QUOTE AND NEWS
Reuters  Jul 8  Comment 
L'Oreal finalized the buyback of an 8 percent stake in the French cosmetics giant from the Swiss food group Nestle in a deal that will boost earnings per share by more than 5...
Forbes  Jul 6  Comment 
Cosmetics giant L'Oreal agreed to stop claiming that some of their skin products could activate genes that would make your skin younger, after the FTC filed a complaint stating that their ads were false and misleading. Although the notion that...
BBC News  Jul 1  Comment 
The cosmetics company, L'Oreal, agrees to settle a case with US regulators over charges of deceptive advertising.
newratings.com  Jul 1  Comment 
CLICHY (dpa-AFX) - L'Oreal USA, Inc., a unit of French cosmetics giant L'Oréal S.A. (LRLCY), has Monday reached a settlement with U.S. regulators to resolve charges alleging deceptive advertising for anti-aging cosmetic...
The Hindu Business Line  Jun 25  Comment 
Cosmetics brand Maybelline, a part of beauty major L’Oreal Paris, has partnered IT major Infosys to develop a Web site that will deliver the latest promotions for new products, tutorial videos and...
The Economic Times  Jun 25  Comment 
The 105-year L'Oreal, which operates the Maybelline brand, has a portfolio of 28 international brands with sales of 23 billion euros in 2013.
newratings.com  Jun 19  Comment 
CLICHY (dpa-AFX) - French cosmetics giant L'Oréal S.A. (LRLCY) agreed Wednesday to acquire NYX Cosmetics for an undisclosed price tag in a deal that will boost its portfolio of offerings in the U.S. market at prices that are extremely...
Reuters  Jun 18  Comment 
French cosmetics giant L'Oreal on Wednesday said the US market for mass beauty consumer goods remained flat, dashing hopes of an improvement in the current quarter, but pointed to continued recovery in Europe, notably in southern countries.




 
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L'Oreal is the world's largest cosmetics producer with revenues of €17,063 M and a world market share of 15.3% in 2007.[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 generated 29% of its revenue and 60% of its growth from emerging markets in 2007. L'Oreal's emerging market revenue is up from 17% of sales in 1999. L'Oreal's international growth has been supplemented by its ability to deliver innovative new products to the market. L'Oreal spent €560M (3.5% of revenue) on research and development and registered 576 patents in 2007.[3]

Between 1999 and 2006, L'Oreal's organic growth dropped from over 10% to about 5%. As a result, L'Oreal increased its acquisitions to help drive growth. In July, 2006 L'Oreal acquired The Body Shop which now makes up about 5% of L'Oreal's revenues. L'Oreal also acquired Beauty Alliance, a major distributor of professional hair care products, and YSL Beaute, a luxury fashion company, in 2007 and early 2008, respectively. L'Oreal also expects to generate growth from the increasing adoption of the male cosmetics market, as well as stronger sales from older demographics. 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). This is important because half of all people between the age 55-59 used anti-age skincare, more than any other age group.



Business Outline

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L'Oreal operates the following business divisions: Consumer Products (49%), Professional Products (14%), Luxury Products (23%), Active Cosmetics (7%), The Body Shop (5%), and Dermatology (2%). Professional products commands the largest market share, compared to other divisions, in all of L'Oreal's geographic segments.

Cosmetics

L'Oreal's cosmetics branch made up 93% of the company's revenue in 2007.[5] Cosmetics primarily include products in hair care, make up, colourants, skin care, and perfumes. L'Oreal has a 15.3% market share in the world cosmetics market and this market share has been growing since 1996. L'Oreal gets about half its sales from hair care (24%) and skin care (26%), and in the world market skin care and hair care products make up about 55% of cosmetic sales.

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Trends and Forces

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60% of L'Oreal's Revenue Growth Came from Emerging Markets in 2007

Each year 60 million new consumers achieve an income level that allows them to buy more sophisticated cosmetics products.[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. In 2007, L'Oreal generated 29% of their total revenue and 60% of their growth from emerging markets. For the last two decades, cosmetics market share in North America and Japan has been falling and Western Europe has been essentially flat. On the other hand, market share for the rest of the world, made up mostly by emerging markets, has grown from 22% in 1997 to 33.5% in 2007.

Aging Populations Demand More Cosmetics

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). 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.[9] In 2005, half of all people between the age 55-59 used anti-age skincare, according L'Oreal.

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.

Male Cosmetics on the Rise

Cosmetics for men makes up about 7-8% of the world cosmetics market. 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.



Competition

Cosmetics makes up a small portion of Procter & Gambles business, while Revlon 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.


Company Revenue (mm) Operating Income (mm) Operating Margin R&D Spending (mm) Major Brands/Products
Revlon (REV) [10] $1,400 $121 10.14% $24.4 Revlon, Almay, Charlie, Bozzano, Ultima II
Procter & Gamble[11] $76,476 $15,450 20.20% $2,075 Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette
L'Oreal[12] €17,063 €2,827 15.5% €560 Garnier Fructis, L'Oreal Paris, Maybelline
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References

  1. LRLCY 2007 Annual Report, Consolidated Financial Results, pg. 20
  2. LRLCY 2007 Annual Report, pg.21
  3. LRLCY 2007 Annual Report, Research & Development, pg. 55
  4. LRLCY 2007 Annual Report, pg.21
  5. LRLCY 2007 Annual Report, pg.20
  6. LRLCY 2007 Annual Report, pg.20
  7. LRLCY 2007 Annual Report, pg.21
  8. LRLCY 2007 Annual Report, Market Trends, pg. 31
  9. LRLCY 2007 Annual Report, pg.27
  10. REV 2007 10-K, Item 15, pg. F-5
  11. PG 2007 10-K, pg. 49
  12. LRLCY 2007 10-K, pg. 23
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