Analysis: Burberry smells a chance in fragrance business

Mon Oct 15, 2012 2:24am EDT
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By Astrid Wendlandt

PARIS (Reuters) - Burberry hopes it can gain better control over its brand and eventually a bigger slice of profits by running its own perfume business, a big gamble that could change the structure of the luxury goods industry if others follow suit.

Like most luxury firms, the British brand licenses its perfume business, in this case to Interparfums, which also sells scents for an array of other names, from shoemaker Jimmy Choo to penmaker Montblanc.

Burberry announced on Thursday that it was taking the business in house, becoming the first big luxury brand in at least a decade to do so. Many analysts reckon it will be a difficult task.

"Fashion and beauty are different industries," says Thomas Chauvet, luxury analyst at Citi, who sees the move as potentially costly and a management distraction at a time when the luxury industry is entering a potential global slowdown.

Burberry said it saw big potential in the perfume and cosmetics sector, and was inspired by market leaders Dior and Chanel, long among the few to run their own perfume businesses.

If it succeeds, it could be copied by rivals such as Prada, whose scents are made by Spain's Puig, and Gucci, whose fragrances come from Procter & Gamble.

"Burberry's move will be closely watched," said Fflur Roberts, global head of luxury goods at Euromonitor. "Rivals might do the same if they have the capability to do it."

That could potentially change the structure of the industry, reducing the influence of specialist fragrance companies like Interparfums, Coty and L'Oreal, which pay royalties to brands while logging the sales of branded scents on their own books.   Continued...

Women walk past a Burberry shop in Beijing, July 11, 2012. REUTERS/Jason Lee