An analysis of Kering Beauté's refocusing strategy and sale to L’Oréal

Far from a hasty analysis, the sale of Kering's beauty division to L’Oréal for approximately four billion euros is more than a simple divestment. It is a decisive move, driven by an undeniable logic of debt reduction and refocusing. FashionUnited breaks down the five operational reasons behind this major transaction.

“So, Kering selling its ‘beauty’ division to L’Oréal, doesn’t that strike you as interesting?”

This message, received from a colleague on Monday evening, is the kind of informal alert that instantly sparks analysis. It prompts a moment of reflection, far from the simple market noise. While the temptation was great to stick to a quick, superficial reading – “Luca de Meo is steadying the ship and refocusing Kering on its core businesses” – the scale of this sale and the logic behind such a move demand a more detailed analysis. Here, we will break down the facts, examine the figures and explore the precise operational logic driving this decisive shift.

Factual summary: what happened

Kering has reached an agreement to sell its beauty division to L’Oréal in a transaction valued at around four billion euros. The deal includes the perfume house Creed and grants L'Oréal exclusive long-term licences to develop beauty and fragrance products for several of the group's houses.

This transaction follows a difficult operational period for the group, which saw a decline in turnover and pressure on margins in the first half of 2025. The group is also seeking to reduce its significant level of debt. The half-year 2025 accounts show the need to reallocate capital to its core business (Kering, H1 2025).

Why is Kering selling ‘beauty’? A five-point analysis

1. Debt reduction and balance sheet clean-up: the immediate priority

With a cheque for four billion euros, Kering gains financial breathing room. This cash is immediately available for debt repayment or to strengthen working capital. In the context of high net debt (around 10.5 billion euros at the end of 2024), the operation reduces financial pressure. It allows the company to focus on its historic core business: luxury ready-to-wear and leather goods.

2. A distinct margin and operational model

The beauty sector requires specific industrial skills and economies of scale that structurally contrast with Kering's core business. The internal integration of the beauty division proved costly and complex. While these assets create immediate synergies for L’Oréal, for Kering they represented a non-core, capital-intensive asset (The Guardian).

3. Strategic portfolio refocus

Faced with a diversified portfolio, Kering's new management has chosen to concentrate resources on its main Maisons—Gucci in particular—to restore organic growth. The sale is consistent with the logic of portfolio optimisation: selling what is not ‘core business’ to better finance the essential.

4. Market timing: capturing value now

This transaction comes at a time when L’Oréal is prepared to pay a significant premium to strengthen its position. Rather than financing a long and costly internal integration, Kering is monetising an asset at an opportune time, maximising its value in the hands of a specialist buyer.

5. Reducing operational risk and reallocating capital

The beauty sector involves a different operational logic and multi-sector risks. The sale simplifies the business model and frees up capital that can be reinvested in product innovation; selective retail; digital; and restructuring measures for the Maisons.

Analysis: the licence model and brand challenges

The agreement between Kering and L'Oréal, valued at approximately four billion euros, is particularly significant. It covers not only the Creed brand itself but also future beauty and fragrance licences for major houses such as Gucci, Bottega Veneta and Balenciaga.

Profitability versus beauty complexity

Beauty is a specialist business. It requires advanced fragrance R&D, global mass marketing and logistical optimisation for large quantities. These imperatives contrast with luxury craftsmanship. For Kering, whose revenue fell by approximately 12 percent in 2024 and whose net debt reached around 10.5 billion euros at the end of 2024, the losses or low profitability of the beauty division made this segment a lower priority. The exit from beauty is, above all, a way to free up resources to reduce this debt.

The licence model: a leaner balance sheet and sharper focus

By selling the business or switching to a licence model (for Gucci, etc.), Kering transforms a capital-intensive segment into a passive revenue stream (royalties). This significantly lightens the balance sheet. It allows the group to refocus all its expertise on fashion and leather, its most margin-generating activities. The licence model is synonymous with reduced operational risk.

Favourable timing

In a slowing luxury market context (despite the recent recovery in consumption in China), the need to ‘simplify’ the model is becoming paramount (Le Monde). For L’Oréal, conversely, it is the ideal time to acquire a premium beauty portfolio, particularly Creed, and strengthen its global dominance in luxury perfume.

Strong brands, but a beauty franchise to develop

The paradox was this: even the most powerful brands in fashion (Bottega, Gucci) had not necessarily succeeded in developing a beauty franchise internally that was as profitable as desired. Kering is making a pragmatic choice: “we leave beauty to a specialist, we do what we do best”.

Implications for Kering, L’Oréal and investors

For Kering

The group achieves a complete refocus, significant debt reduction and a simplification of its governance model. Energy and capital are now channelled towards the Maisons that generate organic growth.

For the Maisons concerned

The shift to a licence model means that beauty and fragrance is no longer an internally managed asset, but a skill delegated to a specialist partner. This could mean a potential acceleration in beauty growth under L’Oréal's expertise and scale. However, it also means a de facto loss of direct control over the brand image and customer experience in this segment.

For L’Oréal

This is a major strengthening of its luxury and perfumes division. It gives the company even greater scale, a portfolio of leading licences and the potential for immediate commercial acceleration.

For investors

The transaction reduces uncertainty about Kering's debt trajectory and clarifies its strategic positioning. The market is expected to focus more on the activities that generate margins: leather, jewellery and ready-to-wear.

Final word

The sale of the beauty division by Kering to L’Oréal appears to be motivated by the need to reduce debt, allocate capital where there is the greatest room for manoeuvre and reduce operational complexity. For L’Oréal, it is an opportunity to accelerate in the premium segment. This is an intelligent portfolio transaction, with significant implications for the group's governance and future trajectory.

This article was translated to English using an AI tool.

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