UPDATE 1-Burberry to bring perfume business in-house - sources

(Adds detail, quotes, background)

* Burberry to announce taking perfume business in-house * To be able to integrate perfume sales in its accounts By Astrid Wendlandt PARIS, Oct 10 (Reuters) - British luxury brand Burberry is expected to announce in its trading update onThursday that it is bringing its perfume business in-house afterits contract with Interparfums ends on Dec. 31,industry sources close to the matter said.

"Burberry believe that they can accelerate the growth oftheir perfume business better themselves," one of the sourcessaid on Wednesday.

When Burberry announced an end to its contract withInterparfums in July, it said it would review its options, whichincluded finding another partner to make and distribute itsperfumes or integrating the whole business internally.

Burberry, which issued a profit warning in September, heldtalks with Beaute Prestige International (BPI), the perfume unitof Japan's Shiseido , but failed to come to a newagreement, sources told Reuters last month.

Part of the problem was that Burberry wanted to consolidatethe sales and use BPI mainly as a distributor, the sources saidat the time.

Burberry will be able to continue taking advantage ofInterparfum's distribution partners, the first industry sourcesaid, and Interparfums will help the British brand ensure asmooth transition.

Another industry source confirmed that Burberry waspreparing to announce that it wished to integrate the perfumebusiness in its operations "because of the growth potential ofthat category of product".

Analysts said in notes this week they expected an update onthe perfume operation in Burberry's half-year trading statement,which is expected to be published on Thursday before the marketopens.

Burberry said in July it would buy back its perfume licencefrom Interparfums for approximately 181 million euros ($236million) after failing to reach an agreement with theParis-listed perfume maker.

Citi analysts said in a note that the figure could reach 250million euros including inventories and tangible assets.

Under the licence model, brands receive royalty fees,usually a percentage of sales, while the partners pocket theremaining revenue.

If Burberry takes the perfume business in-house, it wouldlead to start-up costs which Citi estimated at around 30 millioneuros.

There might also be disruptions to the business for a yearor two as Burberry would have to create a perfume team fromscratch and renegotiate terms with suppliers which range fromjuice makers to bottle manufacturers.

"One does not create a perfume business in one day," oneParis-based luxury analyst said. "It took Dior and Chanel yearsto build theirs."


Integrating the perfume business means Burberry will be ableto consolidate its sales in its accounts, estimated this year tobe around 210 million euros.

The company has big ambitions for its new fragrance "Body,"launched last year and for its perfume business overall,analysts say, as it aims to narrow the gap with arch-rivalsChristian Dior SA and Chanel, which run their perfumebusinesses internally.

Burberry, which is famous for its 1,500-euro trench coatslined with its distinctive camel, red and black check pattern,is also keen to develop skin care and make-up lines.

Perfume is usually the main entry point for luxury brands,which is why controlling the product's communication andmarketing strategy is key.

Under its licence contract deal with Interparfums, Burberryalready controlled many steps, from designing the fragrance toits marketing strategy, and now it wanted to take itsinvolvement a step further, the first industry source said.

Burberry and Interparfums declined to comment.($1 = 0.7751 euros)

(Reporting by Astrid Wendlandt; Editing by Leigh Thomas and TimDobbyn)


Messaging: astrid.wendlandt.thomsonreuters@reuters.net))