Does the Estée Lauder giant want to get into the fashion business?

Does the Estée Lauder giant want to get into the fashion business?


Bloomberg Opinion – They say beauty is in the eye of the beholder. That will be true if Estée Lauder (EL) acquires Tom Ford for $3 billion.

While the group may want full control of Tom Ford’s beauty and fragrance arm, handling the company’s clothing and accessories will be out of its scope.

The little-known beauty, eyewear and apparel company, founded by the former creative director of Gucci in 2005, is working with Goldman Sachs (GS) to explore a potential sale. On Monday (1), Dow Jones reported that Estée Lauder will be negotiating the purchase of the brand.

Estée Lauder already has a long-term licensing agreement for Tom Ford’s beauty and fragrance lines. The cosmetics giant recently said that Tom Ford and Jo Malone, another brand owned by the company, were close to making $1 billion a year each. That could explain the alleged interest of Estée – which is not commenting on the matter at the moment – ​​as it does not want to risk losing the lucrative licensing deal to its competitor.

However, Tom Ford is not only about beauty. The company also has an eyewear operation produced and distributed by Marcolin. There is no reason why this agreement cannot continue under Estée Lauder’s leadership. The trickiest part will be Tom Ford clothes and accessories. Estée Lauder does not own any fashion houses, so it may be necessary to find a luxury partner with clothing experience.

That partner may not be one of the luxury giants like LVMH or Kering, which owns Gucci. After all, why do they agree to produce clothes and accessories, but not beauty items?

It would make more sense to join a small group, like Ermenegildo Zegna or Diesel. Zegna already has a business relationship with Tom Ford. Domenico De Sole, former CEO of Gucci and current president of the Tom Ford brand, also serves on Zegna’s board.

So why isn’t Zegna buying Tom Ford? It will be important for his portfolio, which includes the young Thom Browne brand, which he acquired four years ago. The problem may be the price. While Zegna has a strong balance sheet following its listing in New York through a special buyout firm last year, his valuation is about $3 billion, roughly the price Estée Lauder is considering paying Tom Ford.

By marketing itself as a beauty business, Tom Ford is looking to tap into some of the significant returns paid by the cosmetics and beauty industry over the past five years.

At the same time, any company that made Tom Ford’s suits or clothes will have their work stopped. It will need to position the brand at the top of the luxury hierarchy to tempt more consumers to buy its expensive lipsticks and perfumes. And while Tom Ford’s strength is in clothing, it doesn’t have a line of handbags, a real profit driver for the luxury industry.

It is unclear whether Ford himself will be part of the deal. Bloomberg News reported that the deal could include an option to work with the founder after the sale. That could make a private equity firm that was already interested in the beauty business a potential buyer. But with the funding markets improving, conditions may become more difficult.

Shares of Estée Lauder fell after reports that the company was interested in Tom Forddfd

Estée Lauder would be a good owner of Tom Ford, like any other company, but it would have some problems to solve. The trick will be to show that the beauty of the plan is becoming apparent.

This column does not reflect the views of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist and writes about the retail and consumer goods industries. Previously, he wrote for the Financial Times.

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