On Futuring in Luxury: What if...

...LVMH Acquires Estée Lauder? A Reshaped Beauty Giant Emerges

In our latest article, we imagined what an LVMH acquisition of Estée Lauder could look like. Here are some highlights below.

What is So Interesting About this Scenario?

For context, 2023 saw a year ripe with speculation that activist investor Nelson Peltz wanted to push for a major shakeup at Estée Lauder to replace CEO Fabrizio Freda and entertain an eventual sale to luxury giant LVMH. This happened on the heels of disappointing earnings and a 17% drop in share price in the early part of May 2023. While the rumors have since been laid to rest, it is known that LVMH had approached Estee Lauder before the pandemic, expressing interest in an acquisition.

However, in early February this year, Estée Lauder saw its stock jump 12% following an announcement that as part of its profit turnaround aimed at 2025/2026, it would be cutting 3-5% of jobs. The restructuring is expected to boost profit to $ 1.1 to 1.4 billion, compared to the previous much lower estimate of around $800 million to $1 billion. During the 12 prior months to this positive movement, the stock price gave up 49% of its value mainly due to the Chinese consumer pullback and generally lagging sales across Asia and other regions like the Middle East and Israel.

Now imagine this: notwithstanding the restructuring efforts, let’s assume that a similar adverse scenario was to repeat itself, as cost-cutting alone proves insufficient to prevent competitors from taking market share. Picture a scenario in which the Estée Lauder board, confronted with continuously declining performance and investor agitation, might again come under pressure to sell. In such an instance, it is entirely conceivable that LVMH could come to the rescue and offer an attractive price tag, this time securing the Lauder family’s blessing despite some potential internal resistance.

Why Would LVMH Be Interested in a Takeover?

LVMH has been on a quest to dominate the luxury market. It successfully took a giant step in this direction in the US luxury space through its recent acquisition of Tiffany. The benefits of the growth of its perfumes and cosmetics division are apparent and would be much harder to achieve through organic growth or incremental acquisition of smaller brands. To list a few, these include:

Market Domination: LVMH is already a leader in luxury goods, but Estée Lauder would fill a strategic gap in their beauty portfolio. Owning prestigious and still profitable brands like Clinique, LaMer, Bobbi Brown, MAC, and Tom Ford Beauty would solidify their dominance in the market.

Growth Potential: Despite recent struggles, Estée Lauder still has a robust global presence and brand recognition. LVMH could unlock this potential with its marketing and brand management expertise, leading to increased sales and market share.

Geographic Expansion: Estée Lauder has a robust presence in North America and Asia. This would complement LVMH’s European strength, creating a global beauty powerhouse.

Synergy and Efficiency: Combining operations could lead to cost savings and operational efficiencies. LVMH’s strong supply chain and distribution network could benefit Estée Lauder.

Innovation Powerhouse: LVMH is known for its commitment to research and development. Combining resources could accelerate innovation in the beauty space, leading to a broader range of cutting-edge products.

What Would Estée Lauder Gain from a Sale?

Revitalization and Growth: Estée Lauder has faced challenges in recent years, with diminishing profit margins and disappointing earnings coupled with loss of market share. LVMH’s vast resources and expertise could help Estee Lauder revitalize its brand image and marketing strategies, attracting new customers and reigniting growth.

Financial Gain: A sale to LVMH would likely be at a premium price, offering a significant economic windfall for the Lauder family and shareholders.

Global Reach and Resources: LVMH could give Estée Lauder access to new markets, distribution channels, and resources for research and development. The success of celebrity partnerships like Fenty BeautyxRihanna could potentially be replicated in Estee Lauder brands to stimulate growth.

Expertise and Brand Management: Estée Lauder could benefit from LVMH’s proven track record of managing and growing brands through marketing, product development, and brand management expertise.

Read the full "What If LVMH Acquires Estée Lauder: A Reshaped Beauty Giant Emerges" from Silvia Coleman

Thank you for reading! We'll be back in two weeks with another edition of CXG Perspectives.