L’Oreal – Masters of the Cosmetics Universe

L’Oreal bestride the cosmetic and personal care world like a colossus. The L’Oreal brand itself is a huge business, but they also own Garnier, Maybelline, Redken, Lancôme, Helena Rubinstein, Kiehl’s, Giorgio Armani and Ralph Lauren to mention just a few and not that long ago acquired the Body Shop. Proctor and Gamble and Unilever are bigger companies, slightly, but they have interests outside the cosmetics and personal care industry. In the industry proper nobody is as big as L’Oreal.

They make vast quantities of products themselves, but their overflow work is enough to keep a small industry of small contractors in its own right in business. The sheer scale of their operation is breathtaking. I remember back in the eighties they launched some styling foams. For technical reasons styling foams containers had, at that time, to be made out of aluminium. The launch of this product was enough to increase the world aluminium price. A lucky Dutch stockholder of aluminium apparently by pure fluke happened to have a large amount of aluminium on his books at the time and L’Oreal’s activities were enough to turn him into a millionaire.

They fund huge amounts of research into science related to cosmetics, with twenty labs in France alone. But their biggest ticket is advertising. How long is it since you last saw a L’Oreal advert? If you have switched on the television, opened a magazine or driven down a road recently the chances are that L’Oreal have had a go at trying to sell you one of their products. They continue to grow the sales of their products year on year every year. They do this both by building sales of their existing brands and by continually buying up smaller cosmetic companies. Is the credit crunch affecting them? Apparently not. With almost every sector of the economy reeling from the problems in the credit markets personal care and cosmetics brands almost are alone in seeming to be unaffected. I suppose you don’t take out a mortgage or a bank loan to buy a lipstick.

So knowing all this I was surprised to see a report knocking L’Oreal in a big way. The report claims that the company have sacrificed long term development for easy sales. The management have failed to innovate and are resting on their laurels. The long term outlook is bleak. The report is by Bernstein Research and has been written by Andrew Wood. His analysis is that short term earnings growth has been kept up by skimping on long term investment on marketing and research and development.

I have to say that this is a very bold assessment on several levels. For a start , L’Oreal are big spenders on all sorts of marketing and I doubt that the authors of the report will be getting much business from them in future. I am a scientist and I don’t have access to all the facts and figures but I have to say that what I do know doesn’t really match up with the reports portrayal of a company not fully exploiting its opportunities. From where I am sitting the position of L’Oreal still looks overwhelmingly strong and they would seem to have resources to draw on that should get them through any difficulties.

But I wonder. With a turnover equal to that of a small country and with a worldwide organisation of hundreds of thousands of employees, it must be a huge challenge to manage. Although the chief executive has access to lots of information that I don’t, I wonder if looking from the outside in I might be able to see something that he doesn’t. And I can see causes for concern. For a start, the adverts to me are starting to get very tired. How many times do you want to be told you are worth it? How long have they been running that line? There must come a time when something has been repeated so often that you don’t hear it any more. And what is their latest launch? I drive past a big L’Oreal advert on my way to work every morning. Despite being interested in what they are up to and also always being on the look out new ideas all the time, I really cannot remember what it is they are promoting at the moment. Is it Regenerist or Regeneris or Revitalise or something else with an eccentric spelling. The launches do seem to all follow a similar format, all the adverts look much the same.

I wonder if the average L’Oreal customer is as bored with their general offerings as I am? The enormous size of L’Oreal, their years of experience, their very widespread distribution and the fact that they have so many different brands on offer with so many segments of the market pretty much sewn up ought to mean that they are in a pretty solid position and not in danger from any direction, not even during the credit crunch. But there have been many companies over the years that have looked very secure only for things to go pear shaped later in the most surprising ways. Perhaps the shear size of the organisation will weigh it down. Maybe in the future, maybe the very near future, smaller companies that care more for their products will make sufficient headway in the market to erode L’Oreal’s dominant position? Despite this report, I don’t see any evidence of this, but in my bones I just have a feeling it might happen.

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