Dior and Chanel run their own beauty lines.  Why not Gucci too?

Dior and Chanel run their own beauty lines. Why not Gucci too?

Dior and Chanel run their own beauty lines.  Why not Gucci too?

Kering has FOMO.

Rumors are swirling that the French luxury conglomerate is looking to take at least some of its in-house beauty company. Kering has long maintained tight control over the fashion activities of its brands, which include Gucci, Bottega Veneta and Saint Laurent. But it relies on licensing agreements to manufacture, market and sell fragrances, makeup and skincare (Coty for Gucci and Bottega Veneta, L’Oreal for Saint Laurent.)

There’s nothing unusual about a luxury fashion house outsourcing beauty. There are exceptions, however: Dior and Chanel own and operate their beauty divisions. Both are booming, especially in the field of perfumes: the two companies sell more perfumes than any other brand in the world.

It makes sense that Kering would want a similar setup. The company wants to make Gucci, which generates just over 50% of the group’s turnover and two-thirds of the profits, a brand with 15 billion euros in annual turnover. Expanding categories, including a new focus on beauty, with Kering retaining all revenue, is one way to achieve this (the company is making similar moves in fashion, shifting Gucci’s sales more towards its own stores and away from third-party retailers).

It would, however, be a cataclysmic loss for Coty.

Gucci is one of the most lucrative brands in Coty’s portfolio, which includes Chloé, Burberry, Marc Jacobs Perfume, Bottega Veneta and Calvin Klein. In May, Coty CEO Sue Nabi called Gucci’s Flora Gorgeous Gardenia a “fantastic success”, listing it as one of the company’s three signature fragrances, alongside Burberry Hero and Hugo Boss The Scent.

This is just industry gossip for now. WWD reported last week that the buzz surrounding “Kering’s potential entry into beauty continues to grow”, following the group’s earnings call last month and dissatisfaction with the way Coty managed Gucci’s beauty business (which was voiced before Nabi’s appointment).

In July, Kering hinted that its beauty business could follow in the footsteps of eyewear, a category it brought in-house through a partnership with Richemont.

“Our success with Kering Eyewear demonstrates that we can create a lot of value for the brands on the one hand and therefore for the group by adopting disruptive and innovative approaches”, declared Jean-François Palus, managing director of the Kering group, in a conference call. “So beauty is definitely an area where we could look at it in the future and all options are open.”

Kering and Coty declined to comment.

However, there is a reason why luxury brands that oversee every little detail of their fashion business usually opt to license their beauty lines. Perfume or lipstick cost less than a handbag or shoes, but margins are high and beauty is an effective way to acquire new customers. Companies like Coty and L’Oreal have the infrastructure to make and sell fragrances, makeup and skincare products, expertise that doesn’t always come naturally to luxury fashion brands.

When it comes to licensing, fragrance is probably the most competitive of the beauty categories with a handful of companies – led by Coty and L’Oreal – vying to control the biggest brands in the category.

A single fragrance could generate hundreds of millions of dollars in sales per year for one of these companies. It’s rare for a lipstick or moisturizer to do this kind of volume. Typically, a brand launches one big fragrance a year, spending millions of dollars on marketing, including celebrity ambassadors; TV, outdoor and print advertisements; in-store activations, influencer campaigns and more.

The performance pressure is enormous. Once, a president of a multibillion-dollar beauty conglomerate texted me pleading for front-page placement in WWD for a fragrance launch, the company’s first in a new licensing deal with a iconic luxury brand.

It was an unusual posting, but I can see why the executive felt the need to beg for a cover story: if this year’s fragrance is a dud, or underperformer, the brand’s fragrance rankings go down. stopped. And if the licensing deal doesn’t work out to the brand’s liking, the brand will walk away – and sign another licensing deal with a competitor or take their beauty in-house.

The good news is that Coty has time to work things out with Kering. Coty confirmed that “no major license [is] to be renewed in [the] next five years” in an investor update last spring, meaning the earliest Kering can bring beauty in-house, if it decides to do so, is 2026.

Four years is a long time, and Coty is working fast to diversify its portfolio. Of course, four years is also enough time for Kering to build its own beauty division.

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