Estee Lauder envies Tom Ford’s scent. Does it like its fashion?


Beauty is in the eye of the beholder. That saying will truly be true when Estee Lauder Cos. Acquires Tom Ford for $3 billion.

While the cosmetics giant wants full control of Tom Ford’s beauty and fragrance divisions, dealing with the company’s clothing and accessories would be much more difficult.

The eponymous beauty, eyewear and apparel company, founded in 2005 by former Gucci creative director, is working with Goldman Sachs Group Inc. to explore a possible sale, Bloomberg News reported last month. On Monday, Dow Jones reported 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, each bring in nearly $1 billion in sales a year. That could explain Estee’s alleged interest — the company isn’t commenting at this time — as it doesn’t want to risk losing this lucrative licensing deal to a competitor.

But business with Tom Ford isn’t just about beauty. It also has an eyewear factory, produced and distributed by Marcolin SpA. There is no reason why this arrangement could not continue under Estee Lauder’s leadership. The harder part would be Tom Ford’s clothing and accessories. Estee isn’t a natural owner of a fashion house, so it would probably need to find a luxury partner with apparel expertise.

This most likely won’t be any of the bling giants 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 who is now chairman of the Tom Ford brand, also sits on Zegna’s board of directors.

So why doesn’t Zegna buy Tom Ford itself? It would be a useful addition to the portfolio alongside younger label Thom Browne, which was acquired four years ago. The sticking point can be the price. Though Zegna has a strong balance sheet following its listing in New York through a special purpose vehicle last year, its enterprise value is about $3 billion, about the price Estee Lauder is reportedly considering paying for Tom Ford.

By marketing itself as a beauty company, Tom Ford is trying to tap into some of the whopping multiples that have been paid for cosmetics and skincare brands over the last five years.

In the meantime, anyone making Tom Ford’s streamlined suits or one-shoulder mini dresses would have a lot of work to do. They would need to keep the brand at the top of the luxury hierarchy to entice more consumers to buy their expensive lipsticks and fragrances. And while Tom Ford’s forte is apparel, it doesn’t have a coveted line of handbags, the luxury industry‘s true profit driver.

It’s not clear if Ford himself would be part of the arrangement. Bloomberg News reported that a deal could include an option to work with the founder after the sale. A private equity firm that wants to break into the beauty business could remain as a potential buyer. However, given the tight financing markets, conditions could become more difficult.

Estee Lauder would be as good a Tom Ford owner as anyone, but it will have some complexities to iron out. The trick is to show that the beauty of this deal is more than skin deep.

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Andrea Felsted is a columnist for Bloomberg Opinion covering consumer goods and retail. She was previously a reporter for the Financial Times.

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