Success or struggle? How will Burberry cope on its own in the perfume market?
Many believe the British clothing brand will gain more control of the perfume brand and snare a bigger chunk of the profits in doing so.
The company also believes this will prove a hit, citing the successes of Dior and Chanel in the cosmetics and fragrance sector as examples.
First sign of struggle?
However, Burberry extended its fragrance and cosmetics licensing brand with Inter Parfums by another three months, to ensure an adequate transitioning period, may be the first indication of the difficult task ahead.
The initial license agreement was due to expire on December 31, 2012, but was extended last week by three months, taking it to March 31, 2013.
Following the failure to initially renew the contract with Inter Parfums, Burberry had been in negotiations with Beauté Prestige International, but those negotiations were said to have ended last month, according to industry sources.
It now looks increasingly likely that Burberry will take the fragrance and cosmetics production in-house, which would explain the additional three months ramp up period that will be necessary to arrange such an under taking.
Or setting the foundation for success?
With 210 million a euros a year (nine per cent of the company’s revenues) for Inter Parfums at present, Burberry believes it can grow on this, particularly as it already has its own experience in certain aspects of the fragrance business.
The British firm already does the marketing and design for its fragrances and cosmetics, and is aware that it has a long way to go in the cosmetics sector.
Finance Director Stacey Cartwright said it was not going to create a laboratory and would rely in part on Interparfums' current suppliers for logistics, production and distribution.
"This is not about inventing a new business from scratch," she told reporters in a conference call on Thursday. "It is about getting into the shoes of an existing partner who has a number of third party relationships."
It is a bold step for Burberry, who as previously mentioned, may be drawing on the example set by Dior, who bought back many of its perfume licenses in the 90s and gained more control of its brand.
However, it is not common for fashion brands to do such a thing due to the expertise required to produce cosmetics products and many of Burberry’s competitors still outsource their scents to the likes of L’Oreal, Coty and P&G.
"Burberry's move will be closely watched," said Fflur Roberts, global head of luxury goods at Euromonitor. "Rivals might do the same if [Burberry] have the capability to do it."
