LONDON – In a major shift in strategy, Burberry has inked a license with Coty Inc. to accelerate the growth and development of its beauty business, the British luxury brand said Monday.
The exclusive agreement will take effect from October, subject to regulatory approvals. Burberry launched its in-house beauty division with much fanfare on April 1, 2013, after breaking with its longtime licensee Inter Parfums, with which it had launched color cosmetics in 2010 and a number of fragrances in previous years.
Burberry shares rose 1.6 percent to 17.52 pounds, or $21.98 at current exchange, following the announcement. Analysts were upbeat about the deal, with Helen Brand of UBS releasing a flash report called “Burberry: ‘Beauty no longer a beast.'” “We see this deal as an incremental positive for the stock as the beauty division has been underperforming and was likely a drag on management time,” she wrote.
Burberry had established beauty as one of its main business pillars, along with fashion and accessories. The company widely touted the strategy as a way for it to upgrade the positioning of its fragrances, drastically slashing the number of fragrance outlets that carry the brand in the U.K., and reap more profits. It even had plans for a premium skin-care line. Burberry also wanted to market its beauty products in conjunction with fashion and accessories, which it felt it could not do with a licensee.
The beauty business is a specialized one – and famously difficult to crack without an industry partner. In addition, last year Simona Cattaneo, former senior vice-president of beauty at Burberry left the company to become chief marketing officer of Coty’s luxury division, and was replaced by an in-house team.
Burberry said the Coty deal follows the “successful repositioning and elevation” of the Burberry beauty business over the last four years of direct operation. During this time, Burberry launched fragrances such as My Burberry and Mr Burberry, redeveloped and relaunched makeup, and boosted sales of new fragrances in key markets.
Burberry said in a statement it would lead “on creative elements of the beauty business,” while benefitting from “Coty’s deep beauty industry expertise and first-class global distribution.”
Christopher Bailey, Burberry’s chief creative and chief executive officer, called Coty “a world leader in luxury fragrance and makeup. Working with a global partner of their scale and expertise will help drive the next phase of Burberry Beauty’s development and position this business for future growth. He said a the combination of the upfront payments and ongoing royalties related to the deal “is financially attractive and is expected to provide an accretive impact to our earnings from FY 2018-’19.”
Burberry is currently undertaking a major austerity drive and reorganizing and slimming down the business to drive sales and profits in what has been a difficult climate for luxury.
Camillo Pane, chief executive officer of Coty, said: “We are proud to welcome Burberry as a strategic partner of Coty. We look forward to growing further Burberry’s luxury beauty products using Coty’s world-class expertise in developing and bringing to market beauty brands.”
Burberry said that in the second half of the 2017-’18 fiscal year, it expects to receive cash payments of 130 million pounds, or $163 million, for the long-term exclusive global license and related transfer of the Beauty business, and about 50 million pounds, or $63 million, in assets transferring, which is subject to inventory adjustments.
Burberry will also receive ongoing royalty payments from October, which Burberry said expects this agreement to be broadly neutral to adjusted profit before tax in the current fiscal year, and accretive from the 2018-’19 fiscal year.