Burberry announced on Monday it will license its name for fragrances and cosmetics to Coty in a deal totaling $225 million that will help it develop new products and benefit from the U.S. group’s distribution. The British luxury brand, which brought the perfume business in house in 2013, said it will retain creative control while Coty, which currently hold licenses for Gucci, Prada, Miu Miu and Calvin Klein fragrances, among others, will bring its global distribution network to the table.
Chief Financial Officer Julie Brown told Reuters that Burberry had repositioned the business by cutting secondary-channel sales, and it was now the time to partner the premium fragrance leader. “Coty has very broad experience of working closely with other luxury brands,” she said in an interview. “We will benefit from their deep beauty industry expertise and also their first class distribution.”
Licensing: How Does it Work?
Fashion brands have long looked to licensing to pay the bills. As you may know, most of the European houses (think: Christian Dior, Louis Vuitton, Hermès, Yves Saint Laurent, etc.) started as brands in the business of making couture, luggage, and/or equestrian equipment. Since then, there has been a large shift in the industry towards more modern and more accessible goods. Hence, the advent of ready-to-wear and also of licensing.
So, what is licensing exactly? Licensing is the practice of contracting with another party to obtain and use rights intellectual property (“IP”) rights, in our case) in exchange for an agreed payment (a fee or royalty). A licensing relationship typically involves an agreement between a trademark owner (the “licensor”) and another party (the “licensee”) in which the licensor permits the licensee to use its trademark in commerce. Simply put, a license grants the licensee rights in property without transferring ownership of the property.
Licensing is also a powerful way for a brand to grow by tapping into new geographic market and new market categories they simply are not equipped to cater to. Licensing out can help a company to commercialize its IP or expand its current operations into new markets more effectively and with greater ease than on its own.
By granting the licensee the right to market and distribute the product, the licensor can penetrate markets it could not otherwise hope to serve. The licensee may agree to make all the adaptations required for entering a foreign market, such as translation of labels and instructions; modification of goods so as to conform to local laws and regulations; and adjustments in marketing. Normally, the licensee will be fully responsible for local manufacture, localization, logistics and distribution.
Moreover, licensed products, such as eyewear and fragrances, which are sold at much lower price points than a designer dress, for instance, serve as a way to both profit and to court potential new customers. As of last year, about 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer’s name to makers of underwear, jeans and perfume. It is an especially effective tool for high fashion houses due to their high price points.