Kering/Creed: posh perfume buy embraces luxury gap doctrine

The “essence of strength and majesty” does not come cheap. Just 100ml of the woody, fruity Aventus fragrance costs €295. Its maker, Anglo-French perfume house Creed, also commands a premium price. French luxury group Kering is buying the 263-year-old Paris-based business for an estimated €1bn-€2bn.

The €5bn market for ultra-pricey brands is expanding at 15 per cent a year, at least three times faster than the rest of the fragrance market. A loyal, price-insensitive customer base also justifies a stiff price tag.

Creed’s vendors, chair Javier Ferrán and funds controlled by BlackRock, are likely to have secured a multiple at least as high as Australian brand Aesop. L’Oréal recently bought the latter for $2.5bn or 4.7 times last year’s sales. Creed generated over €250mn of revenues in the year to March.

Kering’s first beauty acquisition comes shortly after it announced plans to create an inhouse division for its cosmetics and perfumes business. Running these businesses directly, rather than licensing them to third parties, should improve its control of critical brands.

The Creed deal should accelerate the build-up of Kering’s beauty division by as much as two years. Kering should be able to develop Creed, particularly in China, travel retail and as a women’s fragrance. The latter accounts for just 15 per cent of sales.

There is just a whiff of doubt about this deal. It is a potential distraction from sorting out underperforming Gucci. Kering is using up funds on bolt-on takeovers that might be better employed on a needle-moving deal. It should reduce its reliance on Gucci, which accounted for two-thirds of operating profits last year.

That issue explains why Kering shares are priced at 16 times next year’s earnings, about a third lower than the sector mean. Over the past year, its stock has moved sideways. The S&P Global luxury index is up nearly a quarter.

Buying Creed is an understandable move, given Kering’s beauty ambitions. But stronger, more majestic moves are needed to lift the share price.

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