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Burberry to Launch Skin-Care Line

Christopher Bailey appears to have passed his first test as Burberry Group plc’s new chief executive officer.

LONDON — Christopher Bailey appears to have passed his first test as Burberry Group plc’s new chief executive officer.

This story first appeared in the May 22, 2014 issue of WWD.  Subscribe Today.

In his first public address since taking over the reins of the group earlier this month — while retaining the role of chief creative officer — Bailey sought to reassure the financial community that his is a safe pair of hands as the group reported record profits and sales for the fiscal year ended March 31.

“As you know, my new role is an unconventional one, and my background is not that of a traditional ceo,” the bespectacled Bailey told analysts on Wednesday morning. “As such, I will lead Burberry in my own way, but always guided by a passion for what this unique brand stands for,” he said, noting there would be no changes to the company’s ambitions and growth plans laid out by his predecessor, Angela Ahrendts, who left to join Apple.

“The organization is now fully aligned across the three pillars I spoke about in November: design, product and communication; the regions, and operations and finance,” said Bailey, adding that his creative and commercial teams were solid.

Carol Fairweather, chief financial officer; John Smith, chief operating officer, and Pascal Perrier, ceo of Asia-Pacific, all gave separate presentations during the conference, which was live-streamed on Burberry’s site.

Despite the strong growth — and the news that Burberry will break into the skin-care arena and plans to reenter the Japanese market with a bang next year — analysts still appear to be taking a wait-and-see attitude toward the new management team led by Bailey, who has kept a low profile since becoming ceo and making few other public comments. Burberry’s shares barely budged Wednesday, rising 0.2 percent on the London Stock Exchange to close at 15.18 pounds, or $25.58 at current exchange, from 15.09 pounds, or $25.02.

In the 12 months ended March 31, Burberry’s net profit climbed 26.8 percent to 322.5 million pounds, or $512.8 million, due partly to lower adjusted items compared with the previous period. In fiscal 2012-13, the company had absorbed a charge of 82.9 million pounds, or $131 million, after terminating its fragrance license with Inter Parfums.

The net profit figure was in line with analysts’ estimates. All figures have been converted from the pound at average exchange rates for the periods to which they refer.

Revenues for the year rose 16.6 percent to 2.33 billion pounds, or $3.7 billion, with retail sales and men’s wear among the biggest drivers of growth.

Bailey said men’s outerwear, tailoring and accessories drove overall revenue growth, and the men’s category accounts for 30 percent of total sales. He said Burberry sees “compelling further potential” for growth of men’s.

Burberry has big plans for beauty, including a move into skin care and the rollout of a second Beauty Box retail concept in Asia in 2015, and a big push into travel retail. Product development is under way in makeup — Net-a-porter.com is one of the latest stockists — while parts of the Beauty Box retail concept will likely be adapted for beauty counters and travel retail.

Asked during a conference call about the nitty-gritty of its skin-care plans, Smith said 26 billion pounds, or $44 billion, of the 60 billion pound, or $101 billion, beauty market comes from skin care alone, and the category “drives loyalty over time” among customers.

He admitted, however, that the dynamics of the skin-care business were different from the rest of the sector, and that Burberry was looking to partner with experts in the field. “We are talking to a range of possible partners about a range of possible relationships,” he said, adding that the new line would have a luxury positioning.

Smith reiterated to analysts earlier that Burberry was looking to be a top-10 luxury player in the beauty arena, and that success in the makeup and skin-care categories, where the brand has zero penetration, “is a prize worth pursuing.” As reported, the company has also set a major fragrance launch for early September.

Overall, beauty wholesale revenue is set to grow by 25 percent at constant exchange rates in the current year. Burberry said it is targeting “midteens” percentage growth for the fragrance business alone from the 2015-16 year.

Beauty isn’t the only category on the launch pad: Burberry principals took pains to emphasize their ambitions for Japan, where the brand plans to pursue the luxury customer — rather than convert the current, premium one.

As reported, the group plans to take its Japanese business in house and upmarket when its license with Sanyo Shokai Ltd. ends in June of next year. It plans to add freestanding stores and department-store concessions, and to bulk up e-commerce in the region. The Japanese license has been in place for 35 years.

Perrier said the time is right to build a stand-alone business in Japan, the world’s second-largest luxury market, which generates 13 percent of global spend. “The Japanese luxury market is growing again. We are hardly playing there, and we will effectively relaunch the brand,” said Perrier, adding that Burberry is expecting revenues of 100 million pounds, or $168 million, in the market in the 2016-17 fiscal year, and the long-term goal is for Japan to generate 10 percent of revenues, in line with its peers. Burberry’s global collections in Japan —which launched in a small way five years ago — generate about 1 percent of overall revenues.

“The strategy there is about making big brand statements with flagship stores, and our key challenge is to unlock the department stores. The plan is to target directly the Japanese luxury customer — not to convert the current one,” he said, referring to Burberry’s premium positioning in the market. He added that the Japanese luxury customer was “non-apparel focused,” so the emphasis will be on driving large and small leather goods in that market.

Burberry said it’s committed to opening stores in Omotesando and Shinjuku in Tokyo, and Osaka, and there are plans to add about 10 concessions a year in the 2015-16 and 2016-17 periods. Burberry has inked a new, three-year license with Sanyo for its younger, Blue and Black contemporary labels, which will continue to be owned by Burberry, but will not carry the brand’s name or be associated with it in any way. That deal is expected to yield 10 million pounds, or $16.8 million, in annual royalties.

After the conference, Luca Solca of Exane BNP Paribas wrote that Burberry seems “less assured of its direct Japan and beauty foray success, and has decided to cushion its business with the Blue and Black licenses in Japan. This move looks like a patch-up. Everything else from the ceo seems more of the same.”