Kering’s Subsequent Frontier: Magnificence | BoF

When Kering introduced the creation of its eyewear division in 2014, the consensus view was that this was a dangerous transfer, nearly a step too far. Kering’s eyewear division is now focusing on annual revenues of over $2 billion, with a lot of that coming from licences which have lapsed with Italian eyewear producer Safilo, leaving Safilo’s valuation within the doldrums. (To make issues worse for Safilo, LVMH which had initially arrange a three way partnership with the corporate, finally arrange its personal eyewear division, Thélios, in partnership with Safilo’s rival Marcolin, ensuing within the lack of additional licences for the struggling eyewear group).

Now, Kering has employed former Estée Lauder govt Raffaella Cornaggia to guide a brand new magnificence division, which is about to develop the sweetness class for a number of of its manufacturers, together with Bottega Veneta, Balenciaga and Alexander McQueen, echoing the formation of its eyewear division in 2014. Why? And what are the implications of the transfer, notably as two of Kering’s prime manufacturers are nonetheless beneath licence to magnificence giants Coty and L’Oréal?

It’s no secret that Kering misplaced out to Estée Lauder within the bidding course of for Tom Ford. Tom Ford Magnificence has lengthy been the principle driver of gross sales and earnings of the model and Estée Lauder couldn’t afford to lose the licence however, extra importantly, is aware of the best way to develop that aspect of the enterprise. Kering was successfully gazumped however was proper to not combat to the bitter finish.

It was a giant transfer from a magnificence group, although not the primary one. Most famously, Chanel is owned by its former magnificence accomplice (relationship again to the Nineteen Twenties), however different magnificence teams have made strikes just like Estée Lauder’s to guard a magnificence money cow: Clarins acquired Mugler’s trend enterprise in 1997 on the again of the large success of Angel, the model’s flagship perfume it had created as a licensee. (Each the perfume enterprise and the style line had been later offered by Clarins to L’Oréal).

Puig has been following the identical playbook for some time, buying Nina Ricci, Carolina Herrera, Paco Rabanne and taking a majority stake in Jean Paul Gaultier in 2011 earlier than buying the licence to the model’s fragrances from Shiseido in 2016. What makes the Tom Ford acquisition so distinctive is its dimension and notoriety.

Scale may be an element within the timing of Kering’s transfer into magnificence. While Gucci and Yves Saint Laurent are nonetheless licensed to Coty and L’Oréal respectively, Kering can get to work on smaller manufacturers Bottega Veneta, Balenciaga and Alexander McQueen.

And but many smaller manufacturers have fallen on their swords by going into magnificence independently. Burberry terminated its magnificence licence with Interparfums in 2012, taking the operations in home, solely to award a licence to Coty in 2017. Prada first entered the sweetness class in 2000 by itself phrases, eschewing fragrances in favour of skincare and make-up in three foremost divisions: “multidose” gadgets, primarily for primary skincare; “monodose” merchandise, for particular remedies; and “minidose” items for color. The launch proved too difficult and was finally discontinued in favour of a 50/50 three way partnership with Puig centred solely on fragrances. In 2019, the model signed a cope with L’Oréal, efficient January 2021, to develop and promote luxurious magnificence beneath the Prada model title.

Kering could also be hedging its bets by beginning off with its smaller manufacturers however, in the long run, the extra invaluable Yves Saint Laurent and Gucci magnificence strains, nonetheless beneath licence with others, will certainly come into focus.

What does this imply for magnificence teams counting on licensed manufacturers?

Coty appears notably weak as its enterprise mannequin is centred on licensing (its largest licence being Gucci), though the group’s dimension and diversified portfolio affords a level of safety. Additionally it is the go-to licensee for manufacturers not prepared to function their very own magnificence enterprise. While the group’s inventory value didn’t transfer a lot upon Kering’s announcement (actually, Coty’s share value has elevated by 9 % since), Safilo’s struggles should function a cautionary story.

Various licensing gamers comparable to Interparfums and (on a a lot smaller scale) Euroitalia have been cautious to enter into long-term licences and sought to accumulate the rights to a few of their manufacturers within the class (such Lanvin which is owned by Interparfums in trademark class 3).

Different individuals in magnificence licensing have much less publicity to this danger: L’Oréal and Estée Lauder have ample clout with their owned manufacturers to climate any potential disruption brought on by magnificence licences being introduced in home by their house owners. Puig has additionally diversified danger, not solely by shopping for trend manufacturers, but additionally by making important acquisitions within the magnificence sector, comparable to Charlotte Tilbury and Byredo.

The Savigny Luxurious Index (“SLI”) rose 16.8 % in January, outperforming the MSCI by over 10 proportion factors, pushed by a string of optimistic outcomes bulletins for 2022 and refuelled optimism over the unlocking of China after ‘zero Covid.’


January 2023

Going up

  • Brunello Cucinelli gained over 30 % in January because the group’s 2022 gross sales outperformed already excessive expectations.
  • Swatch’s share value rose over 25 % final month on the again of sturdy 2022 outcomes and the anticipation of a document efficiency in 2023. The Swiss watch group is seen to be one of many main beneficiaries of China’s re-opening.
  • Burberry, additionally seen to be one of many prime beneficiaries of a re-opening of China, noticed its share value rise 21 % in January.

Taking place

  • Safilo is the one inventory to have misplaced worth in January, with a share value decline of 9.9 %. The inventory has been buying and selling across the €1 mark since 2019, when the corporate misplaced each the Dior and Fendi licences, marking an finish to its relationship with LVMH. The eyewear group’s shares had been buying and selling between €30 and €40 for a few years after it modified its title from Safilo Holdings to Safilo Group, in 2005, earlier than struggling a steep decline.

What to observe

Kering’s newest transfer signifies that the battle strains between fashion-accessories and sweetness gamers are being drawn up. This might make up for an fascinating yr within the mergers and acquisition area for each trend and sweetness.

Sector valuation

January 2023

Pierre Mallevays is a accomplice and co-head of service provider banking at Stanhope Capital Group.

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