Burberry to License Beauty Unit to Coty

Luxury brand Burberry announced on Monday that it plans to lease its beauty unit, which includes cosmetics and fragrances, to Coty in a $225 million deal. The deal will help Burberry develop new products and expand its presence in the United States.

Burberry, which moved its fragrance development in-house in 2013, said it will maintain creative control. Coty will leverage its global distribution network to introduce its brands to new consumers.

“Coty has very broad experience of working closely with other luxury brands,” said Julie Brown, CFO, in a recent interview. “We will benefit from their deep beauty industry expertise and also their first class distribution.”

The long-term lease will cost Coty 130 million pounds and an additional 50 million pounds for assets and inventory, Burberry said. The company will also pay royalties from October.

In the first half of the year, beauty accounted for 7% of Burberry’s revenue, lower than the 17% from the same period last year. Repositioning was partly to blame for the reduced revenue.

John Smith, Chief Operating Officer, said there is room to grow cosmetic sales, which account for 8% of sales. The industry standard is about one third.

Burberry launched its costmetic line as a way to introduce its brand to more consumers.

“Make-up is a key recruitment tool for a luxury brand, in that the price points are a lot lower than any other product,” says Smith. “As a means of recruiting people into the brand, it’s perfect.”

Burberry is looking to trim costs and rebound after two years of declining profit.

“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,” said CEO Christopher Baily in a statement.

Shares of Burberry gained 1% to 1,739 pence in morning trade.