The smell of success? Coty and Burberry licensing deal
Lawyers have tipped Coty’s £130 million ($170 million) agreement for the exclusive global licence to Burberry’s beauty business to be a success, but it’s not without IP risks.
On Monday, October 2, the long-term deal between the two commenced with Burberry confirming it received £130 million that day, with a further £40 million ($52 million) expected for assets transferring.
Burberry also confirmed it is to receive ongoing royalty payments and £30 million ($39 million) of one-off cash costs.
Nicole McLaughlin, partner at Duane Morris, said the deal seems to be a “recipe for success”.
“Burberry was struggling with its fragrance and makeup lines, which negatively impacted its growth/profits, and Coty is arguably one of strongest and well-positioned brand developers/distributors in the makeup and fragrance space,” she explained.
“Coty’s experience with luxury brands will also prove immensely vital for Burberry, as now that Burberry has changed its strategy and will not have total control of this business, Burberry will rely heavily on Coty to protect its luxury brand name.”
In a statement released on Monday, October 2, Burberry explained that the partnership will build on the past four years of “successful elevation”, which included the launch of My Burberry and Mr Burberry fragrances.
“Burberry will continue to lead on creative elements of the business while benefitting from Coty’s deep beauty industry expertise and first-class global distribution,” it added.
Coty is a US beauty products manufacturer and generated over $9 billion worth of revenue last year. It has 77 brands in its portfolio, including Calvin Klein, Chloé and Marc Jacobs.
However, the deal does pose risk.
“The biggest risk a brand owner faces in a licensing deal is the licensee diluting the brand by producing lower quality goods or distributing through unapproved channels such as discount outlets or warehouse clubs,” added McLaughlin.
“If the quality of the products suffers, this will be a direct hit to the Burberry brand name and will dilute the strength of the brand.”
Simon Bennett, partner at Fox Williams, described the deal as an “interesting development”, but also explained some of the challenges.
“The reported upfront lump sum and ongoing royalty payments that have been announced by Burberry demonstrate how valuable the Burberry brand has become,” he stated.
“I am sure the partnership will contain a complex set of terms dealing with all the usual issues, such as quality control, how the royalties are calculated, product recall, trademark maintenance, IP enforcement, etc.
“However, one of the challenges in agreements of this type, particularly if they are long-term, is to future proof them for developments in either new technologies that impact upon the manner in which sales are made and new regulatory requirements for the marketing and sale of cosmetics and fragrances.”
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