What's Happening?
Kering, the luxury group that owns brands such as Gucci, Bottega Veneta, and Balenciaga, announced a 10% decline in revenue for the third quarter. This financial report is the first since Luca de Meo took over as CEO in September, aiming to revitalize
the company. The revenue fell to 3.4 billion euros, which is less severe than previous quarters, but still below market averages. The decline is attributed to ongoing challenges faced by Gucci, which saw an 18% drop in sales to 1.3 billion euros during the quarter. In response, Kering has sold its beauty division to L’Oréal for four billion euros, including 50-year perfume licenses for its core brands. This move is intended to reduce Kering's debt and accelerate brand development in the beauty segment.
Why It's Important?
The revenue decline highlights the challenges faced by Kering, particularly with its flagship brand Gucci, which accounts for a significant portion of the group's revenue and operating profit. The sale of the beauty division to L’Oréal is a strategic move to leverage L’Oréal's media presence and expertise in the beauty sector, potentially boosting Gucci's brand visibility and sales. This partnership could help Kering focus on its core competencies in fashion while benefiting from L’Oréal's investment in the beauty market. The financial health of Kering is crucial for the luxury industry, as it influences market trends and consumer confidence in high-end brands.
What's Next?
The deal with L’Oréal is expected to close in the first half of 2026, which will mark a significant shift in Kering's business strategy. The partnership includes a 50/50 joint venture aimed at developing new experiences and services, potentially expanding the reach of Kering's brands in the beauty sector. As the current license with Coty expires in 2028, Kering will transition to L’Oréal's management for Gucci-branded perfume and beauty products. This strategic realignment may lead to increased brand synergy and improved financial performance for Kering, particularly if Gucci can capitalize on the potential seen in Yves Saint Laurent's beauty sector success.
Beyond the Headlines
The decision to sell the beauty division reflects a broader trend in the luxury industry where companies are focusing on their strengths and seeking partnerships to enhance brand value. Kering's move to collaborate with L’Oréal could set a precedent for other luxury brands looking to optimize their portfolios and reduce debt. The long-term implications may include a shift in how luxury brands approach brand management and market expansion, emphasizing collaboration over competition in certain sectors.
