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Friday, December 2, 2022

Estée Lauder Has Reached an Agreement to Acquire the Tom Ford Brand in a Deal Worth $2.8 Billion

In addition to being a designer, film director, art collector, and provocateur in the fashion industry, Tom Ford can now now add “billionaire” to his list of accomplishments. On Tuesday, Estée Lauder made the announcement that it had reached an agreement to purchase his firm in a transaction that was valued at a total of $2.8 billion.

This transaction is the biggest in the luxury business so far this year, and it is a demonstration of the ever-present power of fragrance. This comes at a time when high-end firms are searching for new paths to development since doing business in China, which was formerly the engine for luxury beauty enterprises, has grown more difficult as a result of economic regulations.

The success of Tom Ford’s beauty business, which encompasses fragrance, cosmetics, and skin care products and for which Estée Lauder has maintained a licence arrangement for a significant amount of time, was the primary factor that led to the purchase. The high-end fragrances of Tom Ford, such as Black Orchid and Tuscan Leather, have a suggested retail price of over one hundred dollars and consistently place high on the best-seller lists.

The acquisition also gives Estée Lauder, which had previously been solely focused on beauty products and has a portfolio of brands that includes La Mer, Bobbi Brown, and Clinique, access to the garment market.

The transaction will be financed by a mix of cash on hand, debt, and $300 million in delayed payments by Estée Lauder, which will pay a total of $2.3 billion for the company. When the transaction is finalised, Marcolin, the Italian business that now has the licence for Tom Ford eyeglasses, will provide Estée Lauder a payment in the amount of $250 million.

Estée Lauder has shifted its attention to perfumes, in part because the luxury fragrance market saw an unexpected growth spurt during the pandemic, when consumers were looking for modest indulgences to treat themselves with. Estée Lauder’s latest perfume purchases include the labels Frédéric Malle, Kilian and Le Labo. A popular fragrance like Chanel No. 5 or Mugler’s Angel may be the financial engine of a company, despite the fact that hundreds of scents are created every year. This is because of the huge profit margins that are linked with smell, the attraction of which is not dependent on the time of year.

Other beauty companies, such as Clarins and Procter & Gamble, have in the past acquired fashion businesses such as Mugler and Rochas in order to leverage their fragrances. Despite their best efforts, however, these companies were unable to successfully navigate the difficulties inherent in the apparel industry. Estée Lauder, on the other hand, has decided to licence Tom Ford’s fashion line to a third party, namely the Italian business Ermenegildo Zegna. Marcolin, which has been the holder of the licence for Tom Ford eyeglasses since 2005, will remain in that role moving forward.

In the end, Mr. Ford, who is famed for his bushy moustache, became just as famous as the superstars whom he clothed. In 1995, when he was an unknown designer at the helm of the ailing house of Gucci, he reinvented the brand with a fall/winter collection that included a healthy splash of sex mixed with just the right amount of irony and a dash of heritage. This collection catapulted him to the forefront of the fashion industry, and he became a fashion icon in what seemed like an instant.

Together with the then-chief executive Domenico De Sole, he turned Gucci into a case study for brand turnarounds in both Milan and Paris. This eventually drew the attention of Bernard Arnault, who was busy constructing his group LVMH Moet Hennessy Louis Vuitton into a luxury behemoth at the time. Gucci is now a part of LVMH Moet Hennessy Louis Vuitton.

Mr. Ford and Mr. De Sole were concerned about ceding power to LVMH, so they turned to a competing French tycoon named Francois Pinault of Pinault-Printemps-Redoute. Mr. Pinault acted as their white knight and helped create Gucci Group in a transaction that would go on to shape the modern luxury industry. Kering, the owner of Gucci, YSL, and Balenciaga, amongst other brands, is the primary competitor of LVMH. Later, Gucci Group was acquired by PPR, which eventually evolved into Kering.

Mr. Ford never lost his instinct for how to seize the moment, despite the fact that his work in the fashion industry may not have had the same effect as it had during the height of Gucci. In the year 2020, he performed in Los Angeles in order to capitalise on the throng that was in town for the Academy Awards. Jennifer Lopez, Miley Cyrus, and Lil Nas X were among the guests.

The job of chairman of the Council of Fashion Designers of America, which he held until this year, was one that he assumed in 2019 and stood down from this year. It was one of the many recent upheavals in his life, including reaching the age of 60 in 2021 and suffering the loss of his companion of 35 years, the journalist Richard Buckley, who passed away in September of 2021.

Mr. Ford contributed to the development of the fashion business just as much as any other modern fashion icon. It remains to be seen whether or if his choice to sell his company to a large beauty company rather than a major fashion business also creates a trend.

David Faber
I am a Business Journalist of The National Era
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