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What to Watch: Will Kering Take Beauty In-house This Year?

The French luxury house is mulling a move.

Will — or won’t — Kering take beauty back in-house during 2023? And if so, what form might that take?

The buzz around such questions keeps intensifying, with industry experts wondering whether and when the French luxury conglomerate might try to take some, or all, of its licensed fashion and jewelry fragrance brands in-house. They also ponder if beauty brand acquisitions might be in the offing.

Industry sources have said Kering was interested in acquiring Byredo, which was snapped up by Puig in late May 2022, and Tom Ford, which was purchased by the Estée Lauder Cos. in December 2022, for instance.

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One thing’s for certain, though: Kering is mulling possibilities.

Jean-Marc Duplaix, chief financial officer of Kering, in the context of the company’s third-quarter results released on Oct. 20, 2022, said: “Now regarding beauty, we have demonstrated that we could create a lot of value for the group and our brands. So currently, we are building a team to assess the opportunities and different options.”

A company spokesperson had no comment on a report that at least one hire has already been made for that.

“We will take a few months to decide what [are] the best solutions,” Duplaix said last October. “We had mentioned that we had some short-term termination as regards certain licenses operated. While for Gucci, it’s a more longer-term expiration time.”

Today, the jewels in Kering’s crown are Gucci with a 50-year beauty license that is held by Coty Inc. and expected to expire in 2028. There’s also Yves Saint Laurent, with a long-term beauty license sold to L’Oréal in 2008. Industry sources estimate those brands’ beauty activities generate sales of a half-billion euros and 1 billion euros, respectively.

The Balenciaga fragrance license has expired and was not renewed by Kering and Coty’s mutual consent, according to a Coty spokesperson. Coty still runs the Bottega Veneta and Alexander McQueen beauty licenses.

As for Kering, it is no stranger to the category. Until the late Aughts, the group, then called PPR, took a more hands-on approach to fragrance and cosmetics. At the time, PPR’s Gucci Group had a beauty subsidiary named YSL Beauté, which included fragrance and beauty brands and licenses, such as Yves Saint Laurent, Stella McCartney, Boucheron and Ermenegildo Zegna, before it was sold to L’Oréal in 2008 for 1.15 billion euros.

The YSL Beauté business was never huge. In 2007, the activity generated sales of 649 million euros, placing it 29th globally among beauty manufacturers in the WWD Beauty Inc Top 100 ranking.

After YSL Beauté’s sale, Kering retained ownership of the Yves Saint Laurent, Boucheron and Stella McCartney fashion brands, and L’Oréal divested some of its acquired holdings.

Today, among Kering’s other owned fashion and jewelry labels, Interparfums runs Boucheron’s business in perfume, while Lalique Group develops Brioni’s fragrance activity.

Neither Pomellato nor Dodo has an active perfume business at present, while the producer of Qeelin’s one fragrance could not be learned.

Some experts think it makes good strategic sense for Kering to sharpen its focus on beauty, especially as the group now has a stronger balance sheet and net cash position with which to carry out deals.

Over the past two decades, luxury goods companies, such as Puig, have been taking back full control of the brands they own. That can pack a powerful punch, giving them more consistency, synergies and power.

LVMH Moët Hennessy Louis Vuitton, which runs its fashion brands’ beauty operations, as well as other labels, ranked sixth in WWD Beauty Inc’s Top 100 ranking reflecting companies’ 2021 sales. And Puig comes in at 19th, for instance.

Kering’s internalizing beauty could echo the success of its taking eyewear in-house six years ago. The group has been encouraged by the accomplishments of that division, which was launched in 2015 and has set a revenue target of 2 billion euros in the medium term.

Beauty is a “natural extension” of Kering’s brands’ territory, said Jean-François Palus, group managing director, on July 27, 2022, during a call with financial analysts. He added “all options are open.”

In December 2022, Kering and beauty concern L’Occitane Group launched Climate Fund for Nature, committing 140 million euros to conservation, biodiversity and regenerative farming projects in countries where they source raw materials.

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“The big prize of course is Gucci beauty,” wrote HSBC analysts in a note dated Oct. 7, 2022, in regards to beauty brands Kering could take in-house. “We don’t have a strong view on whether taking back beauty is good or bad in terms of returns as it will really depend on execution.

“We note, however, that it could be positive for the share price as it would reduce the risk of Kering making an unrelated poor acquisition,” they continued, referring to media mentions around that time of Burberry or Tom Ford.