WEEKLY COMPANY INSIGHT: L'ORÉAL
Robert Blews, 19 September 2019
Founded in France in 1909, L’Oréal operates exclusively in the global cosmetics market. Now present in 140 countries on all five continents, the company has a market leading position in a global market which is estimated to be ~US$203bn in sales.
Global cosmetics - a high growth and recession resistant business
Cosmetics are a particularly robust market, which sees strong growth in good economic times, but also proves to be relatively resilient in times of economic challenges. Over the past several years, the global cosmetics market has grown by a respectable ~5% per year, but the industry even managed to grow by 1% in 2009 (at the height of the global financial crisis). L’Oréal management attributes the strength and resilience of the global cosmetics market to its demand driven nature, where consumers are always on the lookout for quality, performance and perceived results. Put differently, the cosmetics consumer is always on the lookout for quality and novelty value, and thus puts a premium on leading edge technology, trends, and new ideas.
L’Oréal has a very impressive track record. In our view the company's success and ongoing market share gains come from a combination of the following factors:1) a commitment to innovation and willingness to invest in market leading research and development; 2) an omnichannel approach to sales and marketing, whereby the company interacts with customers via traditional brick and mortar physical locations, on-line channels, social media, live web chats, and mobile applications; 3) a strategy of selling into all major channels, all major categories, and at all price points; 4) an industry leading ability to identify trends and aggressively position the company’s brands and products in order to benefit from changes in customer preferences.
A history of acquiring and leveraging up and coming brands
All attractive markets come with challenges, and cosmetics are a highly competitive business. Here L’Oréal seems to have found an interesting solution. The company has a well proven track record of identifying and acquiring up and coming brands as a means of defending its market positioning and fostering organic growth. By acquiring up and coming brands, and leveraging them through the company's unparalleled marketing and distribution, the company has achieved impressive results. Recent examples of this strategy include the company's acquisition of Urban Decay (sales up 300% from 2012 – 2015) and NYX Cosmetics (sales up over 125% the year following the acquisition).
- economic downturn
- product recalls
- increased competition