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Company poised to grow revenues during 2009 |
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Company poised to grow revenues during 2009![]() |
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L'Oreal is the world's largest cosmetics producer by revenue -- €17B($23 billion)-- and a world market share of 15.3% .[1] L'Oreal offers products in hair care, skincare, make-up, deodorants, and perfumes through its 27 brands. Hair care and skin care make up the largest percentage of L'Oreal's sales, 24% and 26%, respectively.[2]
L'Oreal has begun to penetrate emerging markets such as Asia, Eastern Europe and Latin America, which has bolstered its revenues from the already-saturated North American and Western European markets. Two more markets that the company has penetrated include men, who have shown an increasing amount of attention to cosmetics, and an older population that has an interest in anti-aging products.
L'Oreal sells products to both professional stylists and non-professionals. Its outlets range from drugstores to department stores to its own boutiques. The France-based company has worldwide presence, with 68% of 2008 sales coming from the United States and Western Europe.[4] L'Oreal has responded to the recession that began in 2008 through marketing its products more aggresively and introducing new ones that will compel consumers to buy. In addition, its international presence has increased as generation of new wealth in areas such as Asia have increased citizens' spending power and thus their consumption of cosmetics.
L'Oreal operates the following business divisions:
The consumer products segment sells its goods through mass-market drugstores.
The professional products segment produces products that are used by professional stylists in hair salons.
The luxury products division sells its goods through a smaller collection of department stores and the boutique's own retail locations.
This segment produces skincare products sold in pharmacies and specialty drugstores.
The Body Shop (4%), and Dermatology (2%) are individual stores owned by L'Oreal. Professional products commands the largest market share, compared to other divisions, in all of L'Oreal's geographic segments.
| Year | Revenue (€ millions) | Revenue ($millions) | Operating Income (€ millions) | Operating Income ($millions) |
| 2004 | 13,641 | 18,561 | 2,089 | 2,843 |
| 2005 | 14,533 | 19,775 | 2,266 | 3,083 |
| 2006 | 15,790 | 21,485 | 2,541 | 3,458 |
| 2007 | 17,063 | 23,218 | 2,827 | 3,847 |
Sales increased 8% from 2006 to 2007 including a decrease of 3.5% due to currency exchange rate fluctuations. The professional products division saw a 7.5% increase in sales, Sales for the Consumer Products segment increased by 7.9% from 2006, the largest contributor to which was skincare. The Luxury Products segment had 8.4% growth, with an increase in sales of 12.1% in the last quarter, driven primarily by new fragrance releases such as Diesel Fuel for Life and Emporio Diamonds. Active Cosmetics achieved full-year sales of 10.8% with a 4th quarter increase of 14.2%.[7]
New markets throughout the world have shown accelerated growth during the 2007 fiscal year. Eastern Europe grew the fastest, seeing a 29.4% increase in sales at the end of fiscal year 2007. Sales in Asia and Latin America for the same period were 14.3% and 14.6% respectively.[8]
As emerging markets in Asia, Africa, and South America grow, income growth will spur consumption. This presents an opportunity for consumer product companies like L'Oreal, and L'Oreal is already reaping the benefits. Eastern Europe, Asia and Latin America have the fastest-growing sales, ranging from 14.3% to 29.4%.[10] In Eastern Europe, for example, the Luxury Products segment grew faster than the market in 2007, fueled primarily by Giorgio Armani fragrances and Biotherm. Also, the Professional Products segment became market leader in the Czech Republic, Poland and Russia. L'Oreal has followed an aggressive plan to enter these markets and their continued economic growth will serve to make them more profitable.[11]
L'Oreal projects that by 2025 41.5% of all the people in Europe, the US, and Japan will be over 50 years old (34% were over 50 in 2005).[12] This is a promising trend for L'Oreal because older age groups, comparatively, demand more cosmetics, especially anti-aging skin care and other age related products. In addition, cosmetic demand from all age groups, in particular those between 40 and 70, has been on a steady incline. The world cosmetics market has had an average annual growth of 4.6% between 1993 and 2007.[13] In 2005, half of all people between the age 55-59 used anti-age skincare, according L'Oreal.[14]
However, while the percentage of older people in these populations is growing, the actual number of older people is not necessarily increasing. Native populations in France, Italy, Netherlands, Japan, as well as many other developed countries, are growing older, percentage wise, as a result of lower birthrates. Birthrates below replacement in these countries, as well as below historical levels, means that new generations are smaller than previous ones creating a proportionally older population.. While the US experiences a similarly low birthrate from Caucasians, aging baby boomers means that the older population is in fact larger than in the past.
Cosmetics for men makes up about 7-8% of the world cosmetics market.[15] However, about 22% of L'Oreal's sales come from male cosmetics, primarily in the form of cologne and deodorant. Together male perfumes and deodorant made up about two thirds of L'Oreal's male cosmetic sales in 2007. The usage of male cosmetics has grown considerably over the last two decades. From 1990 to 2001, men's skincare usage increased from 4.5% to 21%. In addition, men skincare usage in Western Europe has increased about 28% between 2001 and 2005.[16] Cosmetics companies have even began to penetrate the over-40 market, which is not as saturated as the women's and young men's markets. In 2007 53 anti-ageing skin care products were released, four times the number of new products released in 2005.[17] There are two key reasons why the male demographic is receiving so much attention from cosmetics companies: first and foremost, it is still not as saturated as the female market. More importantly, men have proven to be more loyal to specific products and brands than women are, who are more likely to switch to whatever the next trend is. Therefore cosmetics companies are trying to appeal to the male market in order to secure long-term loyal customers.[18]
Neither Procter & Gamble nor Revlon are in direct competition with L'Oreal. Cosmetics makes up a small portion of Procter & Gambles business. Revlon, on the other hand, only sells cosmetics. Delivering new and innovative products is key in any beauty or fashion industry, and cosmetics is no different. Of the three, L'Oreal spends the most on R&D as a percentage of sales: L'Oreal (3.5%), Procter & Gamble (2.7%), and Revlon (1.7%). L'Oreal is more specialized than Procter & Gamble, and far outspends Revlon on R&D, and both facts help L'Oreal remain a leader in the cosmetics market. On the basis of revenue, L'Oreal is much larger than Revlon, therefore L'Oreal has more money to spend on marketing which is an extremely important factor to success in the cosmetics industry. Although the company is dwarfed by Procter & Gamble on a sales basis, the majority of Procter & Gamble's R&D and marketing expenses go to its other product categories that form a more significant portion of its revenues.
| Company | Revenue (mm) | Operating Income (mm) | Operating Margin | R&D Spending (mm) | Major Brands/Products |
|---|---|---|---|---|---|
| Revlon (REV) [19] | $1,400 | $121 | 10.14% | $24.4 | Revlon, Almay, Charlie, Bozzano, Ultima II |
| Procter & Gamble[20] | $76,476 | $15,450 | 20.20% | $2,075 | Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette |
| L'Oreal[21] | $23,134 | $3,833 | 16.57% | $759 | Garnier Fructis, L'Oreal Paris, Maybelline |
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