Estée Lauder envies the perfume of Tom Ford. Does he want his fashion?


Beauty is in the eye of the beholder. The adage will truly be the case if Estee Lauder Cos. acquires Tom Ford for $3 billion.

While the cosmetics group may covet full control of Tom Ford’s beauty and fragrance arm, dealing with the company’s apparel and accessories would be far more of a stretch.

The eponymous beauty, eyewear and apparel company, founded by the former creative director of Gucci in 2005, is working with Goldman Sachs Group Inc. to explore a potential sale, Bloomberg News reported last month. On Monday, Dow Jones announced that Estee Lauder was in talks to buy the brand.

Estee Lauder already has a long-standing licensing agreement for Tom Ford’s high-end beauty and fragrance lines. The cosmetics giant recently said that Tom Ford and Jo Malone, which it also owns, were each on course to generate $1 billion a year in revenue. This may explain Estee’s supposed interest – the company is not commenting at this time – as it wouldn’t want to risk losing this lucrative licensing deal to a rival.

But the Tom Ford business isn’t just about good looks. It also has an eyewear business, which is produced and distributed by Marcolin SpA. There’s no reason this arrangement can’t continue under Estee Lauder. The trickiest part would be Tom Ford’s clothes and accessories. Estee is not a natural fashion house owner, so she would probably need to find a luxury partner with expertise in clothing.

It probably won’t be one of the bling behemoths like LVMH Moet Hennessy Louis Vuitton SE or Gucci-owner Kering SA. Why would they agree to produce the clothes and accessories without the beauty?

A smaller luxury group, like Ermenegildo Zegna Holditalia SpA or Diesel, would make more sense. And Zegna already has a business relationship with Tom Ford. Domenico De Sole, former CEO of Gucci, now brand president Tom Ford, also sits on the board of Zegna.

So why doesn’t Zegna buy Tom Ford himself? It would be a useful addition to his portfolio alongside fledgling label Thom Browne, which he acquired four years ago. The sticking point may be the price. Although Zegna has a strong balance sheet after going public in New York through a special purpose acquisition company last year, its enterprise value is around $3 billion, or about the price Estee Lauder plans to pay for Tom Ford.

By posing as a beauty company, Tom Ford is looking to tap into some of the rich multiples paid for cosmetics and skincare brands over the past five years.

Meanwhile, anyone producing Tom Ford’s sleek suits or one-shoulder mini-dresses would have their work cut out for them. They are expected to keep the brand at the top of the luxury hierarchy to entice more consumers to buy its expensive lipsticks and perfumes. And while Tom Ford’s strength is in apparel, it doesn’t have a high-demand line of handbags, the true profit engine of the luxury industry.

It is unclear whether Ford itself would be part of the arrangement. Bloomberg News reported that a deal could include an option to work with the founder after the sale. That could leave a private equity firm, keen to grab the beauty business, as a potential buyer. But with the seizing of the funding markets, the conditions could be more difficult.

Estee Lauder would be as good a Tom Ford owner as any, but there will be some complexities to iron out. The trick will be to show that the beauty of this agreement is more than superficial.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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