Why Would PPR Sell YSL Beaute?

Everyone knows that fragrance and cosmetics are the cash cows of the luxury industry, along with bags and other accessories. So why would PPR, parent company of the Gucci Group decide to sell this potentially profitable asset to L'Oreal? Well, because of its relatively small size, YSL Beauty was only able to obtain 8 percent margins versus an industry range of 12 to 20 percent, with L'Oreal soundly in the middle with 16.6 percent expected for 2007. It was preforming below the other divisions of the Gucci Group and many of its most touted launches failed to earn out. But the rights for the biggest fragrance brands, YSL, Boucheron and Stella McCartney , were not included in the sale, although L'Oreal has a 20 year license to produce them. For their 1.15 billion euros L'Oreal gets the rights to Stella McCartney, Oscar de la Renta, Ermenigildo Zegna, and the Roger & Gallet subdivision. The Gucci brand has a long term fragrance license with another partner which was never part of the group, much to the chagrin past managers who would have loved to get their hands on it. Analyst Lisa Rachal says the deal will help PPR close the debt from the Puma sale and allow L'Oreal to develop the smaller brands more quickly. L'Oreal had been looking for more fragrance brands and were interested in acquiring Clarins, but the family was not interested in selling. Last year YSL Beaute terminated the licenses for Fendi and Van Cleef & Arpels. But what of Alexander McQueen? His fragrance was part of YSL Beaute but it hasn't been mentioned at all. Hmmm. □