By guest author George Arnett from Vogue Business
The new agreement gives the world’s largest cosmetics company a major boost in its competition with Coty to lead the prestige beauty market.
- New product ranges are likely to be developed as part of the deal, which analysts describe as a strategic move to broaden the Italian fashion house’s appeal.
- The deal adds another line to L’Oréal’s Luxe range as beauty groups depend even more on prestige products for revenue.
L’Oréal has signed a licensing deal with Prada that will see it manufacture luxury fragrances and beauty products under the Italian fashion house’s name. The agreement, which is subject to regulatory approval, is set to begin in January 2021.
The new accord is the latest development in an ongoing battle between L’Oréal and US rival Coty Inc. for leadership in the prestige fragrances and cosmetics market. L’Oréal, which is currently the number one company in the segment, is taking over the fragrance division of Clarins, which includes the Azzaro Fragrance and Mugler brands, in early 2020. Coty recently spent $600 million on acquiring a majority stake in Kylie Cosmetics, building on the cohort of luxury licensees acquired from Procter and Gamble in 2015, including Gucci and Hugo Boss.
Over a third of L’Oréal’s revenues come from its Luxe division, where like-for-like revenue grew 13.2 per cent in the first half of this year to over €5 billion. The French company extended its partnership with Giorgio Armani, one of its best-performing brands, in 2018. “This license will give L’Oréal Luxe the ideal complement to its portfolio of iconic brands,” said L’Oréal Luxe president Cyril Chapuy.
L’Oréal gains the Prada license from Puig, which had been working with the Italian company since 2003. This marks a double blow for the Spanish beauty giant, which also lost the Valentino perfume and fragrance license to L’Oréal last year. A spokesperson for Prada says the tie-up with Puig helped the brand successfully develop a presence in the fragrance sector, but that the “agreement had come to a natural end”.
Prada under Puig has primarily been used to create fragrances, but the tie-up with L’Oréal opens up the possibility of products being developed in other beauty and skincare categories. It can take advantage of the French company’s huge distribution network and reach out to a broader range of consumers. “[L’Oréal’s] position and experience make it the ideal partner for Prada to develop its full potential across a variety of new projects, leverage Prada’s well-established fragrance identity and reach even more audiences around the world,” Prada CEO Patrizio Bertelli said in a statement.
A spokesperson at Prada said that no timeline has been developed for the creation of new product lines and that the fragrance market remains a current priority. No further financial details were disclosed.
Luxury brands have long attempted to broaden their appeal via selling relatively inexpensive beauty and fragrance lines since Yves Saint Laurent launched its first fragrance 55 years ago. The entrenchment and consolidation that has taken place since means that luxury brands are attempting to gain the most exposure possible in the rapidly growing USD 532 billion beauty market. Deutsche Bank analyst Francesca Di Pasquantonio said that Prada’s decision to license to L’Oréal shows how the company is now viewing the category as strategic rather than just a profit driver.
Like-for-like sales of Coty’s prestige brands were up by 4.4 % in the first quarter of fiscal 2020, helping offset the continuing decline in its consumer beauty segment.
“The playing field has never been more competitive, especially for beauty care specialists,” says Fflur Roberts, head of luxury goods at Euromonitor International.