Clouds of doom and gloom seem to have settled over the UK’s retail landscape, where even the high street has seen better days. Inflation is up, consumer spending is down, and retailers are struggling to find a way to keep their businesses afloat without putting too much of a strain on their customers. The British Retail Consortium reported in July that UK retail sales have fallen 0.9% on a like-for-like basis, compared to a 1.2% increase posted in July 2007. The BRC has also found that consumer confidence is reaching record lows, as shoppers become more price-conscious to meet household budget demands.

It should be no surprise that retail suppliers are also being affected, and none so much, perhaps, in the licensing business than local toy companies. Nick Austin, CEO of Vivid Imaginations, says his company has had to bear the brunt of three cost increases from Chinese suppliers since last December. This price bump – coupled with the skyrocketing cost of oil (and subsequently oil-based plastics) and increased shipping and energy expenses – left Vivid with no choice but to raise SRPs upwards of 30% in the middle of this year.

It’s a harsh reality that the UK licensing market, along with the rest of the world, has had to face. At this point, however, it’s too soon to tell what mid-year price hikes will mean for sales. According to industry researcher The NPD Group, licensed toy sales in the UK for the first six months of 2008 were up 11% year-over-year, thanks to a spike in boys toy categories and plush.

Austin notes that performance so far reinforces the notion that the toy business, to a certain extent, is recession-proof because parents tend to keep buying their kids toys whether money is tight or not. Right now, he’s more worried that the enormous growth of the video game category last year, which NPD says grew by 40% from 2006 to 2007, will take a chunk out of the toy market this coming holiday season.

UK mass retail also remains a challenge. It’s currently clogged with aggressive in-store promos and value buys, and most of the big chains are offering consumers two items for the price of one on a regular basis. But for licensors and licensees, it’s difficult to opt out of these types of promotions. Not playing along with retailer plans means ‘you lose shelf space,’ says Austin. ‘Unfortunately, everybody has to go along with that trend, which squeezes both value and profit out of the industry.’

CPLG UK MD Vickie O’Malley contends, however, that licensing can provide a point of difference amidst pricing wars. She cites Woolworths, Mothercare, Marks & Spencers and Toys ‘R’ Us as being particularly aggressive when it comes to carrying licensed goods. They have established structures in place to support splashy programs. She says TRU, for example, will dedicate a 25-foot, floor-to-ceiling cross-merchandised product area to a license it thinks is the next hot thing, along with a 3-D point-of-sale display at the front of the store.

Additionally, Target Entertainment head of licensing Shelley Kerridge has noticed that while people are cutting back on their everyday spending, they don’t seem to be skimping on buying licensed products during gifting periods (Christmas, Easter and birthdays). In fact, Kerridge has actually seen royalty revenues for properties in the Target portfolio go up by as much as a third in recent months.

Another bright-ish light? The grocery channel, including global players such as Tesco and Asda, has become an increasingly license-friendly retail tier. Austin says that major grocery retailers have realized that further growth won’t likely come from their food business, and so they’re looking for ways to offer the convenience of a one-stop shop with affordable price-points for parents on the go. He admits that it’s a bit of a challenge to create a brand presence in grocery outlets because they don’t often provide desired merchandising options like three-foot-long displays, but one or two shelves can go quite a long way. ‘You can actually deliver phenomenal volume because they’ve got millions of people walking the aisle every week – which traditional toy retailers just don’t.’