Key Takeaways:
Coty has spent the past two decades trying to position itself as a beauty powerhouse on par with L’Oréal and Estée Lauder. The potential loss of its Gucci Beauty license, following Kering’s €4 billion ($4.67 billion) partnership with L’Oréal, is testing whether Coty can maintain its footing as an independent public company.
The New York- and Paris-based group regained some of its shine after industry veteran Sue Nabi took the helm in 2020, riding a post-pandemic beauty boom that sent shares of Coty and its peers sharply higher. But as consumer sentiment weakened and competition intensified, investor confidence faded: Coty’s stock has lost about half its value over the past year and roughly 75% since its 2013 debut.
Now, Coty is in the midst of a strategic review of its consumer division, created through a $12.5 billion deal with Procter & Gamble that brought in mass-market brands such as CoverGirl and Max Factor, along with fragrance licenses including Hugo Boss and Gucci. The megadeal initially lifted Coty’s revenue to about $9 billion, but the company closed 2024 with total sales of $6.12 billion. Coty faces a 2028 deadline to reassure investors of its long-term growth prospects before its Gucci deal, now tied to the new Kering–L’Oréal tie-up, expires.
“This next phase of our transformation is about clarity and focus,” Nabi said in September, referring to the review of Coty’s consumer unit to bolster its fragrance portfolio. The company reports first-quarter earnings on Nov. 6.
The first thing that came to mind for Bank of America analyst Anna Lizzul when she read reports about the Kering–L’Oréal agreement was that “it was bad for Coty.” Her instinct was confirmed when the official press release stated in mid October that the partnership includes the rights to enter into a 50-year exclusive license for the creation, development, and distribution of Gucci fragrance and beauty products. “Gucci, Bottega Veneta, and Balenciaga are all exceptional couture brands with enormous potential for growth,” L’Oréal CEO Nicolas Hieronimus said in the announcement. Later that week, he told analysts during the company’s earnings call that L’Oréal has the potential to turn Gucci into a billion-euro beauty brand.
The executive compared Gucci’s long-term potential to that of YSL Beauty, the license L’Oréal acquired from Pinault-Printemps-Redoute—later renamed Kering—in 2008. Since then, Hieronimus noted the company has grown the YSL beauty business into a brand generating close to €3 billion ($3.48 billion) in annual sales. “As for Gucci, I don’t have the exact figures, but we know it’s significantly smaller,” he said, adding that because Gucci is “a bigger fashion brand than Saint Laurent,” it has the potential to eventually catch up in beauty sales under the L’Oréal umbrella.
It was public knowledge that Kering had been frustrated with its Gucci licensing agreement—which Bank of America estimates would translate into the loss of about $500 million in annual revenue for Coty—a sentiment the luxury group made clear in the summer of 2022.
Kering’s current president, Jean-François Palus, then the group’s Managing Director, described beauty as a “natural extension” of the company’s brands during its second-quarter earnings call. “For now, we operate under a licensing model,” he said. “But our success with Kering Eyewear shows that we can create substantial value for both our brands and the group by taking disruptive, innovative approaches. Beauty is definitely an area we could explore further in the future—all options are open.”
A year after that, the company launched Kering Beauty.
“Coty probably saw this coming,” Lizzul said. After taking the top job in 2020, Nabi introduced several initiatives aimed at diversifying revenue beyond prestige fragrances, including efforts to boost the company’s skincare brand Lancaster in China and travel retail. Still, Coty has struggled to increase the share of revenue coming from prestige skincare, Lizzul said.
Speculation that Inter Parfums is eyeing Burberry’s fragrance business from Coty’s prestige division has intensified scrutiny of what lies ahead for Coty.
“If Coty is able to find a strategic buyer for the consumer business and if there’s interested parties for the fragrance business, I think all the brands would eventually get sold off at that point and the business would split up, and we wouldn’t have Coty as it operates today,” Lizzul added.
In this climate, Coty needs to reshape its strategy and rediscover its edge, said Rich Gersten, co-founder of True Beauty Ventures.
“Their current portfolio isn’t very exciting or attractive from a growth perspective, so the need to reinvent is important,” he said. “There’s nothing new or showing signs of growth in its portfolio; it’s very stale at this point.”
Coty sought to boost its profile through partnerships with Kylie Jenner and Kim Kardashian’s beauty ventures, investing $200 million for a 20% stake in SKKN by Kim in 2021—sold back to the reality star and entrepreneur for an undisclosed amount earlier this year—after acquiring 51% of Kylie Cosmetics for $600 million in 2019. However, the company placed less emphasis on its consumer division given its lower profitability compared with prestige beauty—a decision that allowed fast-growing rivals like e.l.f. Beauty to gain a stronger foothold, according to Lizzul. “It’s hard to catch up with competition after years of underinvestment.”
Gersten shares the same view—and takes it a step further. “Coty made several deals around the time it went public, but many didn’t work out,” he said. “They tried again with those two celebrity-founded brands, and that didn’t work either. From an M&A standpoint, Coty’s track record hasn’t been very strong, and as a public company, it has struggled to build consistent momentum.”
One possible path forward for Coty would be to go private, Gersten said. Doing so, he noted, could give the company more freedom to restructure and pursue acquisitions without the short-term pressures of quarterly earnings. “It’s very hard to reinvent yourself as a public company under that level of scrutiny. That said, I doubt there’s much private-equity appetite for taking Coty private, given its uneven performance.”
Beyond market pressures and deal missteps, Coty’s longtime issues may lie at the very core of the company, said Sylvie Polette-Danet, founder and CEO of the brand strategy consultancy The Heart of Luxury.
“Sue Nabi did an amazing job at L’Oréal, and they probably miss her now. But maybe she hasn’t been able to fully instill a luxury culture within Coty,” Polette-Danet said.
The potential loss of the Gucci license adds another layer of complexity for Coty. Still, its licensing model can be highly effective when the brand and its partner work in lockstep—as Inter Parfums has shown, she stressed.
