Coty should enjoy its Gucci license while it lasts.

The beauty conglomerate owns the rights to develop, manufacture, market and distribute beauty products for the fashion house, as well as several others owned by Kering.

For now, at least. On Feb. 3, Kering announced it had hired Raffaella Cornaggia to spearhead a new beauty division, Kering Beauté. The appointment all-but confirmed longstanding rumours that the French luxury giant is preparing to bring its beauty businesses in house. The announcement was short on details about when – or even whether – that transition will happen, or when new beauty products from Kering brands could hit shelves. More information may come when Kering reports quarterly results on Feb. 15.

Currently, Kering licenses out the right to create beauty products for its best-known brands. L’Oréal has the license for Saint Laurent’s YSL Beauté, which is said to generate over $1 billion in annual sales. Coty has Gucci, which has a smaller beauty business than Saint Laurent’s, but following a blockbuster makeup launch in 2019 may be the more valuable asset in the long run (as a fashion brand Gucci dwarfs Saint Laurent, with $7.8 billion in sales in the first nine months of 2022, to the latter’s $2.4 billion).

Neither beauty company has said publicly when its Kering licenses expire. L’Oréal is locked in a long term deal. The soonest Gucci’s license could expire is 2028, though it may be for much longer; the two companies could reach a deal to bring up the termination date, however.

A reckoning may be some ways off. But it’s not too early to start thinking about what Kering taking Gucci’s beauty business in house could mean for its current license holder – Coty executives surely are.

In an earnings call this week, Coty reported that Gucci’s makeup sales increased by more than 40 percent in the US during the second quarter of fiscal year 2023, which ended on Dec. 31. Gucci Flora Gorgeous Jasmine, which launched in August 2022, was a top ranked fragrance in key markets.

In 2022, Coty chief executive officer Sue Nabi cited Gucci as one of the company’s three leading scents. Over half of Coty’s fiscal 2022 sales came from prestige fragrances, and more than 82 percent of that business came from the conglomerates top six brands – which includes Gucci, as well as Burberry and Chloé. Coty also has long term licensing agreements with other Kering brands, including Alexander McQueen, Bottega Veneta and Balenciaga, which all have at least one fragrance but have yet to play in makeup, skin care or other beauty categories.

Investors don’t appear too worried; following Kering’s announcement, Coty’s stock barely budged. Overall, in its most recent quarter Coty saw slight declines in net revenues for its prestige and mass businesses, year over year, but the company is making progress on diversifying its portfolio. Coty owns a majority stake in Kylie Cosmetics, which in the most recent quarter saw over 40 percent year-on-year growth.

The question for Coty is what to do with these licenses: it may not have much incentive to build out those brands’ beauty offerings if it expects Kering to take them back.

It’s a situation without much precedent; the closest comparison would be The Estée Lauder Companies, which, faced with the prospect of losing its Tom Ford Beauty license, bought the whole brand in November for $2.8 billion.

Kering has publicly voiced dissatisfaction with the handling of the beauty business of its largest brand.

The company has ample time to build the infrastructure necessary to grow and scale beauty businesses for its fashion houses. In the meantime, Kering can regain its footing in beauty by experimenting with various product types, formats and distribution models among its smaller brands before trying them at Gucci. Bottega, in the midst of a revival under creative director Matthieu Blazy, is an especially intriguing testing ground. As for Balenciaga, still recovering from its BDSM-clad teddy bear marketing controversy, the brand may benefit from a bit of time before going all in on another category.

But the real star of the portfolio – Gucci – will determine the conglomerate’s future in beauty.

Gucci’s fragrance business may not be the size of Dior or Chanel’s – which are both run in-house – but Cornaggia has the beauty pedigree required to oversee such an operation. She spent the last 14 years at The Estée Lauder Companies, where she most recently served as international senior vice president and general manager for the Estée Lauder brand and Aerin.

Kering is playing the long game here, and if successful, Dior and Chanel may eventually have a formidable opponent. It will be 2028 before we know it.

Editor’s Note: This article was amended on Feb. 10 2023 to reflect the time of Coty’s license with Gucci.