Key Takeaways:
Kering and L’Oréal last week sealed one of the biggest beauty deals in years, valued at €4 billion ($4.69 billion), just days before unveiling their quarterly results amid a mixed outlook for luxury and beauty. The tie-up raises questions over whether L’Oréal is becoming too large—and how rivals might rise to meet the challenge.
The Paris-based companies on Monday announced the sale of niche fragrance house Creed to L’Oréal, as well as a 50-year exclusive license to develop beauty lines for Bottega Veneta and Balenciaga under the beauty giant’s umbrella. The agreement also grants L’Oréal an option for Gucci Beauty—currently licensed to Coty until at least 2028, and a 50/50 joint venture in the wellness and longevity categories. First reported over the weekend and confirmed in a joint statement, Kering’s newly appointed CEO, Luca de Meo, and L’Oréal CEO Nicolas Hieronimus shared LinkedIn photos of themselves smiling and shaking hands in celebration.
Still, markets remained cautious: Kering’s shares rose 4% on Monday but ended down 3.9% on Friday following a 10% drop in quarterly sales. L’Oréal slipped about 1% on the day of the announcement and ended the week down 0.2% after logging sales growth that came below analysts' expectations—a sign that investors expect results from the transaction only over the medium term.
The deal also came about a month after Armani named L’Oréal as one of its potential bidders following the passing of its founder, Giorgio Armani—a possibility that Hieronimus has not ruled out, citing the long-standing synergies between the two groups dating back to the late 1980s.
“The only important thing I can confirm today is that the deal we just did with Kering does not prevent us from considering any of the options that are on the table with Armani, so we'll rediscuss it in the future,” Hieronimus said during the company’s latest earnings call. L’Oréal had roughly €4.82 billion ($5.60 billion) in cash and cash equivalents as of June 30, as shown in its first-half earnings report.
The move to sell Kering Beauty accelerated after de Meo took over the top job from longtime CEO and Chairman François-Henri Pinault in September, though the process had begun earlier and was initiated by Pinault with the support of the board, according to Kering’s Operating Chief Jean-Marc Duplaix.
Analysts and industry insiders largely agreed that the long-term strategic partnership makes strategic sense for both parties and pushes L’Oréal further ahead of its biggest competitor Estée Lauder, and a fast-advancing Puig, which is putting its €2.6 billion ($3 billion) initial public offering proceeds from last year to work.
Kering—which aims to bring more of its own fragrances into its stores—believes the transaction secures the long-term growth of its brands in beauty at an attractive valuation, Duplaix said on the company’s earnings call. The planned joint venture with L’Oréal in luxury longevity and wellness, he added, will allow Kering to leverage its strengths in a category poised to reach new milestones in the coming years. Above all, the move will help reduce debt, a top priority for the group. “Of course it contributes massively to decreasing the group’s debt,” Duplaix noted.
On the L’Oréal side, Hieronimus said the transaction aligns with its goal of strengthening its position in both the niche and global fragrance markets. Last year, fragrances accounted for about 14% of total sales, and the company is betting on accelerating growth in this resilient category.
Some analysts had anticipated a move involving Kering Beauty, even though the group only entered the category in 2023 with the €3.5 billion ($4.01 billion) acquisition of Creed and the appointment of Raffaella Cornaggia as CEO of the division. Her mandate was to build Kering’s beauty expertise across brands including Bottega Veneta, Balenciaga, Alexander McQueen, Pomellato, and Qeelin—though the latter three haven’t developed any beauty products and are not included in the Kering–L’Oréal deal.
“The deal was a bold move from Kering, but it’s not surprising,” said Cheryl Fenelle Dixon, communications and branding executive and adjunct professor at Columbia University. “With this acquisition and beauty and fragrance licensing agreement, you have incredible storytelling of the brands that need scale, reach, and distribution … As long as they don’t dilute the brand DNA, it’s a positive thing,” she added.
Others didn’t see it coming. “We’re surprised by such a U-turn in the group’s in-house beauty strategy, which was meant to replicate the successful path of Kering Eyewear, internalized a decade ago,” said Citi analyst Thomas Chauvet. He added that he values L’Oréal’s “firepower” in scaling beauty licenses such as YSL Beauté, which has grown into nearly a €3 billion ($3.48 billion) business since L’Oréal acquired the license from Pinault-Printemps-Redoute—later renamed Kering—in 2008.
Still, some warn that L’Oréal’s expanding empire could start to work against it.
HSBC analyst Jeremy Fialko noted that the company—fresh off a reported $1 billion majority stake in British skincare brand Medik8 and the acquisition of haircare brand Color Wow—may be approaching the limits of scale.
“L’Oréal already has over 40 brands it actively markets and, in theory, this could take it to approaching 50,” Fialko said. “Even though each particular deal has a rationale for the role that a new brand will play in covering a growth area in which L’Oréal wants to bolster its presence, at some stage we worry the group will end up with too many brands.”
Fialko added that as “winners and laggards start to offset one another,” L’Oréal may find it increasingly difficult to outperform the broader beauty market by more than a marginal percentage.
“There are already signs of the fragrance category slowing, and adding another four brands could increase portfolio complexity,” he said.
Joël Palix, founder of Palix Unlimited and former CEO of Clarins Fragrance Group—sold to L’Oréal in 2020—said the tie-up confirms L’Oréal’s status as the clear winner in beauty industry after Kering treated the segment “a bit as an experiment.”
“Their plan was to build something like LVMH—a fashion division and a beauty division—but that takes time and money,” Palix said. “Kering had other priorities: They needed to reduce debt and didn’t have the resources to become a major beauty player.”
To him, the transaction marks a turning point in the game. “It’s a signal to LVMH that L’Oréal is marching ahead,” he said. “We’ll see how LVMH reacts—and how competitors of all sizes adapt.”
The transaction is “the biggest beauty deal of the year” and reflects renewed confidence in the sector. “It will be interesting to see how smaller players react—whether they raise capital, partner, or merge,” he added. “There’s money and ambition out there, and everyone wants a piece of the pie.”
Beyond the immediate impact, Palix views the deal as part of a broader wave of portfolio realignment sweeping through the global beauty industry. He expects L’Oréal to keep fine-tuning its mix of brands, just as competitors have been doing. Earlier this month, Unilever sold smaller label Kate Somerville to Rare Beauty Brands, he cited as an example.
“Procter & Gamble is another one to watch—new US players like e.l.f. Beauty and Oddity Tech are proving highly innovative, and even smaller groups like Church & Dwight are active.”
That doesn’t mean the French giant is easing up on its dealmaking. If anything, history suggests the opposite, as two years after acquiring Australian beauty brand Aesop for $2.53 billion, L’Oréal has signed its largest acquisition to date with Kering.
“L’Oréal has grown through smart acquisitions—some more successful than others, like The Body Shop—but they’re masters at integrating and scaling the right ones,” Palix said. “Their execution through international teams is remarkable. So yes, they’ll keep looking.”
