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Beauty is luxury’s next competitive playground, with makeup and skincare launches in recent years from Paco Rabanne, Dries Van Noten, Marc Jacobs, Gucci, Valentino, Hermès, Stella McCartney, Off-White and Victoria Beckham filling the space once primarily dominated by Chanel, Dior and Armani. Balmain Beauty is due to launch in early 2024.
The resilience of the almost-$500 billion global beauty sector during a tough macroenvironment has been attractive, says Ariel Ohana, managing partner at independent investment bank Ohana Co. “It’s one of those rare sectors where you have growth when the rest of the economy is doing well — but also resilience when the economy is not doing so well.” To tap into this growth, luxury executives see an opportunity in new beauty segments. “For a very long time, it’s been in the fashion house playbook to have a fragrance. The big new trend is their expansion into other beauty categories like makeup and skincare,” says Ohana.
But crafting a cohesive brand image across beauty and fashion has its challenges, and strong brand awareness isn’t enough, especially when the two categories have vastly different production cycles, distribution and marketing strategies. Marc Jacobs Beauty, previously operated under LVMH’s Kendo, was pulled in 2021 after the contract between the two parties ended (it’s unclear why the agreement was not renewed). It’s soon to be revived under Coty. In the wider landscape, some celebrity and influencer beauty labels are starting to show signs of weakness despite their vast fanbases.
Disruptive upstarts pose a challenge even to the most established luxury names. Luxury fragrance brands are largely seeing single-digit growth compared to niche fragrance brands, such as Juliette Has A Gun, Byredo and Le Labo, which are growing double digits. “The consumer today is more discerning than they were 20 years ago,” says Ohana. “Just because you have an existing brand in another realm doesn’t mean that it’s going to automatically convert into a success [in a new category].”
Luxury houses will have to determine whether the best long-term strategy is to partner with a licensee or to manage the business in-house. Most brands work with an external partner: Valentino, Prada and Armani are with L Oréal; Tom Ford and Balmain Beauty are run by Estée Lauder; Paco Rabanne and Dries Van Noten operate under Puig; while Gucci, Burberry and Marc Jacobs are licensed to Coty. The risk with managing the business internally is that it can be complex. If the switch succeeds, the financial rewards are very significant — but first it requires heavy investment. Categories like skincare, in particular, require a significant amount of R&D, manufacturing and logistics, and establishing a beauty manufacturing system takes two to three years minimum, says Audrey Depraeter-Montacel, managing director and global beauty lead at Accenture. There’s also a scarcity of resources — in both experienced professionals and the sourcing of ingredients.
Brands have been known to change course. Burberry pivoted its makeup range from in-house to a licensing deal with Coty in 2017. Dolce Gabbana concluded its licensing deal with Shiseido in 2021 and has directly operated its beauty business since January 2023. The Italian luxury house joins the likes of legacy players Chanel, LVMH-owned Dior and Hermès, which handle their own product development, manufacturing and marketing.
Industry observers are closely watching to see if larger conglomerates will pivot their beauty strategies. This month, Richemont formed a new beauty division and appointed a new CEO, as it seeks to scale fragrance. Kering launched its new beauty entity in February and made headlines in the summer for acquiring luxury perfumer Creed. There’s also LVMH, which reshuffled its beauty leadership team in March, suggesting its intention to compete more aggressively.
“Now, when a good brand is on the market, you have L Oréal, Estée Lauder, Kering and LVMH trying to acquire them. There is fierce competition not only around people and ingredients but the brands themselves,” says Depraeter-Montacel. That’s top of mind for many luxury executives, she notes. “The key for success in beauty is having the right portfolio of products, to be able to address the right consumer segmentation and geographical footprint. There needs to be a thoughtful strategy around the brand portfolio.”
Leaning into ultra-luxury
Expanding into beauty makes sense for luxury houses because it enables a new form of accessibility, inclusivity and a sense of community, says Accenture’s Depraeter-Montacel. “It gives big brands proximity to the consumer that they don’t have with some other products. When you are Hermès, for example, with very high-end positioning, I think it is difficult to relate to the new generation.” Beauty also gives luxury brands, which are sometimes perceived as cold because of their perfect visuals, permission to have a bit of fun, she adds. “Beauty is an opportunity for them to do something a bit lighter.”
Brands have an opportunity to lean in further in the ultra-luxury space, at a time when much of the beauty market is competing in mass (Elf Cosmetics, Nyx, Cerave) or prestige (Anastasia Beverly Hills, Too Faced and Fenty). The prices of Prada’s new beauty venture are eye-wateringly high — a face and eye serum costs £315 — suggesting that the company is targeting the top end of the consumer pyramid, unlike many of its peers which have targeted the mid-market consumer by offering an accessible entry point to their brands.
Skincare is a tough sell, as consumers are asking more questions about products, ingredients and efficacy and demanding clinical results to support brands’ claims. “The ability to break through the noise with real innovation in skincare is important because the consumer doesn’t switch skincare products as easily as they switch makeup products,” says Ohana. LVMH knows this, having invested in Stella McCartney’s brand in July 2019. McCartney’s reputation as a sustainable fashion pioneer gives her sway in a sector where consumers are increasingly seeking “clean” alternatives. While winning in skincare may be an initial challenge for many luxury brands, once a customer is converted, they’re more likely to remain loyal, adds Ohana.
Brands including Prada, Hermès and Dries Van Noten treat their beauty offerings as collectables, selling only through limited distribution channels and presenting products in limited-edition or luxurious packaging that can be kept and cherished or reused (thanks to a refillable component), rather than disposed after use. While there are challenges with refillables — at best, products are flimsy and not as aesthetically pleasing; at worst, there are issues with hygiene and process — the approach can help brands build an elevated image and build loyalty.
The highest level of product and service quality is key. Chanel and Tom Ford have access to rare ingredients for their fragrances. Dior is leaning into high-end experiences for its top clients. In 2022, it opened a temporary luxury spa on the Orient Express for VIP guests attending the Cannes Film Festival. During couture week in Paris, the brand took over a luxury yacht and reimagined it as a floating spa and wellness destination, with a branded pool, roof deck and private treatment rooms.
Does fashion awareness translate?
Last week, Dolce Gabbana launched Devotion, its new fragrance and makeup collection, which includes a mascara, face powder and liquid lipstick. The products all feature the brand’s signature sacred heart motif, which creative directors Stefano Gabbana and Domenico Dolce introduced in 2015 and is found across some clothing designs, bags and shoes. “The strategy is to create a strong clear link with the fashion world,” says Gianluca Toniolo, operating CEO of Dolce Gabbana Beauty, a €1.2 billion business in total retail sales.
Maintaining consistency could be a challenge for some brands, says Ohana. “Makeup is probably the area which is more directly connected to fashion, but at the same time, it requires the biggest effort, because it requires a lot of SKUs and constant innovation. You need to have product launches several times a year to get the customer to come back to you, otherwise they will just listen to a new indie brand and buy what they have just launched.”
Dolce Gabbana will continue to present unified themed collections across fashion, makeup and fragrance. It’s made possible as Stefano and Domenico oversee both fashion and beauty — something that Toniolo believes is a competitive advantage. Most of Dolce Gabbana’s peers, including Chanel, Dior and Hermès, have a dedicated creative director for beauty, in part because their founders are no longer around to run the business. Designers like Dries Van Noten or Victoria Beckham are heavily involved in the creative direction of their beauty brands.
The launch of Devotion marked the first colour cosmetics range to be produced in-house by Dolce Gabbana. For Toniolo, it’s a priority for “everything [to be] under the same roof”. “You can create a special link. Everyone has the same vision and you can move fast.” He continues: “Beauty is a very specific category. You need to have technical competencies about the product, marketing and communication. The brand is one brand and we need to keep the same tone of voice and values and translate that across the product and all marketing activities.”
Not everything can be streamlined, as distribution channels for fashion are not the same as in beauty. Whereas luxury houses sell a majority of their ready-to-wear via their own boutiques, their beauty products are sold in specialist multi-brand retailers like Harrods or Sephora. “It puts you in an environment where there is other competition, so you need completely different trade marketing activities put in place there,” says Toniolo. Although, that hasn’t stopped some luxury brands, including Prada and Dries Van Noten, from opening dedicated beauty boutiques.
To keep Dolce Gabbana Beauty relevant, Toniolo’s priority is keeping the business nimble. “The risk is that the bigger you become, the more you lose your capability to be fast. We need to keep our capabilities because this is our main competitive advantage compared to giant corporations.”
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