Universal Music Group dresses up for a deal with Tommy Hilfiger

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Universal Music Group -- the label of Lady Gaga, Justin Bieber and the Black Eyed Peas -- has struck a deal with Tommy Hilfiger to develop rock-’n’-roll-inspired clothing for high-end boutiques and department stores.

In a joint venture, fashion designer Hilfiger and Universal, through its Bravado business unit, plan to work with bands and musicians to craft branded merchandise that would hit stores later this year. Terms of the venture, which involves Hilfiger personally and not the clothing company that bears his name, were not disclosed.

For Universal, being in the fashion business isn’t as much of a stretch as one might think. The music company in 2008 bought Atmosphere Apparel, a U.K.-based company that had deals to develop merchandise for Metallica, Iron Maiden and others. The acquisition followed its 2007 purchase of Bravado, another U.K. merchandising company, and its parent, the Sanctuary Group.

As CD sales have declined, revenue from merchandise related to top artists and bands has increased. It’s not just T-shirts sold alongside beer and hot dogs at live concerts. These days, band ‘merch’ includes a variety of items --dolls and toothbrushes as well as pinball machines and sunglasses.

Universal’s Bravado merchandising group, which logged sales in excess of $300 million last year, has seen a 28% uptick in sales so far in 2011 and is projecting they will hit $400 million this year, according to sources familiar with the business unit. That doesn’t include the sale of CDs that come bundled with bonus items such as T-shirts and wristbands.

Though that’s just a fraction of Universal’s overall music business, which reported $6.3 billion in sales last year, it’s a segment that’s growing rapidly amid deteriorating CD sales and continuing problems with illegal online song sharing.

‘Music’s not dead,’ said Tom Bennett, chief executive of New York-based Bravado. ‘There’s an awful lot of people who are still very keen on music. It goes back to Elvis or the Beatles. People wanted to own a piece of them, be it a doll or a T-shirt. But with our stuff, you can’t download a T-shirt, you can’t download a doll.’

Among the unexpected hits from Bravado was the $50 Lady Gaga Halloween costume, right, which was among the most sought-after outfits for trick or treaters last year. Fans have snapped up 5 million Justin Bieber dolls, above, which retailed for $25.99.

Bieber also has a singing toothbrush, inspired by the teen idol’s manager, whose mother is a dentist. The $14.95 toothbrush plays ‘Baby & U Smile’ while users polish their pearly whites and is expected to sell millions of units for Bravado.

But wait. There’s more. How about a $4,999 Rolling Stones pinball machine? Or a $65 Michael Jackson varsity jacket?

DId we mention T-shirts? Last year, the top-selling version of the Rolling Stones’ ‘Exile on Main Street’ re-release was the one that bundled the album with a T-shirt, Bennett said. At $20 to $29, it was also the most expensive version offered at Target, Best Buy and other major retailers.

‘Consumers aren’t as price sensitive when it comes to band merchandise, if it’s the right product,’ Bennett said.

Retailers are paying attention. As high-margin dolls and toothbrushes fly off the shelves, some are giving the accompanying CDs precious shelf space. The panoply of souvenirs is also putting CDs in front of consumers in some surprising places. Bravado has sold its bands’ merchandise in locales such as H&M clothing store, Restoration Hardware and Hot Topic.

‘As much fun as it is, it’s also very real and viable source of income for the vast majority of our acts,’ Bennett said. ‘And it’s big business for Universal. It gets the music back to the front of the store.’

With Hilfiger, Universal is hoping those stores will soon include Macy’s or Bloomingdales as well.

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-- Alex Pham