What will it take to compete in the beauty landscape post L’Oréal-Kering Beauty deal?
The 4-billion-euro strategic partnership extending into luxury beauty and wellness, announced on Oct. 19, has completely shape-shifted the industry, especially for strategics relying heavily on fragrance to buoy their business. But its impact is more far-reaching than just for that category.
“This L’Oréal deal has completely changed the power play,” said Nnenna Onuba, founder of 100 Allies and an M&A strategist, formerly of Rothschilds. “There is going to be downward pressure on all of the sector. It’s going to flow to retailers, investors, founders — everyone’s going to feel the weight of this.”
The deal includes the French beauty giant acquiring The House of Creed and entering into 50-year exclusive licenses to develop and sell fragrances and beauty products for Kering’s brands Bottega Veneta and Balenciaga once the transaction closes, likely in the first half of 2026, and for Gucci after its current contract with Coty Inc. ends, in 2028.
As a result, this morphs L’Oréal into the world’s largest fragrance maker again.
For the company, the deal “does strategically continue to improve the offer in luxury beauty and close off peers,” Tom Sykes, a research analyst at Deutsche Bank, wrote in a note.
That siphoning off of peers has struck fear in rivals and others in the industry, as they look to navigate the new competitive environment in which L’Oréal, the world’s largest beauty player, has swiftly muscled up even more.
Gucci Guilty.
Courtesy Photo
“L’Oréal was a little bit weak on the niche category, but within the year they have really caught up,” said Joël Palix, founder of boutique consultancy Palix Unlimited.
That began in February, when L’Oréal took a long-term minority stake in the Omani niche perfume brand Amouage.
“Now they have some of the strongest names in niche and in beauty powerhouses — Yves Saint Laurent, Gucci, Armani — which are the 1 billion brands in beauty, competing against Dior, Chanel,” Palix said.
“By owning both the brand license and development/distribution, L’Oréal can optimize across the chain,” added Odile Roujol, founding partner of Fab Co-Creation Studio Ventures. “Among other strategic groups, the ones most exposed include those that heavily rely on licensing models, rather than owning their fragrance/beauty operations, because their margins and negotiating leverage will now face sharper pressure from a more dominant L’Oréal and Kering combination.”
She suggested that for other players it is key to use data and consumer insights to identify fragrance trends early — especially in underpenetrated markets — and to launch perfume collections rapidly.
Coty, Interparfums and Puig are the most exposed to the fragrance segment, according to Evercore ISI. Of those, Puig is least exposed to fashion-fragrance licenses.
Concurrently, the Estée Lauder Cos. is increasingly focused on its perfume activity. In mid-October, its chief executive officer Stéphane de La Faverie announced that fragrance is the future of the group, as it inaugurated La Maison des Parfums, a prospective innovation arm for perfume, in central Paris.
“Ten years or 15 years ago, if you had told me that you could build a billion-dollar company with Tom Ford or with Jo Malone, I would have said ‘I’m not sure,’” said Palix, referring to two of the perfume brands owned by the Estée Lauder Cos. “And yet they did. So the game in fragrance is more open than in other categories.
“You can build quick successes,” he continued. “There are fashion brands that suddenly become hot, and you can build a strong fashion brand attached.”
“You don’t need to be big to grow,” agreed Eric Henry, founder of EH4B consultancy, citing beauty groups such as Interparfums, Puig and Euroitalia as examples. “These companies are extremely agile and opportunistic. Retailers don’t want to put all their eggs in the same basket. There is space for smaller — but very efficient — companies.”
The specter of a bigger L’Oréal and what it means is especially daunting for companies focused on turning their businesses around, such as the Estée Lauder Cos., Coty and Shiseido.
“There’s a macro effect that touches everyone,” Onuba said. “But it’s going to hurt those who need the liquidity from selling things. It’s now a buyers’ market.”
Palix believes the Estée Lauder Cos. will need to keep investing in fragrance as well as capitalizing on perfume brands it owns, such as Le Labo.
“And find momentum,” he said. “But it can be done. Niche is not structured yet, so groups like Lauder and Puig can make acquisitions in the Beauty Features to catch up with what L’Oréal is now doing through Creed and Amouage.”
Coty keeps doubling down on fragrance, too. The company on Sept. 30 announced a strategic review of its mass color cosmetics business, as well as its operations in Brazil, as it increases the focus on luxury. The group’s licensed mass and prestige fragrances are combining.
At the time, Coty CEO Sue Nabi said: “By more closely integrating all our fragrance and scenting brands, we unlock the full power of our scale.”
But scale, especially with the ultimate loss of Gucci — that, according to Evercore, currently accounts for about 8 percent of Coty’s total sales and approximately 11 percent of its profits — is dwindling and not necessarily enough to win. So what should the company’s strategy be now?
“There is increasing urgency for Coty to develop proprietary capabilities and drive innovation to compete with L’Oréal, maintain its attractiveness as a licensee partner and control its own destiny,” wrote Olivier Chen, an analyst at TD Securities, in a note.
“The ‘magic’ of sustainable innovation needs to continue as Coty needs to build and emphasize proprietary formulations, brand-building and verticalized capabilities that consumers cannot get anywhere else,” he added. “In our view, these may need to be: consumer identifiable molecules or patented processes which earn brand recognition, unique ingredients with efficacy, or own-brands. We believe that own brand power may require M&A activity.”
Such advice is transferrable to other beauty companies, as well.
M&A, however, needs to be rethought as the playbook for strategics integrating new brands has changed. Onuba noted that traditional CPG companies have had a difficult time adapting and integrating brands.
“There’s a misalignment of sorts,” she said. “Integration is eroding value, in a way.
“For the last decade, big CPG have been acting like private equity to an extent — picking up assets, and the whole play is: We’re going to sweat it,” Onuba continued. “We buy the diversification, our scale model’s very clear: We have distribution, media buy and all of the other halo that they bring to it.
“However, what they haven’t scaled properly within their organizations is the competition for resources,” she said. “It’s not getting the focus that it needs.”
Onuba counseled now is the time to take another page from PE, which is their operating partner model, where operating partners sit between management and assets, thereby becoming custodians for the post asset-value integration. (She is currently building an operating partner model for CPG.)
“They need these sorts of stealth workforces,” Onuba said.
Roujol believes the most transformative element of the L’Oréal-Kering Beauty deal is the groups’ teaming together as a united force in wellness and longevity, which has massive potential.
“This wellness space is increasingly a convergence of [the] luxury experience (Kering’s domain); science, biohacking and personalized diagnostics (L’Oréal’s R&D focus), and services and products data ecosystems, [where] scale matters,” Roujol said.
“This joint venture hits at a converged future of wellness, where luxury lifestyle and advanced biotech come together,” she continued. “Kering and L’Oréal are well-positioned to deliver that.”
Beauty players must move beyond topical skin and hair care, into biohacking, supplements, devices and personalized services, Roujol suggests.
Skin care giants such as Beiersdorf and Shiseido might take heed.
She maintains room for indie brands remains strong, particularly those that are direct-to-consumer, which can then leverage marketplaces and beauty-retail platforms. Meanwhile, brands’ differentiation remains paramount, as is building communities targeting generations Alpha and Z.
“However, many of these tiny brands don’t scale well,” Onuba said. “The second you’re past d-to-c and have omnichannel or real operator expertise, we start to see them break. Somebody needs to fix this.”
“There are lessons to be learned about what went wrong with all those acquisitions that were made in the 2010s at very high valuations,” one industry source said.
“What L’Oréal is doing right now is absolutely amazing,” the source continued, explaining that as some beauty giants are in turnaround mode, L’Oréal has gone in a shopping spree, snapping up the likes of Aesop and Medik8, alongside the Kering Beauty transaction. “These very nice assets are probably going to build the momentum, the growth and expansion of the next five or 10 years for them.
“[L’Oréal is] accelerating and distancing everybody,” the source said.
