Burberry changes strategy to boost up sales

In a significant strategic u-turn the Burberry beauty business is to be out-sourced again.

The UK fashion brand has announced a partnership with Coty to help boost the growth of Burberry beauty products from October.

“We are delighted to partner with Coty, a world leader in luxury fragrance and makeup,” said creative chief Christopher Bailey in a statement. “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.

“Further, the combination of the upfront payments and ongoing royalties is financially attractive and is expected to provide an accretive impact to our earnings from 2018/19.”

The Burberry beauty portfolio includes fragrance lines Mr Burberry and My Burberry and make-up products. It turned over about £203 million last fiscal year.

The appointment of Coty suggests the failure of a four-year old decision to take the beauty business in-house, after previous partner Interparfums was ended. But management disagrees.

“We are in a very different position now to the position we were in four years ago,” said Julie Brown, Burberry’s chief operating and financial officer, explaining the strategic shift.

“There was quite a high level of distribution of beauty products four years ago and what we wanted to do was bring it back in-house, control it a lot more carefully, and ensure we repositioned it, alongside the rest of the Burberry range.”

Executive director John Smith said taking the portfolio in-house had helped strengthen the brand but “at the same time, we are on our own, in an industry where there is lots of competition. By partnering with Coty with their sheer scale… we do feel that we will have a lot more force in the marketplace in terms of distribution and relationships with wholesalers, department stores and so on.”

Burberry expects be paid £130 million ($163 million) for the long-term exclusive global licence and related transfer of the beauty business, and £50 million for assets.

Under the deal,Burberry will lead the creative parts of the business and Coty will use its industry expertise and global distribution network to optimise sales.