Why Kering Gave Up on Beauty

Kering has given up on beauty.

Just two years after inaugurating an in-house division, installing a dedicated chief executive and buying Creed for $3.8 billion as its first beauty acquisition, Kering announced on Sunday that it would sell the lot to L’Oréal for $4.6 billion. The unit generated $376 million in revenue last year, around 2 percent of the group’s total revenue.

Unlike arch rival, LVMH, which has been in the fashion, cosmetics, travel and spirits business for decades, Kering was a fashion and jewellery pure player until 2023. Bringing beauty in-house could have had upside — it’s why Richemont and Dolce & Gabbana are attempting it — but the business is fundamentally different. In a lagging economy, some large firms are realising it’s not worth the effort.

That’s especially true for Kering, which no doubt diversified into beauty as a hedge: in its most recent earnings in July, Gucci sales were down 25 percent, and overall group sales down 15 percent. The decision to cut beauty is the first big shake-up announced by its new chief executive, Luca de Meo, whose hiring was confirmed in June; the announcement helped tick up its stock price by 16 percent to $22.

Why Did Kering Struggle With Beauty?

In 2023, bringing beauty in-house felt like it was all upside. In the years directly following the pandemic, the beauty market swelled to new heights. By bringing beauty into its stable, Kering could theoretically maximise revenues and more tightly control its brands’ identities. Then, by acquiring more beauty companies like Creed, it could also go on to become a true multi-category conglomerate, like LVMH.

But many fashion houses license their beauty offerings to specialists for a reason. While the revenues generated by royalty payments from licencees are often modest, they are pure profit, and allow houses to focus on what they do best. Despite some overlaps in branding, fashion and beauty businesses are different beasts, and managing a beauty business means expert knowledge in formulation, regulation and distribution. A luxury brand may have a few hundred points of sale globally for its apparel. In beauty, it would more likely be several tens of thousands. It also requires more staffing, investments in marketing and different kinds of logistics. Beauty trend cycles are much shorter, demand forecasting is complex and product launches need to be constant.

L’Oréal has had the beauty licence for Kering’s Saint Laurent since 2008, resulting in the successful YSL Beauté range, and Coty has developed Gucci Beauty since 2016. Kering has seen the successes of working with the right partner and the failings of others.

How Are Its Beauty Brands Performing?

While Bottega Veneta and Balenciaga had been licensed in the past, shedding Creed feels jarring given how new the acquisition is, and the cornerstone of its proposed plans. While it was indeed a sought after M&A target, Kering overpaid.

Kering’s brands have inherent desirability based on brand name, but in beauty, it still had to establish each of those lines individually. Bottega Veneta’s fragrance offering raised eyebrows at $450 a bottle, an exceptional price tag in an industry accustomed to scents in the $100 to $300 range, while Balenciaga’s new offering is up against stiff competition and does not currently have the halo effect of being a beloved fashion house. Creed continues to poll well with male shoppers, but has yet to meaningfully resonate with women.

Creed’s expertise was likely useful for the development of Bottega Veneta and Balenciaga’s scents, launched in 2024 and in September respectively, but Kering didn’t want to be solely a fragrance house. Ultimately, fragrances have little to do with makeup and skincare.

What Can L’Oréal Do?

Even as the world’s biggest beauty company, L’Oréal will still have its work cut out. Citi estimates that Creed generates around $400 million in sales, but the current beauty revenues of Bottega Veneta and Balenciaga are immaterial. Additionally, both have limited distribution in the fashion houses’ own stores and e-commerce sites, while Creed is sold in department stores and boutiques. L’Oréal will have to build out wider networks for these brands. While it has proven success in the premium beauty space with the likes of Armani and YSL Beauté, more strategic reasoning is needed in its management of Bottega Veneta: at $450, its scents are almost $100 more than the priciest offerings in L’Oréal’s current stable.

However, L’Oréal are masters of marketing, a key element in the success of a beauty business. Attention-grabbing stunts like recreating the legendary New York nightclub Studio 54 helped catapult Valentino into a Sephora best-selling fragrance, while savvy campaigns for Lancôme’s Juicy Tubes franchise and Cerave’s core skincare line demonstrate the group’s power to tap into the zeitgeist.

What Does it Mean for the Industry?

Inheriting Gucci, which is estimated to generate around $500 million to $600 million in sales for Coty, is a welcome addition for L’Oréal, but its current licence is believed to expire in 2028. Coty will likely deprioritise the brand over the next three years, meaning L’Oréal will need to heavily invest to reinvent the line. It will also increase pressure on Coty to diversify — Barclays estimates that the loss of Gucci could be represent a 12 to 14 percent hit to its overall 2028 earnings before interest, taxes, depreciation and amortisation. Though the company is working to renew or extend other licences, add new product formats like body mist and renew cosmetics lines like Marc Jacobs Beauty, the loss of Gucci dashes Coty’s hopes to be a luxury house. When it announced a strategic review in September, chief executive Sue Nabi said in a statement that the company was seeking “clarity and focus” and that it wanted to win “at all price points of scenting from $5 to $500.”

The deal will materially increase L’Oréal’s exposure to fragrance, which is already 13.7 percent. Investment bank HSBC estimates the deal will add another 6 percent, which would double over time. While fragrance is booming, its annual sales growth has slowed from 13 percent to 11 percent in the last year, according to Euromonitor.

Unburdened by its beauty business, Kering will now get back to its core fashion arm, which will focus on speed to market and decreasing reliance on runway looks.

In a note, Deutsche Bank analysts said, “Importantly…this highlights that Luca de Meo has the mandate to make big changes and is acting quickly to make things happen.

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