Only three months after it emerged that Estee Lauder Cos. was in talks to buy Tom Ford for $3 billion, it’s now being reported that Gucci-owner Kering SA is in advanced discussions to acquire the American designer’s eponymous brand.
Kering’s challenge with the label, known for its pricey fragrances and mini-dresses, would be almost the inverse of Estee Lauder’s. While Estee has buckets of beauty know-how, it lacks credibility in fashion. In contrast, Kering, which declined to comment, is a master of high-end clothing and accessories but would need to take control of the cosmetics arm to make the acquisition work.
Tom Ford’s top-end apparel line would certainly be a good fit with Kering’s portfolio, which is led by Gucci but also includes Saint Laurent, Bottega Veneta and Balenciaga.
Kering has the “magic touch” with fashion, luxury adviser Mario Ortelli told me, with the ability to inject and sustain the right creative vision, alongside impeccable marketing, distribution and merchandising.
Tom Ford, estimated by UBS to have sales of €1.5 billion ($1.49 billion) in 2021, is strongest in menswear and Kering could use its Brioni brand to supply some of the Tom Ford garments currently produced by Ermenegildo Zegna NV. The French conglomerate could also draw on its expertise in fashion to develop Tom Ford’s womenswear, footwear and leather goods. The latter are the real profit drivers of the industry.
Plus, the two houses have a history. The designer Tom Ford was behind Gucci’s first reinvention in the 1990s. And Kering is currently attempting a third revamp of the close to €10 billion revenue brand, while keeping it under the direction of designer Alessandro Michele. Analysts at Jefferies point out that if Ford could collaborate with Michele, this could ignite interest in Gucci once more. Michele’s granny chic with Tom Ford’s sexy silhouettes, anyone?
Kering also has a strong balance sheet, with Bloomberg Intelligence estimating a net cash position in the year ahead, so it could easily afford the mooted $3 billion price tag.
But to get the best value from the deal, Kering must take control of Tom Ford’s lucrative beauty license, which is currently with Estee Lauder. That won’t be cheap or easy.
Kering has made no secret of its desire to develop Gucci’s beauty business, which is currently licensed to Coty Inc. It has set up an internal team to evaluate its options in the sector. If Tom Ford were a stepping stone to building critical mass in cosmetics and fragrance, then the complexities and expense of acquiring the license would be worth it.
Perhaps the two companies could reach some kind of agreement, whereby Kering takes Tom Ford’s fashion while Estee Lauder takes the cosmetics and fragrance business. Or they could partner on beauty. Cosmetics houses are used to working with brands and celebrities on a licensed basis, and there might be scope for Kering to eventually buy out its partner.
Yet even if the exact details could be hammered out to both parties’ satisfaction, there are other obstacles to be navigated.
Kering has been successfully building its eyewear business, so Tom Ford’s sales here would helpful too. But again, its eyewear is licensed to Marcolin SpA, although this is due to expire shortly, according to UBS.
And let’s not forget the personalities involved. Tom Ford put Gucci on the map with his horsebit high heels, silk shirts and velvet flares. But he and then CEO Domenico De Sole, now chairman of Tom Ford, parted ways with Kering in 2004, when the French conglomerate completed its $8 billion acquisition of the minority interests in Gucci.
It’s also not clear whether Ford himself will be part of the deal, or how long he will stick around. So Kering once more potentially faces paying up for a brand only to have to find a new designer. At least transitioning to fresh creative talent is one of its core competences.
If these points can be resolved — and investors seemed optimistic on Friday — then creating a new force in beauty, expanding eyewear and bringing some luster back to Gucci would make taking another risk on Tom Ford worth it.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry.