When a Beauty Business Buys a Fashion Brand, It’s Rarely About the Clothes

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

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

Both companies declined to comment on the report, although a source told 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 make, market and distribute Tom Ford beauty products, including both fragrance and cosmetics, which generate hundreds of millions of dollars a year in sales. Buying the brand outright may mean it would no longer have to pay Ford licensing fees, increasing 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 masstige fragrances and cosmetics.

It 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 snapped up M.A.C., Bobbi Brown and La Mer in the late 1990s and early 2000s, and those brands became global juggernauts.

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

But would it really be business as usual?

Potentially. Fragrance and makeup sales already make up much of Tom Ford’s business, along with eyewear and other licenses. While fashion is a significant part — more than 10 percent of annual revenue — and an important marketing tool, it is not the main business driver.

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

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

Take the French house Rochas, where multiple beauty-industry owners, including Wella, Procter & Gamble and Inter Parfums, have struggled to revive its long-dormant ready-to-wear business. Not even French wunderkind Olivier Theyskens, one of the first seriously regarded 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 recently, Dries Van Noten. But apparel is still not at the centre of Puig’s strategy. Instead, fashion helps to reinforce and market the fragrance business. Carolina Herrera does more than $1 billion a year in retail revenue, most of which comes from fragrance and a secondary apparel line that is produced through a licensing deal. While Dries Van Noten, which was acquired in 2018, is primarily an apparel business, Puig’s apparent goal is to build its fragrance and beauty lines into something that will eventually supersede clothing sales.

If ELC were to buy Tom Ford, it would likely take the approach Puig has taken, either licensing the manufacturing of the apparel out to another company — eyewear and watches are already made by someone else — or pay Ford and his team royalties to keep the apparel up and running.

What is unlikely is that ELC is going to enter the fashion market in a way that would attempt 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 for Tom Ford’s suiting for the past 16 years and will continue to produce some product as that agreement expires — probably can’t afford to buy the whole thing outright. Kering, too, feels like a stretch, given the history with the group, Ford and his business partner Domenico De Sole. (After De Sole brokered a deal for Kering, then known as PPR, to purchase Gucci, the duo ran a group within the business that included Gucci, Yves Saint Laurent, Stella McCartney and eventually Alexander McQueen, but exited in 2003 after failing to agree on contract terms.) LVMH also has history with Ford and De Sole: Bernard Arnault tried to buy Gucci in a creeping takeover that compelled De Sole to broker the deal with PPR.

Whoever ends up owning Tom Ford, a decision will have to be made about how to develop the business further. Unlike competitors, which have ramped up on direct retail and accelerated e-commerce, Ford has not opened any stores in recent years. The brand is having more success with casual clothes and men’s accessories, but it is still primarily known for its formal suiting and evening wear, categories that have picked up 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, rather than committing all of his time to the fashion business. A sound succession plan will be essential to the success of an ELC acquisition, regardless of how involved he wants to be — and for how long.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

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

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

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

German retail sales plunge most since 1980 as inflation bites. Sales were down 9.8 percent from the previous year, the most since 1980 — before the country’s reunification.

Amazon starts same-day deliveries from Diesel and PacSun stores. The e-commerce giant’s latest effort to make products available speedily will see it deliver items from brick-and-mortar stores in a dozen US cities.

Tiffany is launching a custom jewellery programme for CryptoPunk owners. Holders of the pixelated NFT characters will be able to buy an “NFTiff” for about $50,000 that entitles them to a custom pendant featuring their CryptoPunk.

Amazon says its planet-warming carbon emissions grew 18 percent in 2021. The world’s largest online retailer emitted 71.54 million metric tons of carbon-dioxide equivalent last year, Amazon disclosed on 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-largest clothes exporter faces order drop as power falters. Bangladesh’s garment industry is facing an energy crisis at home in the midst of slowing global demand — threatening to thwart the nation’s pandemic recovery.

Walmart cuts 200 corporate jobs as costs, inventory weigh. The cuts include staffers in last-mile delivery and merchandising, 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, said one of the people.

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

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

THE BUSINESS OF BEAUTY

Glossier lays off 24 employees amid reorganisation ahead of Sephora entry. The beauty brand will also add about 20 new employees in the second half of the year, including at the leadership 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 retail experiences online and in-store.

PEOPLE

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

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

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

MEDIA AND TECHNOLOGY

Facebook to shut down live shopping, focus on Reels. Users will no longer be able to host shopping events on the site, create product tags or playlists in videos starting Oct. 1. Instead, Meta will focus on its short-form video product, Reels, citing shifting viewer behaviours.

Compiled by Joan Kennedy.