L’Oréal’s Power Move: Why the Beauty Giant’s Bid for Kering Signals a Coming Shift in Luxury

When L’Oréal announced it would acquire Kering’s beauty division earlier this year, the markets responded with cautious optimism. But beneath the surface of balance sheets and brand portfolios, this deal may tell a much larger story. One about the psychology of luxury, the resilience of beauty, and a quiet corporate repositioning ahead of what many economists suspect could be the next global downturn.

Because if history is any guide, beauty tends to boom just before everything else slows down.

A Cooling Luxury Landscape

The global luxury market, once fuelled by post-pandemic euphoria and Chinese reopening, is showing unmistakable signs of fatigue. Growth is tapering across key regions: China’s economy, once the engine of luxury demand, is slowing under the weight of a property crisis and weakened consumer confidence. Meanwhile, Europe faces stubborn inflation and sluggish spending.

Luxury brands are starting to feel the slowdown. Kering, the parent company of Gucci and Saint Laurent, reported a 16% drop in revenue during the first half of 2025, reflecting weaker consumer appetite for high-end fashion. Analysts at Bain & Company now expect the global luxury goods market to shrink by up to 5% in 2026, marking its first decline since the 2008–2009 financial crisis. After more than a decade of steady expansion, it’s a clear sign that the post-pandemic luxury boom is losing momentum.

And the softness isn’t evenly spread. The sharpest slowdown is in the high-ticket categories such as handbags, apparel, and fine watches. For a decade, price hikes disguised stagnation. Now, consumers are pushing back. “We’re reaching a ceiling. Shoppers are reassessing what feels worth it.” one European luxury executive told BoF

When the aspirational middle class tightens its grip, the question for every luxury group becomes the same: what still sells when confidence falters?

The answer to that question, if history has anything to say, often comes in a small bottle or tube.

 

The Lipstick Effect Returns

Economists call it the lipstick effect - the tendency for consumers to continue, or even increase, spending on affordable luxuries like lipstick or perfume during recessions. The term was popularised by Leonard Lauder, chairman emeritus of Estée Lauder, who noticed cosmetic sales rising even as economies faltered.

The pattern runs deep. During the Great Depression, beauty sales soared as women sought small pick-me-ups amid economic despair. In the 2008 financial crisis, Estée Lauder’s revenues rose while most fashion houses saw sharp declines. And during COVID-19, self-care and skincare categories exploded as consumers replaced travel and luxury retail therapy with at-home indulgence.

At its heart, the lipstick effect is about emotional substitution. When large indulgences feel reckless, consumers seek small, repeatable pleasures that preserve a sense of normalcy. Beauty provides exactly that: a form of optimism you can wear on your face.

“When people can’t afford happiness, they buy a feeling of control,” says consumer psychologist Dr. Carolyn Mair. “Beauty is both emotional armour and identity reinforcement.”

L’Oréal’s Strategic Bet

That psychology sits at the core of L’Oréal’s latest acquisition is not a secret.

By taking over Kering’s beauty division, which includes Creed, and the beauty licenses of Gucci, Bottega Veneta, and Balenciaga, L’Oréal isn’t just buying products. It’s buying entry points into aspiration.

For L’Oréal, the timing is telling. The company is moving aggressively while luxury’s traditional revenue pillars weaken. Beauty, by contrast, remains one of the most counter-cyclical categories in the consumer economy. When the world grows anxious, the beauty aisle rarely sleeps.

Kering’s decision to sell is equally strategic. Facing slower sales in fashion and rising costs, the group is de-leveraging, freeing capital and streamlining operations to weather an anticipated demand slowdown. L’Oréal, flush with cash and scale, can absorb and expand what Kering could not.

In other words: one company is preparing for the storm; the other is preparing to profit from it.

The Psychology of “Affordable Luxury”

This is where branding meets behavioral economics.

Modern consumers, especially millennials and Gen Z, are driven by belonging and identity signaling. The desire to align with a brand’s world, even if only through its smallest products. Beauty serves as a symbolic bridge between aspiration and accessibility.

A $120 Gucci perfume or a $60 lipstick carries far more than its material value. It offers participation in a luxury ecosystem that might otherwise be out of reach. Sociologists call this aspirational consumption - buying not just goods, but the illusion of inclusion.

L’Oréal has mastered this art. It sells status in scalable form. Through its prestige and mass divisions, from Lancôme to Yves Saint Laurent Beauty, it reaches every rung of the socioeconomic ladder without diluting brand desire. The company understands that during economic strain, consumers don’t abandon brands they admire; they simply downshift to smaller indulgences within those same brand families.

This is the beauty industry’s quiet genius: the ability to turn global anxiety into commercial resilience.

Market Consolidation and Foresight

If the acquisition feels opportunistic, it also reflects a deeper truth about the current luxury cycle. After a decade of unrestrained growth, the sector is moving into consolidation mode.

Kering’s retreat from beauty, mirrors other strategic recalibrations across the industry. Even powerhouses like LVMH are tightening inventories and leaning harder into beauty and fragrance, categories that provide consistent margins and faster cash rotation than couture or leather goods.

For investors, the timing matters. Acquisitions like L’Oréal’s are late-cycle signals. They occur when major corporations reposition portfolios toward sectors historically resilient to downturns.

It’s less about short-term profit, more about owning the parts of consumer behaviour that don’t break when confidence does.

In that sense, L’Oréal isn’t betting against the economy - it’s betting on human psychology.

What Comes Next

If macro patterns hold, the next two to three years could reshape the hierarchy of luxury spending. As global demand stabilizes, the industry’s center of gravity will continue shifting fromstatus display to self-maintenance.

Expect growth in beauty, skincare, and wellness, especially at the intersection of science and self-care. Expect more collaborations between fashion houses and biotech-backed beauty players. And expect “affordable luxury” to dominate marketing narratives, blurring the line between indulgence and necessity.

Meanwhile, big-ticket fashion will likely consolidate: fewer collections, slower expansion, and more focus on storytelling that reinforces long-term brand equity rather than short-term sales.

What this means for consumers is paradoxical. Luxury is becoming both more accessible and more elusive - cheaper to touch, harder to truly own.

A Shift in the Luxury Psyche

The L’Oréal–Kering deal is more than a corporate reshuffle. It’s a mirror held up to the mood of the moment. A signal that both brands and buyers are recalibrating for leaner, more introspective times.

Every economic era has its emblem: the roaring ‘20s had champagne; the Great Depression had rouge. Today, perhaps, our emblem will be a serum, a small ritual of optimism in uncertain times.

Because when empires sense a storm, they don’t stop selling dreams.They just make them smaller, bottled, scented, and ready to survive the next cycle.