Kering Sets Sights On New Beauty Division, China As Growth Drivers

What happened French luxury conglomerate Kering is pushing a grand expansion into beauty. The group announced it is creating a dedicated in-house beauty division to develop cosmetics and perfumes for its Bottega Veneta, Balenciaga, Alexander McQueen, Qeelin, and Pomellato fashion brands. Kering crown jewel brand Gucci is absent from the list as its beauty license is held by Coty until 2028, while YSL’s is with L’Oréal. Helming Kering Beauté will be Raffaella Cornaggia, a beauty industry veteran who served as Chanel’s global cosmetics marketing vice president and worked for Estée Lauder for 14 years. RBC Capital Markets analyst Piral Dadhania welcomed the move to media: “Overall, we view the decision to progress with Kering Beauté as positive on a mid-term time frame, as it should provide Kering with sufficient time to build and develop its in-house capabilities in the category with smaller brands, and over time, offer an alternative in-house option for Gucci Beauty for when the Coty license deal expires.” The Jing Take Kering Beauté is only one element of the luxury behemoth’s plans for 2023. The giant urgently needs to diversify its revenue and find a new growth engine for the mid and long terms. In Q3 2022, Kering luxury brands’ revenue declined 8 percent year on year, according to its latest earnings report. The beauty division presents a natural opportunity for the group. Luxury cosmetics and fragrances heavily rely on brands’ exclusive aura (which Kering’s brands enjoy). Given the lower entry price points of these products compared to ready-to-wear and leather goods, they enable brands to widen their range of consumer targets. The beauty market is lucrative in China and worldwide. As per the latest report by GlobalData, the Chinese cosmetics market revenue is forecast to grow at an annual compound growth rate of 7.4 percent from 2021 to 2026, reaching 11.7 billion (80 billion RMB). Rival LVMH generated 8.2 billion (56 billion RMB) in beauty revenues last year. With China lifting travel restrictions, tax-free beauty products at international airports are likely to see local tourist demand rise. Notably last week, François-Henri Pinault, chairman and chief executive of Kering, traveled to China as borders reopened. Surprisingly, the first stop was not a top-tier city but Chengdu, which was followed by Nanjing, Shanghai, and Beijing. Pinault’s tour confirms the rise of China’s new first-tier cities as luxury shopping destinations. The visit is also a display of confidence in the Chinese market and an opportunity to strengthen relations between Kering’s headquarters and its local team in China. Despite sluggish market performance over 2022, analysts still expect China to become the world’s largest luxury market by 2025. There’s little doubt the country will be a pillar of the group’s growth strategy along with an expanded beauty department. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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Kering Sets Sights On New Beauty Division, China As Growth Drivers