BURBERRY BUYS SPANISH LICENSEE

Byline: James Fallon

LONDON — Burberry has taken another major stride in its relaunch as a luxury brand with the $208.2 million acquisition of its Spanish licensee.
The purchase price for Burberry (Spain) SA includes the assumption of $7.6 million in debt. There is a further deferred element of up to $39.5 million depending on the performance of the business.
The deal was closed last Friday and announced Monday.
“It’s about getting control, coherence and consistency in the brand,” said Rose Marie Bravo, the chief executive who has directed Burberry’s makeover of the last three years, in an interview.
The acquisition was negotiated by Victor Barnett, Burberry’s chairman, who said in a statement that the purchase will have an immediate impact on profits and sales. Spain is Burberry’s second-largest market after Japan, with sales at retail of $395.2 million a year. It’s the largest market for the brand on a per capita sales basis.
Burberry (Spain) is based in Barcelona and has about 800 employees. It was formed about 35 years ago by the Mora family, who will continue to manage the business.
The operation had proforma earnings before interest and taxes of $31.9 million on sales of $193 million in the year ended March 31. Its EBIT has grown by 25 percent over the last five years and its sales by 20 percent a year during that time, Burberry said.
Bravo said the purchase of the Spanish licensee fits in with Burberry’s strategy of streamlining its licensing base. The company had operating profits of $32.9 million on sales of $349.3 million in the year ended March 31, but sales of the Burberry brand at retail are estimated at about $2.43 billion. The discrepancy reflects Burberry’s past strategy of relying on licensees, rather than its own operations, to generate volume outside its core geographic markets and classifications.
The Spanish deal follows the renewal of Burberry’s licensing agreement with Mitsui of Japan for a 20-year term earlier this year. The new license gives Burberry more control over design and a greater share of profits. Great Universal Stores PLC, Burberry’s parent, estimates the new terms of the Japanese license will increase profits by about $15.2 million in 2001 followed by further growth of $7.6 million a year over the next five years. By 2006 the new agreement will contribute profits of about $53.2 million above those generated by the previous one, GUS said.
Burberry looked at buying the Japanese license but its complexity made it too difficult, Bravo said, pointing out that Mitsui has 17 sublicensees in Japan.
The Spanish license was more straightforward — focused only on women’s, men’s and children’s wear and accessories — and accordingly was easier to buy back.
Burberry (Spain) produced separate collections for the Spanish market, and these will now be unified with the global Burberry Prorsum, Burberry London and Thomas Burberry lines. But Bravo praised the operation for its sophisticated sourcing and logistics operations, which she said will prove invaluable as Burberry continues to expand in Spain.

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