When a beauty business buys a fashion brand, it’s rarely about the clothes

When news broke in July that Goldman Sachs was buying American luxury brand Tom Ford, insiders immediately began speculating about who might be interested.

Since then, a potential winner has emerged. This week, Wall Street Journal reported that Estée Lauder Companies (ELC), the American beauty conglomerate – with a current market capitalization of over $96 billion – is in talks to acquire the Los Angeles-based fashion label at a valuation of $3 billion or more.

Both companies declined to comment on the report, though a source told the WSJ that a deal has yet to be reached and other parties remain interested in the brand.

In some ways, ELC is the ideal buyer. It already has a licensing agreement to manufacture, market and distribute Tom Ford beauty products, including fragrances and cosmetics, which generate hundreds of millions of dollars a year in sales. Buying the brand outright could mean it would no longer have to pay Ford licensing fees, boosting profits attached to Tom Ford Beauty, which sits at the upper end of prestige, a segment that continues to grow as luxury consumers move away from fragrances and cosmetics. .

This would also shake up ELC’s acquisition strategy. The bets the group has made in recent years have yet to yield the kind of results it generated when it bought MAC, Bobbi Brown and La Mer in the late 1990s and early 2000s, and those brands became global juggernauts.

To thwart Tom Ford would be a marriage of convenience on both sides: Ford gets a big payout from a partner he trusts; ELC takes more control over a brand that has played an integral role in building it.

But would it really be business as usual?

Potentially. Perfume and makeup sales now make up the bulk of Tom Ford’s business, along with eyewear and other licenses. While fashion is an important part – more than 10 percent of annual revenue – and an important marketing tool, it is not the main driver of the business.

This is not unusual for beauty companies that operate fashion businesses. At Jean Paul Gaultier, owned by Puig, clothing is pure marketing. L’Oréal, which bought Mugler in 2020, has certainly benefited from the success of designer Casey Cadwallader, but clothes remain second fiddle to Angel, its longtime best-selling fragrance.

However, a Tom Ford acquisition would mark ELC’s first foray into fashion, something other beauty companies have struggled to get right.

Take French house Rochas, where many beauty industry owners including Wella, Procter & Gamble and Inter Parfums have long struggled to revive its ready-to-wear business. Not even French wunderkind Olivier Theyskens, one of the first seriously acclaimed designers to create original looks for the red carpet, could help the label gain traction.

Spanish beauty group Puig has had more success with brands like Carolina Herrera – and more recently, Dries Van Noten. But clothing is not yet central to Puig’s strategy. Instead, fashion helps to amplify and market the fragrance business. Carolina Herrera makes more than $1 billion a year in retail revenue, most of which comes from fragrances and a secondary clothing line that is produced through a licensing agreement. While Dries Van Noten, which was acquired in 2018, is primarily a clothing business, Puig’s apparent goal is to build his fragrance and beauty lines into something that will eventually replace clothing sales.

If ELC were to buy Tom Ford, it would likely take the approach that Puig has taken, either licensing the production of the clothing to another company – the glasses and watches are already made by someone else – or paying Ford and the team his royalties to keep the outfit running.

What is unlikely is that ELC will enter the fashion market in a way that will try to go head-to-head with LVMH and Kering, which dominate everything from supply chain to retail real estate.

As for who else might be interested in Tom Ford, Zegna — which held the license to Tom Ford’s clothing for the past 16 years and will continue to make some products after that deal expires — probably can’t afford the buyout. complete item. Kering, too, feels like a problem, given the history with the group, Ford and its business partner Domenico De Sole. (After De Sole brokered a deal for Kering, then known as PPR, to buy Gucci, the pair led a group within the business that included Gucci, Yves Saint Laurent, Stella McCartney and eventually Alexander McQueen, but left in 2003 after falling short agreed. in the terms of the contract.) LVMH also has history with Ford and De Sole: Bernard Arnault tried to buy Gucci in a slide acquisition that forced De Sole to broker the deal with PPR.

Whoever ends up owning Tom Ford will have to make a decision on how to take the business forward. Unlike competitors, which have grown into direct retail and accelerated e-commerce, Ford has not opened any stores in recent years. The brand is having more success with casual wear and men’s accessories, but is still known primarily for its formalwear and eveningwear, categories that have taken off post-pandemic but may never be as essential as they once were.

Ford may also want to take on other projects, like directing another movie, instead of devoting all his time to the fashion business. A sound succession plan will be essential to the success of an ELC acquisition, no matter how involved it wants to be—and for how long.

NEWS BRIEF

FASHION, BUSINESS AND ECONOMY

Report: Estée Lauder in talks to buy Tom Ford for $3 billion or more. The potential deal would mark a shift in strategy for the beauty conglomerate, which typically acquires pure beauty brands.

Todd’s family will launch a $344 million bid to take the company private. The Della Valle brothers said in a statement that their holding company would pay 40 euros for each Tod Group share, valuing the company at 1.32 billion euros ($1.35 billion).

Hugo Boss raises guidance after strong second quarter. The German retailer expects sales in 2022 to rise between 20 percent and 25 percent to reach a new “record level” of between 3.3 billion and 3.5 billion euros ($3.3 billion and $3.5 billion), the company said in a regulatory filing on Wednesday.

Retail sales in Germany have fallen by the most since 1980 as inflation bites. Sales were down 9.8 percent from a year earlier, the most since 1980 — before the country’s reunification.

Amazon begins same-day shipping from Diesel and PacSun stores. The e-commerce giant’s latest push to make products available quickly will see it ship items from brick-and-mortar stores to a dozen US cities.

Tiffany is launching a custom jewelry program for CryptoPunk owners. Holders of the pixelated NFT character will be able to purchase an “NFTiff” for around $50,000 which entitles them to a personalized pendant with their CryptoPunk.

Amazon says its planet-warming carbon emissions will rise by 18 percent in 2021. The world’s largest online retailer emitted 71.54 million metric tons of carbon dioxide equivalent last year, Amazon revealed Monday in an updated edition of its sustainability report. That’s up about 40 percent since the company first disclosed the figure, with data from 2019.

The world’s second-biggest garment exporter faces falling orders as energy falls. Bangladesh’s garment industry is facing an energy crisis at home amid slowing global demand – threatening to derail the country’s pandemic recovery.

Walmart cuts 200 corporate jobs as costs and inventory weigh. The cuts include staff in distribution and last-mile trading, people familiar with the matter told Bloomberg. Walmart will also add an unspecified number of jobs in areas such as e-commerce, health and wellness, ad sales and supply chain, one of the people said.

Zalando shares jump as online retailer sees stronger growth. The German retailer now expects improved profitability and a growing return in the second half of the year, according to a statement on Thursday.

McLaren will sell $450 streetwear sneakers. The automaker worked with footwear label Athletic Propulsion Labs on its shoe debut. The limited-edition line, called HySpeed, features trainers in five colorways infused with design cues from McLaren’s supercars.

BEAUTY BUSINESS

Glossier lays off 24 employees amid reorganization ahead of Sephora entry. The beauty brand will also add about 20 new employees in the second half of the year, including at the executive level, as it transitions to an omnichannel model with a leading retailer in stores across the US and Canada.

Ulta Beauty launches venture fund. The US-based beauty chain launched digital innovation fund Prisma Ventures, which will invest $20 million in emerging technology start-ups with the potential to shape online and in-store retail experiences.

PEOPLE

Coach-owner Tapestry’s chief financial officer expands role as chief operating officer retires. Scott Roe is taking over oversight of the US fashion giant’s operations ahead of COO Tom Glaser’s retirement in October, the company said Thursday.

JD Sports fills the post of chief executive after eight years. Britain’s biggest sportswear retailer said on Tuesday that French businessman and former B&Q executive Regis Schultz will become chief executive.

Neiman Marcus names president. Ryan Ross, former president of Williams Sonoma, will begin reporting to chief executive Geoffroy van Raemdonk on August 15. In the newly created role, he will be charged with strengthening the Neiman Marcus brand and customer experience.

MEDIA AND TECHNOLOGY

Facebook to End Live Shopping, Focus on Reels Users will no longer be able to host shopping events on the site, create product tags or video playlists starting October 1. Instead, Meta will focus on its short-form video product, Reels, citing changing viewer behaviors.

Compiled by Joan Kennedy.