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How Do Lids (and Other Places That Just Sell Hats) Stay Open?

The profit margins aren’t that big after all the licensing deals, but it’s still a billion-dollar industry

You can buy hats almost anywhere — online, of course, but also at department stores, baseball stadiums, big-box stores, outdoor stores, truck stops, boutiques and pretty much anywhere else besides a barber shop or a salon, it seems. In most stores or online, when you shop for a hat, they’re lumped under “accessories.” So what’s with the places that only sell hats — hat stores like Lids and the rest? 

Lids has 1,100 locations, of course, but there are also the finer hat stores that sell Panamas, pork pies, bowlers, fedoras and stuff you see at the Kentucky Derby. Do they really sell that many hats? Why are Major League Baseball caps and professional sports logo hats so expensive? What’s hat retail really like, anyway? With the help of Amanda Cioletti, content director for License Global, we’re trying on some answers!

Most of the hats that are sold in the U.S. are probably baseball hats, right?

There are so many, many different kinds of hats and markets for them. There’s officially licensed hats (meaning Major League Baseball, college and professional sports teams, and lots of other things with famous logos); there’s the promotional hat industry (for, say, companies or high school baseball teams); there are high-end, fashionable hats such as flat caps, fedoras, straw, Panama hats, bucket hats, etc.; there’s technical outdoor hats for forests, mountains, deserts and oceans; and, obviously, cowboy hats, among so many other categories. 

But yes, anyone in America can instantly see that baseball hats far exceed the popularity of any other style. It’s often said that JFK killed the men’s hat (at least the kind with a full brim), but in reality there were probably other reasons men’s hat-wearing has declined since his time, such as the automobile’s popularity (in which there’s much less headroom than on a bus or train) and changing hairstyles in the midst of a cultural revolution.

So what did all that do to hat stores?

Well, there’s Lids, an $800 million company, and there’s usually at least one high-end hat store in most communities, though not a whole lot more. The saga of Henry the Hatter, in Detroit, which has outfitted both Dwight Eisenhower and Detroit’s own Jack White, is instructive of the hat store’s fortunes. For decades throughout the 20th century the business thrived, not only repairing hats (before everything in life was disposable) but also making and selling them. In fact, just the repairing of hats once covered all the store’s expenses! It got chased out of its longtime space in the heart of the city due to rising rents (a byproduct of gentrification), yet found a new home in a revitalized commercial district elsewhere in the city that, well, you know the type: It features farmers’ markets, a distillery, taco cook-offs, art festivals and that sort of thing.

Most hat stores, which lack the cultural cachet and strong local support of Henry the Hatter, aren’t so lucky; they’ve just gone away. Or you might find a single high-end hat shop in the community, whose proprietor often seems to be the type of man who really, really likes Panama hats.

And what’s with the high-end ones?

High-end hat stores have always mostly been a mom-and-pop industry, according to a former baseball cap industry executive I spoke with. They tend to stock products that are generally tailored to the region (say, a popular kind of hat in Nantucket, or Kentucky Derby-style women’s hats in cities where the racetrack is a big draw). Without strong national trends in headwear, it’s just not possible to build a nationwide or even a strong regional retail empire out of it — aside from baseball hats, of course.

Ah, yes. What about Lids?

Yeah, baseball-style caps are big business! It was valued at $100 million a couple years ago, with revenues of $800 million. Meek Mill even bought a small chunk of the chain. They have locations everywhere and sell a ton of hats and other “licensed apparel” — which is so named because the apparel companies are licensed to sell items whose designs are the intellectual property of someone else (most commonly professional sports leagues, movie franchises or popular artists). 

The licensed apparel industry is massive. Cioletti’s company estimates that Major League Baseball did $2.7 billion in retail sales of licensed products in 2019 (which includes everything, though hats are undoubtedly a large chunk of that). Even the mighty NFL is far behind this figure, selling $1.9 billion of licensed products in 2019, which tells you how popular literal baseball hats are.

What about the hat companies?

Probably the most well known among licensed apparel hats is New Era, which makes the classic wool, fitted baseball cap (and replicates the style for all manner of sports leagues, sports, athletes, brands and artists nowadays). It’s a private company so numbers are hard to come by, though it’s said to manufacture 65 million hats a year and rake in $750 million to $1 billion in revenue, according to the internet.

How much does New Era pay for licensing?

Those numbers aren’t made public either, but at the start of the century, New Era’s deal with Major League Baseball was $80 million for five years — an eye-popping number that gave the company the right to outfit all Major Leaguers and to sell that same “official” stuff (imagine — all those Yankees, Dodgers and Cubs hats) to the public. 

A former baseball hat company executive told me the industry gossip is that New Era doesn’t actually earn a large profit since it has to pay, supposedly, nearly $25 million a year these days just to Major League Baseball — never mind all the other licenses for leagues and intellectual property it wraps itself around these days: WWE, Star Wars, Will Ferrell Christmas movies, the list goes on.

So what’s it cost to make a baseball hat?

Those $40-plus fitted hats don’t cost a whole lot to make, as New Era and most other baseball hat makers have outsourced to third-party factories in China and elsewhere in the developing world. As part of its contract with MLB stipulating that on-field hats need to be made in the U.S., New Era maintains a non-union factory in Florida. At the start of the century it cost $1.10 to $2.80 to make a hat, and though costs have risen, the cost per hat is nothing near the retail price, which comes as a result of the typical markups found in most retail, and those lucrative licensing deals. 

How well does Lids do, then?

Just as upscale hat stores have gone away, the baseball cap business has adjusted to the changing times as well — mostly via consolidation. Fanatics, Inc., which operates the team store websites for most professional sports leagues, has a minority stake in Lids. The company was sold in 2019 from a footwear and accessories conglomerate to an investment company after reporting a six percent slide in revenue the year before. Like many mall staples, it’s been a tough few years for brick-and-mortar retail, even before 2020 came around.

Are hat stores on the way out then?

Nah, they’re not going anywhere! Baseball hats alone are a billion-dollar business, and as long as people want them, retailers will find a way to sell them. And as to that first part, Cioletti predicts the demand for licensed apparel will be stronger than ever in the years to come. “You’re really able to show your fan affinity and who you are as a person through the brands you wear and the affinities you have for pop culture, which is essentially what licensing is,” she says. “These products represent that, and they really let you say something about yourself.”

Instead, Cioletti says the pandemic might even accelerate the trend toward licensed things. “As people become choosier with their dollars, they’re going to gravitate toward things that really speak to them, that resonate, and that, again, help them define their identity,” she says.

Hat stores, incidentally, might also start selling things besides hats. The strategy of Lids’ new owners has been to “emphasize other sports gear” and “focus on newer, more interesting products,” they’ve said 

Which is all to say that hat stores may always be around, although hats won’t be the only things you’ll find in there.