Why Estée Lauder bought Tom Ford

Tom Ford is Estée Lauder’s flagship — and it cost just $2.8 billion to keep him there.

After months of speculation, the beauty conglomerate announced on Tuesday that it has agreed to buy the Tom Ford brand. Estée Lauder will pay approximately $2.3 billion, with the brand’s eyewear partner, Marcolin, paying Estée $250 million at closing. Estée said it will finance the transaction through cash, debt and $300 million in deferred payments, due in July 2025.

The deal is expected to close in the first half of 2023, pending regulatory approval. In an unexpected twist, Estée Lauder could only confirm that Ford will remain the “creative visionary” of the business through the end of 2023. Domenico De Sole, his longtime business partner and current president of Tom Ford International, will consult the brand during the transition.

Estée Lauder was reportedly competing with Ford’s former employer, French fashion group Kering — which owns Gucci, Yves Saint Laurent and Balenciaga — to buy the Los Angeles-based luxury brand. (In the 1990s, Ford shot to fame transforming Gucci from a well-worn Italian heritage brand into the hottest fashion line of the decade). own beauty business. Owning a brand like Tom Ford, which is known for its elegant and glitzy womenswear, but primarily makes money on cosmetics and fragrances, might have been an interesting prospect.

But in the end, Estée Lauder simply couldn’t afford to lose Ford’s beauty line, which it has manufactured, marketed and licensed since 2006. Tom Ford is one of the cosmetics giant’s most profitable businesses, posting strong growth even though some of the company’s other stalwart brands have faded.

“It really is a very pure luxury brand,” said Marie Driscoll, managing director of luxury and fashion at consultancy Coresight Research. “It’s not old or tired; there is nothing you have to enter and you have to fix. You’re starting with a large lump of clay.

As for Ford’s fashion and accessories business, Estée Lauder will license the intellectual property to others who will handle day-to-day management. Tom Ford’s first partner, Ermenegildo Zegna Group, has signed a long-term agreement with Estée Lauder that will see it continue to produce and sell the brand’s menswear for the first time, as well as women’s fashion, accessories and underwear. Zegna acquired Tom Ford’s fashion business, which was formed as a separate entity from Tom Ford’s intellectual property, which was owned solely by Ford, so that an infrastructure already exists. Marcolin will also continue to make eyewear.

Push the boundaries

Tom Ford Beauty became an instant sensation 16 years ago when he debuted a single fragrance, Black Orchid. Under Lauder’s leadership, the brand quickly established itself as a serious player in fragrance before moving into color cosmetics, first with lipstick in 2010, quickly expanding into a full makeup range in 2011. Fords—which cost $58 a tube today—were among the most sought after. They have even managed to maintain their grip on consumers as successive waves of “clean”, direct-to-consumer and influencer brands have saturated the market.

Tom Ford Beauty exuded the glamour, sex appeal, and luxury that decades-old brands like Clinique and Estée Lauder lacked. The line, always accompanied by Ford’s signature, flashy marketing and advertising campaigns, also appealed to a younger customer.

Ford pushed the boundaries for the giant of buttoned-up beauty, particularly when the “Fucking Fabulous” eau de parfum launched in 2017.

“First of all them [Estée Lauder Cos.] I didn’t even want to throw it. I kept calling it Fucking Fabulous and took it back with an asterisk,” Ford told BoF in a 2018 interview. “I was like, ‘No no, we write that on the bottle.’ They had such a hard time understanding it. They said ‘You can’t put it online, we can’t sell it to Neiman Marcus… Can you call it ‘F-in Fabulous?’”

Primarily created as a limited-edition launch to raise brand awareness — revenue projections were around $500,000 — the fragrance ended up selling around 60 times that, or $25 million. The perfume has become a permanent part of the collection (a PG-13 version of the bottle was created for more conservative markets).

It smells like success

When Black Orchid debuted in 2006, the fragrance was mostly dominated by blockbuster scents from major fashion houses at affordable prices. Within a year of the now iconic perfume’s launch, a Private Blend collection of 10 perfumes hit the market, each priced at $220. Ford became a true authority on fragrance.

The brand helped make the idea of ​​paying over $200 for a perfume mainstream customer behavior, paving the way for other niche lines like Byredo, DS & Durga, and Maison Francis Kurkdjian. In 2014, Lauder invested further in fragrances, acquiring a trio of pricier independent lines, Le Labo, Frédéric Malle and By Killian, each with an average price tag of well over $200 (a 50ml bottle of the top-selling Santal 33 of Le Labo is $215 and a 100ml size is $310).

High-end fragrances have emerged as beauty MVPs during the pandemic and continue to thrive even as other Covid-era trends have faded.

According to NPD, US prestige fragrance sales for the third quarter were $1.3 billion, an 11% increase from a year earlier. Compared to other beauty product categories, average fragrance prices have grown faster, fueled by customers seeking more expensive luxury lines with more concentrated formulas, such as those from Ford. From 2020 to 2021, U.S. sales of luxury fragrance brands, a category that includes Tom Ford Beauty, nearly doubled.

“Consumers [are] indulgence and ‘premium-ising’ we saw play into fragrances because they were buying more expensive products,” said Larissa Jensen, vice president and industry analyst at The NPD Group, in a previous interview. “They were buying the $300 juice versus the $80 juice.”

Tom Ford Beauty’s other bright spot is makeup, which comprises a significant portion of the label’s sales, and as a category at large continues to gain momentum as people return to their pre-Covid, mask-free lives.

“The bottom line is, this is a very exciting time for the makeup category,” Jensen said.

According to NPD, U.S. sales of prestige makeup exceeded pre-pandemic 2019 revenues, but growth within the luxury subcategory (priced 75 percent higher, on average, than prestige makeup total) is outpacing the rest of the industry. In 2021, total makeup was up 23% and luxury brands including brands like Chanel, Dior and Tom Ford Beauty were the fastest growing type of brand.

A foundation for growth

By owning Tom Ford outright, Estée Lauder will have more freedom to expand the brand and ensure it won’t end up in the hands of a competitor.

“Yes, they paid a lot but now they do [Estée Lauder] I won’t lose it,” Driscoll said. “There are other ways to grow the brand — not to harvest brand value, but to actually grow the brand.”

He cited potential areas of growth Lauder could focus on, including lifestyle in areas like table, linens and towels.

And Estée Lauder plans to replicate Tom Ford Beauty’s success with Balmain, with whom it signed a licensing deal earlier this year. Similar to the deal it has had with Ford since 2006, the beauty giant will manufacture, market and distribute makeup and other products for the French fashion house, which was acquired by Qatar-based investment fund Mayhoola in 2016 for more than $600 million of dollars.

And the clothes?

The fashion side of Ford’s business will be in familiar hands.

Zegna is best known as a manufacturer and supplier of fine suits, shirts and other formal wear reminiscent of a bygone era when men more regularly wore ties to work. Today, Zegna faces competition from a range of labels that cater to the rich kid’s penchant for more casual, less gendered clothing, from outdoorwear companies like Arc’teryx to cashmere king Brunello Cucinelli.

In response to changing tastes, Zegna relaxed, taking a stronger fashion stance on the runways with a collection designed by Alessandro Sartori, and acquiring avant-garde brand meets American Thom Browne in 2018. It also eliminated a low-end sub-brand, ZZegna, which once contributed significantly to the company’s annual sales. In 2021, the year of its debut on the New York Stock Exchange, the Milanese company generated 1.29 billion euros ($1.34 billion), up 27% from the previous year.

“We had to change the perception of the brand from a sartorial luxury brand to a lifestyle luxury brand,” CEO Gildo Zegna told BoF in April 2022, or “we will be in trouble.”

While Tom Ford rose to fame at Gucci and Yves Saint Laurent for womenswear, his brand’s suits and shirts, produced in collaboration with Zegna and designed over many years by a London studio, were his biggest fashion category , though sales pale in comparison to the beauty behemoth.

For Zegna, which has the capabilities and infrastructure to further develop the Tom Ford line, acquiring the license for products outside Estee’s realm can have a significant upside, especially if it can expand its reach into womenswear. a category Zegna entered when it bought Thom Browne.

For Ford and De Sole, the exit marks the end of their entrepreneurial journey, which began when they left Kering (then known as PPR) in 2004 over creative differences. Over the years, Los Angeles-based Ford, who lost her longtime partner, Richard Buckley, in September 2021, has pursued other arts, including directing critically acclaimed films, and has privately expressed interest in wrapping up the his time in fashion, according to multiple sources.

Ford, who played Freddie Mercury singing “time waits for no one” at his latest show, which closed New York Fashion Week in September, is once again leaving on his own terms.

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