Kering's Strategic Divestiture of its Beauty Unit: A Catalyst for Long-Term Shareholder Value?

In the ever-shifting landscape of luxury and beauty markets, Kering's strategic decisions have long been scrutinized for their ability to balance innovation with profitability. The company's recent focus on its Beauty division, Kering Beauté, has sparked debate about whether this represents a bold reallocation of capital or a misstep in an already competitive sector. To assess whether Kering's strategy could catalyze long-term shareholder value, one must dissect its capital reallocation choices, sector rotation dynamics, and the broader macroeconomic forces at play.

Sector Rotation: Beauty's Ascendancy in a Stagnant Luxury Market

The luxury fashion sector, long Kering's bread and butter, faces headwinds. Global luxury fashion is projected to grow at a modest 2-4% annually from 2025 to 2027, with leather goods and jewellery leading the charge, according to a Business of Fashion report. Meanwhile, the beauty market is expanding at a faster clip—5% annually through 2030—driven by shifting consumer priorities toward wellness, personalization, and high-growth geographies like India and the Middle East, according to a McKinsey report. This divergence underscores a critical inflection point: investors and executives must decide whether to double down on fashion's fading momentum or pivot to beauty's rising tide.

Kering has chosen the latter. In January 2023, the company formalized Kering Beauté as a standalone division, acquiring Creed and appointing Raffaella Cornaggia to spearhead its strategy, as described in a WWD profile. This move aligns with broader industry trends. As a McKinsey analysis notes, luxury brands are increasingly diversifying into adjacent sectors like beauty and wellness to offset low-growth environments. For Kering, this reallocation is not merely defensive but aspirational: it seeks to transform beauty into a "global powerhouse," according to Kering's strategy.

Capital Reallocation: Bonds, Acquisitions, and Strategic Risks

Kering's commitment to beauty is evident in its financial choices. In 2024, the company issued an €850 million bond to fund growth initiatives in Kering Beauté, including product development, marketing, and potential acquisitions, as reported by Personal Care Insights. This contrasts with its struggles in the fashion segment, where Gucci's sales fell 24% in Q4 2024, prompting CEO François-Henri Pinault to emphasize "stabilization" over aggressive expansion, according to Vogue Business.

The logic is sound. Beauty's higher growth potential offers a buffer against fashion's volatility. For instance, Kering Beauté's Q1 2025 revenue rose 6% year-on-year, driven by Creed's Eladaria fragrance and new Bottega Veneta collections, according to Beautymatter. By contrast, the fashion division's performance remains uneven, with a 13% revenue drop in Q3 2023 attributed to strategic shifts toward exclusivity, reported by Next in Beauty.

Yet risks persist. Kering's net cash deficit of €19.89 billion as of 2025 raises questions about its ability to sustain debt-funded growth, according to StockAnalysis. While the beauty sector's margins are generally higher than fashion's, Kering's success hinges on its capacity to replicate Creed's success across other brands. Overreliance on a single high-margin acquisition could prove precarious if market dynamics shift.

Shareholder Value: A Mixed Record

Kering's sector rotation has yielded mixed results for shareholders. From 2023 to mid-2025, the company's market cap fell from EUR 45 billion to EUR 37.95 billion, trailing peers like LVMH and Richemont, according to the Financial Times. This underperformance reflects both short-term pain—such as Gucci's decline—and long-term uncertainty about beauty's scalability. However, early signs of recovery are emerging. Accessories and leather goods sales surged in H1 2025, while digital and sustainability initiatives are re-engaging younger consumers, according to Investors Hangout.

The key question is whether Kering's beauty pivot will eventually outweigh its fashion liabilities. A trailing P/E ratio of 52.10 suggests investors remain skeptical, but the company's €6-per-share dividend (1.94% yield) provides some reassurance, according to StockAnalysis. If Kering can leverage its fashion brands' creative DNA to differentiate its beauty offerings—think Balenciaga's avant-garde fragrances or Gucci's wellness-focused products—it may unlock new revenue streams.

Conclusion: A Calculated Bet on the Future

Kering's strategy is neither a divestiture nor a blind gamble. It is a calculated reallocation of capital toward a sector with stronger growth prospects, even as it grapples with fashion's challenges. The beauty market's 5% CAGR offers a compelling counterbalance to luxury fashion's stagnation, and Kering's early investments in Kering Beauté show promise. However, the company must navigate significant risks, including debt sustainability and brand differentiation.

For shareholders, the critical test will be whether Kering can transform its beauty division into a profit engine that offsets fashion's headwinds. If successful, this strategy could indeed catalyze long-term value. If not, the company may find itself caught between two markets, neither of which delivers the returns investors expect.