Luxury Reshuffle: Kering Sells Beauty Division to Focus on Fashion Core
In a bold strategic move that signals a major shift in the luxury landscape, Kering has announced the €4 billion sale of its beauty operations to French cosmetics giant L’Oréal. The deal represents one of the most significant industry developments in recent memory and marks new CEO Luca de Meo’s first major action since taking the helm of the Gucci owner.
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De Meo, who previously engineered a successful turnaround at Renault, has vowed to implement rapid and sweeping changes to refocus the luxury conglomerate on its fashion roots. “The urgency is to focus on the things where we have a critical size and skills,” de Meo told the Financial Times. “That will help me lighten the boat and be able to focus on the relaunch of fashion brands.”
Strategic Rationale Behind the Beauty Divestment
The transaction includes perfumer House of Creed and 50-year licenses to develop and sell fragrances under Kering’s prestigious fashion labels Gucci, Bottega Veneta, and Balenciaga. According to sources familiar with the matter, negotiations accelerated from August, culminating in what de Meo described as a necessary step to “inject more speed into some of our decisions.”
Analysts have largely praised the move, with UBS analyst Zuzanna Pusz noting that the proceeds would significantly reduce Kering’s net debt—addressing what she called “one of the biggest investor concerns.” The debt reduction from 3.1 times EBITDA to approximately 2 times may outweigh impairments on beauty assets, including Creed, which Kering acquired for €3.5 billion just two years ago.
This strategic shift comes amid challenging conditions in the luxury sector, which enjoyed a pandemic-era boom but has since faced headwinds from consumer spending restraint and economic uncertainty in China. Kering’s flagship brand Gucci, accounting for roughly half of group sales and two-thirds of profits, has particularly struggled with changing consumer preferences and over-dependence on the Chinese market.
L’Oréal’s Ambitions in Luxury Beauty
For L’Oréal, the acquisition represents its largest ever and significantly bolsters its position in the high-end beauty segment. CEO Nicolas Hieronimus stated that the deal would cement L’Oréal’s status as the market leader in luxury beauty, with initial focus on developing Creed’s potential.
“I hoped to almost triple Creed’s annual revenues to €1 billion fairly quickly,” Hieronimus revealed, pointing to L’Oréal’s successful track record with premium brands. The company previously acquired upmarket soap maker Aesop for $2.5 billion two years ago, which has since seen revenues increase by approximately 10% in 2024.
Interestingly, L’Oréal won’t immediately gain control of what’s expected to be the most valuable asset—the Gucci license—until its current agreement with beauty group Coty expires in 2028. “Obviously, having the opportunity, when it is legally possible, to recover the Gucci brand was one of our motivations,” Hieronimus acknowledged.
Broader Industry Implications and Future Moves
The luxury sector’s realignment comes amid wider global economic shifts affecting multiple industries. De Meo indicated that further changes at Kering are likely, maintaining a “pragmatic” approach toward potential additional asset sales, including the company’s successful eyewear division.
“I don’t want to close the door because we try to be very open,” de Meo said, while simultaneously highlighting that Kering’s eyewear business remains important to valuable clients and leads the industry in high-end segments.
The deal’s timing reflects the increasing importance of strategic focus in the luxury sector, mirroring broader corporate restructuring trends across global industries. Investors have responded positively to Kering’s decisive action, with shares rising 4.1% on Monday and accumulating gains of over 80% during the past six months.
Spanish fragrance and fashion group Puig also expressed interest in Kering’s beauty division, according to sources, though ultimately the partnership with L’Oréal offered a more logical and expansive fit. The transaction underscores how major corporations are adapting their portfolios in response to evolving market dynamics and consumer preferences.
Path Forward for Kering’s Fashion Renaissance
De Meo’s strategy appears centered on revitalizing Kering’s core fashion houses, particularly Gucci, which he acknowledged has “room for improvement” in its beauty positioning. The contrast between brands is striking—while Yves Saint Laurent (another Kering brand) generates approximately €3 billion in annual beauty revenues through L’Oréal, slightly exceeding its fashion sales, Gucci’s beauty division produced only about €600 million compared to the label’s €7.7 billion in fashion revenue.
“I’ve always believed that speed is important in modern business,” de Meo emphasized, signaling that further strategic moves may follow rapidly. “As soon as I saw that I had this opportunity, I tried with Nicolas to work so that we could conclude as quickly as possible. And you’ll see others.”
The luxury group’s pivot reflects a broader recognition that in today’s competitive landscape, focus and agility may prove more valuable than diversification—a lesson that resonates across sectors as companies navigate post-pandemic market realities.
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