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Smaller Fashion Brands See a Big Opportunity in Beauty

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Stella McCartney enters the world of beauty.

It emerged this week that the LVMH-owned brand is set to enter the beauty business with a new line of clean skincare. release, mentioned for the first time before WWDcoming early next month on the brand’s website, with three refillable products priced between $45 and $140.

With the line, the brand is set to join a long line of beauty-based fashion brands to boost their upper and lower earnings, including players Chanel, Dior, YSL, and newcomers like Gucci, Valentino, and Hermès. These large heritage companies have traditionally dominated the makeup and skincare sectors when it comes to beauty fashion brands, while fragrance has been the typical route for younger players, often through a licensing deal with a beauty giant like L’Oréal or Coty. But now, smaller and smaller luxury brands have a growing ambition to break into cosmetics and skincare as well.

There is certainly room for optimism in beauty, as growth in the broader industry has exploded in recent years. This year, both Dries Van Noten and Off-White released makeup products along with the fragrance debut. They’ve joined the likes of Louboutin and Victoria Beckham, who both went into makeup before the pandemic. But entering this sector has never been more difficult.

“It’s just a very crowded market right now, and there are a lot of companies that are up and running,” said Ariel Ohana, managing partner at independent investment bank Ohana & Associates. , but the independent brands that are being launched in the market today.”

Why brands bet on beauty

When done right, beauty can be a profitable business for fashion houses. In brands like Dior, Chanel, and Saint Laurent, it serves as an entry point into the brand, providing a way for aspiring shoppers who can’t afford a bag or shoe to buy it from a brand. Indeed, beauty is the cash cow for these companies, enabling them to reap the benefits of high gross margins and mass distribution without diluting or damaging their brand ownership.

For luxury homes smaller than Dior or Chanel, creating a solid beauty company can be a rapid path to expansion, while also serving as a powerful customer acquisition tool that allows the next generation of luxury shoppers to start a relationship with a brand. Since Puig-owned Dries Van Noten launched its cosmetics range in stores in March, the brand has seen a higher footfall from younger first-time customers buying the line along with existing and older customers, Anna Trias, Chief Brand Officer. In Puig, she told BoF in a May 2022 interview.

“You can reach a very wide audience, given the low absolute average price of these products,” said Luca Solca, luxury goods analyst at Bernstein. “Brands hope to shift some of these consumers to other product categories…in the future.”

This dynamic becomes even more important amid current market expectations. While the luxury sector has recovered from the pandemic, the bleak state of the economy means that small and medium-sized fashion companies face more challenges ahead, as both middle-class shoppers and high-spending customers become more discerning about purchases.

The fashion brands that will benefit most from this dynamic are the biggest brands with the strongest DNA — Chanel, Louis Vuitton, Dior, Hermès — while their smaller peers are likely to find the market more challenging, as shoppers pull back from discretionary spending on expensive clothing and High-end shoes.

Beauty, however, is a relatively stagnant category. The prestigious beauty sector has been buoyant over the course of the pandemic, and continues to show solid growth, with sales in the first quarter of 2022 up 19 percent year-over-year in the United States, according to market research firm NPD. In the midst of troubled times, beauty can be a useful business for the smaller fashion brands they rely on.

“Beauty is a much more stable business compared to fashion,” said Wizz Sylvie, founder of retail and brand strategies Wizz & Co. More seasonal than fashion.

From an M&A perspective, fashion brands that have successfully penetrated the beauty market can prove capable of transcending categories, a testament to strong brand value, said Ariel Ohana, managing partner at independent investment bank Ohana & Co. And that in turn, she said. It enhances the company’s attractiveness to investors.

“If you can prove that your brand is not sector-specific, but really can cross many sectors, your brand will be much stronger,” he said. “This only leads to higher ratings and increases marketability, which means: This is easier…

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