Forbes  Mar 16  Comment 
L'Oreal is flexing its digital muscle with its most recent acquisition, Canadian company ModiFace, a creator of Artificial Intelligence and Augmented Reality technologies for the beauty industry.
Forbes  Mar 15  Comment 
Tugce Bulut just raised $12 million to expand her business Streetbees, which pays people to share photos and videos which give brands like Dyson and PepsiCo insights into their customer's lives.
Reuters  Feb 15  Comment 
Nestle expects organic sales to grow 2-4 percent this year, the Swiss food giant said on Thursday after they rose a mere 2.4 percent in 2017 and a goodwill impairment on its skin health business hit net profit.
SeekingAlpha  Feb 9  Comment 
Channel News Asia  Feb 9  Comment 
PARIS: L'Oreal stands ready to buy Nestle's 23 per cent stake in the firm should its Swiss shareholder choose to sell, and it could finance a purchase through cash, by selling its Sanofi stake or by borrowing, L'Oreal's CEO said. "If Nestle one...
Forbes  Dec 14  Comment 
As demand for organic and natural personal care products grows, L'Oreal reacts with their first plant-based professional hair color line.
BBC News  Nov 21  Comment 
How an Instagram beauty blogger with more than 75 thousand followers became the first man to star in a L’Oreal make-up ad.


L'Oreal is the world's largest producer of beauty and personal care products (e.g. perfume, makeup, shampoo).


L'oreal first emerged in 1909. Even in its early beginnings, the company emphasized the importance of research. By 1984, the company had around a thousand researchers on its payroll. Today, that number hovers around 2,700.

L'oreal entered the crucial Japanese market in 1963 in a partnership with Kose, one of Japan's more prestigious brands. In 1976 and 1978, these companies formed the Lorecos and Lancome brands. They split in 1999 because the Kobayashi family was not interested in handing over the company. L'Oreal is constantly interested in new acquisitions. In 2007, the company bought The Body Shop. This acquisition marked the company's expansion into more interest-specific types of products. It seems likely that the current management will be looking to both expand its present product lines, as well as acquire more already established brands.

FY06 was a surprisingly good year for the company -- it's been recovering from a slight sales dip, and presently has no obvious issues. At the same time, it's not the most dynamic of stocks.


L'Oreal is constantly innovating its product lines. These product lines include Giorgio Armani Parfum, Garnier, and Maybelline, lines whose products span across many aspects of the beauty industry, including hair, skin, and cosmetics. Interestingly, L'Oreal was one of the first HPC companies to really bring nanotechnology to bear on its product lines; it remains a industry leader in terms of research and development.

Money Flow

The Japanese market is hugely significant for home and personal care markets. Even though Japanese consumers aren't the largest market for European HPC companies, they set the industry standard for quality products. While L'Oreal is considered a more international company than companies like Estee Lauder, only 9.5% of its sales come from Asia. L'oreal's popularity in Europe has decreased slightly over the last few years, but that looks to be recovering. In Q1 2006, almost half of L'oreal's sales came from western Europe.

The company recently suffered some issues with product distribution regarding its Professional line, which primarily affected its North American market. Consumer interest in this product line wasn't actually affected by this, so the company is looking forward to a better year in 2007.

Trends and Forces

Older Women and Men Will Drive Cosmetics Demand

Traditionally women aged 15-30 formed the consumption base for cosmetics companies. Since 2001 7 million new men consumers entered the cosmetics market. This growth is shown in the accompanying table. Men are beginning to purchase facial skincare products.

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Emerging Market Growth Will Increase Global Disposable Income

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. Each year 60 million new consumers achieve an income level that allows them to buy more sophisticated cosmetics products.[2] This demand growth will be seen in both the middle and high income segments of the consumer population as seen in the table.


Japanese home and personal care companies are posed to enter the world stage as major competition for L'oreal and other Western companies. These Japanese companies emphasize innovation, and are looking to enter the international market. They have already established footholds in China, the Middle East, and Europe. While the domestic Japanese HPC market is itself faltering, you can't afford to discount its importance to the industry as a whole, especially since it remains the largest personal care market in the world. Also, keep in mind that the Japanese market doesn't speak to the overall health of Japanese companies. Several, like Kose, could pose serious economic threats to Western companies in the future.

The footholds in China are of the most concern to Western companies like L'oreal. Asia is an important growth market for European HPC companies. In FY '05, 9.5% of L'oreal's group sales came from Asia, and in the first quarter of FY06, almost 10% of their group sales came from Asian markets. Despite this success, L'oreal's Asian sales came to only 7.8%LFL last year. The rising success of Japanese HPC companies in Asia could really affect the success of Western companies in that area. Also, the rising success of other Western companies could affect L'oreal's Asian group sales. Proctor and Gamble, Unilever, and Estee Lauder are all major forces in Japan, which could be a foothold into the larger Asian market.

L'Oreal specifically has many brands turning a profit in Japan. Lancome and the various L'oreal series comprise about 55% of their Japanese sales. While L'oreal has a great deal of prestige in Japan, it might be on the decline in terms of department store sales. Right now, L'oreal is not the most competitive company in Japanese HPC market, but executives say that the next few years will bring a lot of growth into that particular market.

L'Oreal might be facing some issues in the UK, where its acquisition of The Body Shop was met with some controversy. Some consumers expressed concern that The Body Shop would become less socially aware because of its acquisition by L'oreal. Despite this, the acquisition opens up new distribution channels, and might be part of a larger plan. The company also acquired Beauty Alliance, a major distributor of professional hair care products.

Another factor impacting L'Oreal's sales would be the leading lipstick indicator. This is the idea that a consumer will increase their consumption of less expensive luxury items, such as lipstick, during a time of social upheaval. Lipstick sales did increase after 9/11, but it remains to be seen if that trend continues, or has a specific impact on L'oreal's financial success.

  • Kose

Strong, consistant growth. L'Oreal might be a more prestigious brand, but Kose has been expanding faster in Japan. L'oreal and Kose are tied in terms of the department store placement at 11%. L'oreal and Kose used to have a partnership, but have since split apart. Kose's looking to acquire, partner, and expand.

  • Kao

Kao is ambitious. It's been gaining prominence, and is poised to present a serious threat to Western companies. Brands like Jergen's, John Frieda, Curel, and others have become more popular in the US and Europe. In fact, about 16% of Kao's consumer product sales came from Western markets. This high sales rate is actually accelerating.

  • Unicharm

This is another company that's going for gold. In order to become more competitive, Unicharm has been changing its products and revamping its product-lines. Unicharm focuses on products related to feminine hygiene and adult incontinence, and recently took over Shiseido's feminine hygiene line.

  • NuSkin

Nuskin draws about 50% of its revenue from Japanese consumers. It's the 4th largest network marketing company in the world. A network company has a business model sort of like Avon or Amway, relying on individual and regional sales. It is not a competitive model in terms of research and development.

  • Estee Lauder

Estee Lauder has a higher rate of exposure in Japan. About 13.5% of their total group sales came from the Asian market, in comparison to L'oreal's 9.5%. It's a prominent brand that's looking to promote many of its stronger selling lines to the Asian market. For example, the company is planning on opening several new Aveda locations.

  • Shiseido

While Shiseido might be a familiar brand to shoppers with access to Sephora or Ulta, its reliance on third party distributors adds an extra expense to its operating margin. Despite this disadvantage, Shiseido's rates are on the rise in Asian and markets European markets. Also, about 30% of its sale come from abroad -- 9% of those sale are actually from North America. Shiseido is Japan's leading personal care compant, with a 15.8% market share. Its new CEO is going for blood, with massive line restructuring. So far it's experienced slow sales growth, but it's definitely not a company to be discounted. Shiseido was one of the cosmetics companies tapped by Japan's Ministry of Economy to participate in a "department store of the future" project.

  • Lion

Another Japanese competitor that could become a major competitor, but only if it receives a major overhaul. It's a definite target for acquisition, especially since the quality of its products are not the overall issue affecting the company's success.

  • Pola

A prestigious company in Japan. Pola produces some fantastic products, and is moving towards global relevance. In order for that move to be successful, Pola would need to partner with another larger company.

  • Proctor and Gamble

Proctor and Gamble treats Japan as one of its key markets. It's got a great reputation as an employer, which is a huge boost in that market, since company reputation can really affect sales. It distributes a total HPC line, from skincare to hygeine.

Avon, Clarins, Beiersdorf, Henkel, Unilever, and Milbon all have a presence in Japan, but aren't in the same league as the companies mentioned above. Milbon and Henkel might be tempting acquisitions.



  1. LRLCY 2007 Annual Report, Market Trends, pg. 31
  2. LRLCY 2007 Annual Report, Market Trends, pg. 31
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