L'Oreal is the world's largest cosmetics producer by revenue -- €17.5B($24.7 billion)*-- and a North American market share of 15.8% in 2009. L'Oreal offers products in hair care, skincare, make-up, deodorants, and perfumes through its 27 brands that span all income levels. L'Oreal owns several large and notable brands, including Yves Saint Laurent Beauté, Lancome, Kiehls, Garnier, Maybelline New York. Its two largest competitors are Revlon (REV) and Procter & Gamble Company (PG).
Emerging markets are key growth drivers, comprising 33% of sales. Sales in these emerging markets have doubled every year and the company expects this to rise to over 50% of total revenue in ten years time. . In addition China may become its third largest market by the end of 2011. . Two more markets that it 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.
Net sales increased 11.6% to €19.5 billion (which was a 5.6% increase like for like). Net income increased 18.7% to €2.37 billion.
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, the majority of its sales coming from the North America and Western Europe. 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 luxury products division sells its goods through a smaller collection of department stores and the boutique's own retail locations.
The professional products segment produces products that are used by professional stylists in hair salons.
This segment produces skincare products sold in pharmacies and specialty drugstores.
The Body Shop and Dermatology are individual stores owned by L'Oreal.
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 7 to 13%.
In 2009, the worldwide cosmetics market remained stable despite the 2008 Financial Crisis, with an increase of 1% from the year before, and an average of 3.9% in sales in the last 15 years. However, L'Oreal's largest geographic zones performed poorly with a 6.3% decrease and 3.4% decrease in Same store sales in Western Europe and North America, respectively. Meanwhile, in emerging markets, L'Oreal had 3.3%, 8.3%, 11.2%, and 5% increases in Same store sales in Eastern Europe, Asia, Latin America, and Africa, respectively. The benefit of its international exposure means the effects of poor sales do not have as high an impact as it would on a company that is based solely in North America or Western Europe.Therefore, L'Oreal seeks to capture more global market share by especially focusing on the minerals trend in cosmetics in Eastern Europe, growing its men skincare segment in Asia, and targeting hair damage from sun exposure in Latin America.
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). As the baby boomer population ages, the total number of Americans older than 50 has increased at a faster rate than the number of Americans younger than 50 (5,757 per year compared to the under-50 set, which increases at an average rate of 1,677 per year). In addition, the median age for Americans has increased steadily from 2000 to 2008. This is a promising trend for L'Oreal because older age groups demand more cosmetics, especially anti-aging skin care and other age related products. Despite the fact that worldwide demand for cosmetics, skincare and haircare products has slowed in 2008, L'Oreal's market share has increased 0.6% to 15.8%
The usage of male cosmetics has grown considerably over the last two decades. From 2002 to 2005, sales of men's grooming products increased from 24% to $5 billion. That number is expected to double in 2009. 89% of men polled in the United States and Europe believed good grooming was important for their professional success, and 70% of them shopped for their own skincare products, as opposed to only 48% in 2008. Cosmetics companies have even begun to penetrate the over-40 market, which is not as saturated as the women's and young men's markets. L’Oreal has particularly focused on expanding its men’s skincare segment in Asia, where the group is first in terms of 2009 revenue. Asia also currently takes up 51% of worldwide men's skincare sales.
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. With some exceptions (Maybelline, Lancôme, Shu Uemura and Kérastase) L'Oreal's brands cater to both men and women. L'Oreal also spans different income levels, from affordable lines (Matrix) to luxury products (Yves Saint Laurent).
Avon Products (AVP) on and Estee Lauder Companies (EL) are cosmetics companies and thus in direct competition with L'Oreal. LRL dwarfs both companies in terms of revenue and spends more on R&D. However, Avon is much different from the other two companies due to its business model. Avon relies on individuals to sell its products door-to-door or to acquaintances. In this model each Avon representative is considered an independent contractor and receives a commission based on a percent of sales. This direct-selling method is meant to eliminate the middle man and decrease costs, thereby increasing the company's profits. Estee Lauder, on the other hand, produces and sells its goods wholesale to department stores and independent boutiques like Sephora. Like L'Oreal, Estee Lauder has a combination of luxury and middle-priced goods in order to appeal to as many consumers as possible.
Neither Procter & Gamble Company (PG) nor Revlon (REV) 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 (3.4%), Procter & Gamble (2.5%), Revlon (1.8%), Avon (0.6%), and Estee Lauder (1.1%). L'Oreal is more specialized than Procter & Gamble, and 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, Avon and Estee Lauder, therefore L'Oreal has more money to spend on marketing which is an extremely important factor to success in the cosmetics industry. Although L'Oreal 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.