With its classic trench coats and traditional totes, Burberry Group Plc (BRBY) isn’t often credited with setting fashion trends. Yet as the British luxury brand pushes into fragrances and cosmetics, it’s doing something few have done before: going it alone.

In its bid to expand sales of beauty products, Burberry is eschewing the industry practice of signing up a partner such as Procter & Gamble (PG) Co. or L’Oreal SA (OR) to manufacture and distribute its wares. Instead, the London-based company is creating an in-house division to manage suppliers and retailers, which it expects to give it more control.

“Burberry has the potential to rewrite the rules on how beauty is handled,” said Anastasia Kourovskaia, a vice-president at consultant Millward Brown Optimor. “Just because 25 brands have been successful doing things one way doesn’t mean there isn’t another way.”

In October, Burberry started selling its fragrances via Amazon.com Inc. (AMZN), a retailer known more for price than prestige. That deal came after Burberry last year ended a two-decade relationship with fragrance maker Interparfums SA. (ITP)

Burberry has built a team of about 100 specialists for the business, including new hires from companies such as P&G and Chanel. And in December, it opened its first dedicated beauty boutique, in London.

Going solo is a strategy that some say is a mistake for a company of Burberry’s size. The cosmetics business, even at the high end, resembles consumer goods — where it’s important to have the broadest possible distribution, according to Exane BNP Paribas analyst Luca Solca.

In that respect, Burberry is “a dwarf in the land of giants,” Solca said.

Armani, L’Oreal

Among fashion brands with greater beauty sales, Giorgio Armani has a license with L’Oreal, while Dolce & Gabbana has one with P&G. Chanel and Dior, by contrast, manufacture and distribute their own scents, makeup and skincare, having developed the business over decades.

Fragrances and makeup generated 144 million pounds ($242 million) of wholesale revenue, or about 6 percent of Burberry’s total sales, in the 12 months through March. Lancome, owned by L’Oreal, is the biggest brand in the premium beauty market, according to Euromonitor International.

Trench Coat

Burberry, which introduced its first fragrance in 1981 and added cosmetics in 2010, expects wholesale revenue from those products to expand 25 percent this year. While scents account for almost all of Burberry’s beauty revenue, the company also offers makeup and may add skincare as soon as next year. Burberry has said it aims to be a top-10 beauty brand, which would require a more than five-fold increase in sales.

Burberry declined to comment for this story. Christopher Bailey, who replaced Angela Ahrendts as chief executive officer this month, will lay out detailed plans for the division at a results presentation tomorrow. Analysts estimate full-year pretax profit rose 5.7 percent to 452 million pounds.

Burberry is betting that by offering a cheaper way to experience the brand, it will attract new customers who can’t afford its clothing today but might someday. Though its lipstick, at $30, is expensive when compared to some mass-market brands, that’s a lot less than its trench coats, which can exceed $6,000.

Covent Garden

With greater control of cosmetics and scents, the company has been better able to cross-market those products with its clothing. During its 2014 spring-summer fashion show, Burberry promoted a 90-pound set of six nail shades. And the company says ads for Brit Rhythm for men, a fragrance launched in September, boosted sales of its Brit apparel line.

Burberry, which has led the industry in integrating the shift online, is bringing that digital expertise to the new beauty effort. At its store in London’s Covent Garden, screens allow shoppers to try on nail polish virtually or play footage of the brand’s runway show featuring British starlet Cara Delevingne. There’s no checkout counter; instead clerks roam the store taking orders on iPads.

Suzie Doore, 40, bought her first Burberry lipstick in 2011 and has been a customer of the company’s beauty range ever since. The editorial director at a London book publisher says she likes the colors and how Burberry lipstick also serves to moisturize her lips.

“Burberry measures up well against other brands,” said Doore. “Because the packaging is so classy, I mentally bracket it with Tom Ford” — which sells lipstick for as much as $49.


Attractive products may not be enough, said Vivienne Rudd, a director at researcher Mintel in London. Burberry will also need a bigger retail presence, which could stretch its finances, Rudd said.

“It will be hard for the brand to significantly expand volume sales until it opens more counters and boutiques,” Rudd said.

Burberry’s accord with Amazon — and last month’s opening of a store on Alibaba Group Holding Ltd.’s Tmall.com in China — hold the promise of far greater distribution. The Amazon deal, which helps maintain stable prices and keep knock-offs from the site, could set a new model for beauty retail, according to Fflur Roberts, head of luxury goods at Euromonitor.

“Luxury brands are already looking at what Burberry is doing online as a template for what they could do,” said Roberts. If Burberry is successful in its beauty push, “other brands may follow suit, seeing Amazon or other online retailers as a way of targeting more consumers.”

(Source: Bloomberg)