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Burberry is preparing to pay €180m in cash to extricate itself from a licensing agreement with the French company that develops and sells its perfume and cosmetics products.
The UK fashion brand said on Tuesday that the outcome of talks with Paris-based Interparfums over “the potential establishment of a new operating model for the Burberry fragrance and beauty business” was ongoing but uncertain. To maintain flexibility, the company said, it planned to terminate the group’s worldwide licence agreement at the end of this year.
But Bethany Hocking, an analyst at Investec, said she did not see the announcement as a definitive move away from Interparfums but more of a precautionary step as an end-of-month deadline for the talks, which started in December, approaches.
The companies worked together to launch successfully Burberry’s premier fragrance, Burberry Body, last year, in a worldwide campaign that focused on the internet and social media. They are also developing the Burberry Beauty range, which includes make-up and cosmetics brushes.
The recession has delivered mixed fortunes to upmarket cosmetics brands, with Anglo-Saxon customers increasing spending while continental Europeans exercise restraint.
But Burberry’s finance director said last week that the Body range played an important role in introducing new customers to the brand at a lower price-point than its clothing. The company’s cheapest trenchcoat costs about £1,000.
Interparfums’ Nasdaq-listed parent also holds the worldwide licence for fragrances by Van Cleef & Arpels, Jimmy Choo and Paul Smith, and produces beauty products for companies including Brooks Brothers and Gap.
In 2010, the French subsidiary extended its licence contract with Burberry, moving the date at which the UK group could buy back the licence to December 31, 2012.
Burberry’s shares rose slightly in early trading on Tuesday. The stock has had a rocky few months as investors weigh the impact on luxury goods groups of China’s economic slowdown. The company missed analysts’ expectations for first-quarter growth this spring amid a “more challenging external environment”.