In 2024 all eyes will be on Europe’s big luxury houses, which are increasingly targeting beauty as a key growth driver.
The last two years have been a watershed. Kering began taking beauty back in-house in February 2022, and Richemont in September 2023 said it was building a Laboratoire de Haute Parfumerie, among other moves.
The homing in on beauty comes as luxury makers’ once red-hot trades in China and fashion, with its discretionary categories, cooled. But beauty has remained strong due to its ongoing growth, desirability, margins and resilience during challenging geopolitical and macroeconomic times.
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Fragrance and cosmetics is a big, fast-developing business, with its products boasting high frequency of use. The category generated sales in 2022 of approximately $430 billion, according to a McKinsey study that projected those will reach about $580 billion by 2027, representing projected annual growth of 6 percent.
Luxury is the fastest-growing sub-segment in beauty globally, and has been over the past decade, drawing interest from strategics.
Yet, success in the industry isn’t easy. There is no one-size-fits-all approach to building such a business.
Luxury groups have been defining their strategies — making big moves and shaking up market in the process. Kering Beauté, for instance, purchased niche perfume brand Creed at a 14-times sales multiple. The deal, which closed in October 2023, sent shock waves through the beauty industry.
More M&A activity is expected in the sector. Scaling fast is key for luxury players looking to bulk or begin building up their beauty activity in a market rife with competition and where the big only are getting bigger.
L’Oréal, the world’s largest beauty company, already has mega muscle. The group earmarked 31.5 percent of its 2022 sales, of 38.26 billion euros, on advertising and promotional spend.
What will Kering do next? Gucci, a Kering-owned beauty brand currently licensed to Coty Inc., would be a jewel in its crown if taken back in-house. But that license is only meant to expire in 2028, according to estimates.
Another bijou beauty brand owned by Kering is YSL, which has been licensed to L’Oréal since 2007 and is expected to have many more years to run there.
Richemont seems not to be attempting to take all of its beauty businesses in-house at present, but rather plans to offer strategic guidance to the licensed brands about how to build their activities and become more sustainable. First up is Cartier, its mega-luxury brand that remains small in the fragrance arena.
Might Richemont ink joint ventures to develop its beauty business, as it did for eyewear?
All eyes are also on LVMH Moët Hennessy Louis Vuitton. In March 2023, it named Stéphane Rinderknech, a former L’Oréal USA chairman and chief executive officer, CEO officer of LVMH’s Perfumes and Cosmetics division. That includes 15 beauty brands organized under Parfums Christian Dior, Guerlain, LVMH Fragrance Brands and Kendo. No one had held that post since 2004.
LVMH has a unique positioning in beauty, due to its existing brand portfolio plus the ownership of Sephora, the world’s largest omnichannel prestige beauty player.
Meanwhile Puig, the Spanish family-owned beauty and fashion company that acquired Byredo in May 2022, has been a pioneer in simultaneously — and seamlessly — building a brand’s beauty and fashion businesses. Today, Puig is studying options for its next moves, including possibly opening its capital to third parties via an IPO.
Some strategics could take a cue from Groupe Clarins, the French beauty company, which believes in acquisitions as well as incubating brands to help bolster growth.
The group works in tandem with the Famille C Participations holding company of its owner, the Courtin family, which identifies other groups that could be complementary to Groupe Clarins — either through shared learnings or contributing to growth acceleration.
In April 2023, Famille C Participations took a majority stake in Pai Skincare last year and acquired the buzzy Ilia Beauty brand in 2022.
