leverage our financial wherewithal, our back office and our great sourcing team in China, and add other categories?”

It’s just one more gamble that’s paid off for the sunny CEO, who refuses to let today’s ever-evolving retail landscape—including the growing impact of direct-to-consumer sales—knock him off his stride. “I love the excitement of coming in every day and seeing what’s in front of me, and the great team that I work with and the people in this industry,” he explains. “I love it all.”

What makes a licensed property a good fit for SG?

First, you have to look at what you currently have, because it’s important to know who you are and what you’re good at. Then you look at the property and determine its audience: Is it in the pre-walker category or the children’s category? Is it a boys’ property? Or is it a girls’ property? Is it an adult property? Or a teen property? And then you have to look at what’s happening in the marketplace. We track new movies, TV shows, toys and trends very thoroughly. Then you see if you have any white space in your portfolio that you can fill. And then you just have to judge by your years of experience in the industry. You may be able to be about 60 percent analytical, and the other 40 percent is just dumb luck.

That’s right—there are always surprises. No one anticipated the Frozen phenomenon would be such a huge success. How do you predict how popular a particular license will be?

You don’t. You have Disney, Hasbro, Mattel and all of these great companies in the toy business and related businesses for children, and they spend tens of millions of dollars on research and studies. And they’re right a relatively small percentage of the time. If anybody thinks they really know, I question them.

So how do you know what’s a good bet?

I always use the analogy of horse racing. All sorts of people go down to Kentucky and buy 1-year-old horses to race in the Derby. Sometimes ordinary people buy a horse for $50,000, and occasionally someone from the Middle East pays $3 million for a horse. They all look at the configuration of the horse, and the sire and the dam, and they make their bid. Sometimes you pay $50,000 and you win, and sometimes you pay
$3 million and the horse never even gets to the track. It’s the same thing in licensing. Some of it is instinct, and some of it is analytics. If it’s a TV show, what’s the amount of air time? If it’s a movie, what studio is putting it out: Universal, DreamWorks or Disney? That’s the equivalent of knowing the father and mother of the horse, but it doesn’t guarantee anything.

What have been some of SG’s big wins over the years?

I looked at Power Rangers in 1993, and I was enamored with the presentation and the freshness of the brand. We got the license for a very low number—in our first year we paid them over $5 million in royalties, which was unheard of in 1994. We were similarly surprised by the success of our Teletubbies, Pokémon and Bratz licenses. You’re always pleasantly surprised when you hit a home run. You always hope for it, but very seldom do you get home runs.

What inspired you to purchase some of your more successful licenses like Power Rangers and Teletubbies?

I honestly don’t know. It’s a feel. Licensing is a risky business. Lots of people try and get into it—they buy a license and invest lots of money, time and effort into product development, and if it doesn’t win, they get out of the business. You have to have either very deep pockets or a big stable. We buy lots of licenses that never sell a single pair. You either have the stomach for it or you don’t.

Obviously you have to have great product, too. What’s your secret?

You hire terrific talent. I’m not particularly great at the product, but I’m pretty good at picking good people. Since we’re a sizable company, we can afford to bring in talented people in all the various disciplines, from design and sales to marketing, IT and sourcing. Elisa Gangl, our vice president of licensing and marketing, and Mike Diablo, the president of our apparel division, have both been in the licensing business for over 30 years.

SG creates everything from Levi’s Signature jeans for Walmart to private label footwear for Nordstrom. You must have entirely different strategies for each market tier.

There are different strategies, there are different sales methodologies and there are different materializations. You have to know your consumer. The gatekeeper is the retailer, but at the end of the day, we’re selling to a consumer. So we have to know who they are, and what they’re looking for. And with omnichannel and everything else, it’s a very challenging endeavor. If you’re not ready to move with the times, you’re going to slowly disappear.

Speaking of omnichannel, has the increase in online shopping impacted the children’s licensing market?

In character footwear, probably not—or at least much less so than in fashion footwear.

But you have seen a shift toward direct-to-consumer in your fashion lines?

Yes. Many times—especially with smartphones—parents can do their shopping online. Technology is changing the way business has been going on for a long time.

Would you say that’s the biggest challenge in the licensing industry today?

My biggest challenge is waking up every morning. [Laughs.] You have to stay in touch. You have to stay aware. You have to use every tool you have available. I was in California two weeks ago. Last week I was in Washington, D.C., at the FDRA meeting. This week I was in Miami. Next week I’ll be in Dallas. Two weeks after that I’ll be in Las Vegas for the licensing show. And I’m 70-years-old!

Digital properties like Angry Birds and Grumpy Cat seem to be the next big thing in licensing. Do you agree?

There’s so much content out there today, but apps generally don’t have the same lifeline as evergreens like Disney, Sesame Street or Strawberry Shortcake. So you need a combination. You have to manage a proper blend.

Where do you see the biggest growth for SG in the future?

We have a very robust children’s and men’s distribution, and we also have a very sizable women’s business. However, women buy seven pairs of shoes for every one pair that men buy, so we see expanding our women’s business as a huge potential opportunity for us. But that doesn’t mean we’re taking our foot off the pedal in men’s or children’s.

How about in the children’s market in particular? Where do you see the potential for growth?

We’re always looking to grow, whether it’s by developing different product lines, buying companies, expanding our distribution internationally or expanding our distribution domestically. It’s a big world out there. We sell products to different retailers, but we also sell products direct-to-consumer. But it’s difficult to sell low-price children’s footwear direct-to-consumer, so that’s why we’re looking into expanding into more expensive product lines. We’re always looking to take a European brand and translate it to children’s in the U.S.

Do you think direct-to-consumer is the future of retail?

There isn’t one future for how consumers will buy. I think direct-to-consumer sales will grow. I think online purchasing will grow. But it will reach a point where the growth will either slow down drastically or come to a full level, at 50 percent [of sales] perhaps. We watch it, of course. You have to be nimble and adjust accordingly.

So you see some white space for SG in the upper-tier market?

I think there’s more opportunity for us there, because we have a very strong presence in the mass and mid-tier footwear markets. Our core strength is selling large quantities at low margins. We have not really aggressively gone after higher-priced children’s footwear with larger margins. Nor have we entered the retail market. So there are plenty of opportunities. You’re only limited by your own imagination.