Natura Cosméticos S.A. - Company Profile, Information, Business Description, History, Background Information on Natura Cosméticos S.A.

Rodovia Régis Bittencourt, Km 293 - Edificio 1
Itapecerica da Serra, Sao Paulo 06882-700

Company Perspectives:

Natura, for its business behavior, the quality of its relationships a nd its products and services, shall become a worldwide brand, identif ied with the community of people engaged in building a better world t hrough a better relationship with themselves and others, with nature, of which they form part, and with the whole.

History of Natura Cosméticos S.A.

Natura Cosméticos S.A. is a leading player in sales of cosmeti cs, fragrances, and toilet products in Brazil, which is the world's f ifth largest market for these products. With an army of more than 450 ,000 salespeople (whom the company calls "consultants"), it relies on direct sales to the home and ranks a close second to Avon Products I nc.'s Brazilian subsidiary, Avon Cosméticos Ltda. Natura has d irect-sales operations in other Latin American countries and has open ed retail stores in Paris and Mexico City. Active in disseminating ne w products, the company keeps up to date with the latest pharmaceutic al, chemical, and biochemical research in its field and is said to be Brazil's largest investor in scientific techniques. It has an enviab le reputation for ethical corporate behavior. While exploiting Brazil 's bountiful plant resources for its Ekos line of products, it uses o nly sustainable ingredients from special reserves in remote areas and strives to aid community development in these areas.

Beauty a la Brazil: 1969-89

Antonio Luiz da Cunha Seabra was working as an economist in the Brazi l office of the Remington Electric Shavers Division of Sperry Rand Co rp. when he founded Natura in 1969 with $9,000 in cash and a hand ful of cosmetic formulations by Jean-Pierre Berjeaut. The small shop that Seabra opened in Sao Paulo was a kind of luxury boutique, with a staff of four promoting Berjeaut's creams and lotions, which were ba sed on natural products. Seabra gave consultations there, coaching cl ients on how to use the products correctly and promising therapeutic benefits. "They were difficult years," he recalled, speaking in 1998 with Nelson Blecher of Brazilian business magazine Exame. "Som etimes there wasn't even money to pay the light bill."

This changed in 1974, when Natura abandoned retailing in favor of dir ect sales by door-to-door salespeople working on commission. During t his period the company developed a network of 2,000 salespeople and r aised its annual sales to $5 million. Among the benefits of direc t sales, according to one of Seabra's partners, was that it enabled N atura to anticipate consumer trends in this fickle field before retai lers could do so. In addition, this marketing method was said to make it easier for the company to promote and sell all of its products, w hereas retailers tended to concentrate their efforts on only a few ho t-selling items.

As the business grew, Seabra and Berjeaut financed expansion by found ing, between 1979 and 1981, related companies with outside entreprene urs. Four distributorships and a makeup firm called L'Arc en Ciel ope rated independently. Guilherme Peirao Leal, a distributor who had inv ested $40,000 in the business, became a partner in 1979. In 1983 Leal brought in Pedro Luiz Passos, an engineer who became superintend ent of production and later was made a junior partner. By 1986 Natura was fielding 16,000 "consultants," averaging growth of 40 percent a year, and dominating high-end door-to-door sales of cosmetics in Braz il. That year, the company introduced Chronos, a facial skin-care tre atment for fine lines and wrinkles that was the first in Brazil to pr omote cell renewal. This line exceeded the company's own expectations by accounting for sales of 90,000 units in scarcely its first month and a half. Chronos remained a Natura staple, but not all of the comp any's endeavors were successful. Another line, called Númina, was a failure. Taking the enterprise into neighboring countries prove d premature. Natura also tried retailing again, but abandoned the eff ort after losing $2 million in 1987. A crisis involving company s hares in the late 1980s resulted in Berjeaut's departure, and the fiv e autonomous enterprises were merged into Natura in 1989.

Natura's Way in the 1990s

Natura's sales reached $180 million in 1990, then fell sharply th e next two years because of an economic recession in Brazil. As a res ult, the company dismissed 15 percent of its 1,800 employees. However , taking advantage of an opportunity created by their company's diffi culties, Seabra and Leal purchased the 26 percent share of the compan y held by Yara Pricolli for $25 million. Seabra thereby raised hi s stake to 38 percent, and Leal to 36 percent. During this period the two established Natura's basis for further growth by recruiting expe rienced executives from larger competitors such as Johnson & John son Indústria e Comércio Ltda., Gillette do Brasil Ltda ., Procter & Gamble do Brasil & Cia., Shell Brasil Ltda., and Unilever Brasil Ltda.'s Indústria Gessy Lever Ltda., and also by investing heavily in technology and quality control.

Natura surpassed its 1990 revenues in 1993. In that year Chronos anno unced a new line of anti-aging creams, based on two years of trial an d $1.5 million in development expenses. The complete line, consis ting of liquid toilet soap, tonic lotion, peeling gel, creme gel, emu lsion for the eye area, and a cellular renovator, cost 32,000 cruzeir os (almost $100). It proved a smashing success, selling 70,000 un its a month. Natura also introduced a new perfume, Shiraz, developed by Brazilian, French, Mexican, and Swiss researchers. It sold for &#3 6;28 per container. The company was again venturing outside Brazil, h aving entered Portugal in 1991 and having just established subsidiari es in Argentina and Chile.

Natura's revenues reached $350 million in 1994. The following yea r the company had a 14 percent share of the Brazilian market for cosm etics and personal hygiene products and was offering 250 kinds of per fumes, shampoos, creams, and lipsticks. It was fielding 105,000 sales people, mostly in Brazil but also in Argentina, Bolivia, Chile, and P eru. The next year, 1996, was even better. Natura's revenues reached $580 million, of which some 20 percent came from third-party good s such as lingerie and jewelry. Its sales force, now up to 160,000, h ad three million customers in Brazil alone. They sold 61 million unit s of 270 products, with each salesperson averaging $5,760 worth o f goods, on which they received a commission of 30 percent. For Natur a the payoff was even sweeter: a 28.3 percent return on the company's net worth.

Natura's rapid growth created both new opportunities and daunting cha llenges. In the company's early days, such multinational giants as Pr octer & Gamble and Unilever confined themselves to marketing the cheap mass products found in Brazilian drugstores and supermarkets, l eaving fragrances and artisanal creams to smaller, specialized enterp rises. Then the giants moved into their territory, attracted by its h igh profit margins. They were willing and able to spend large sums on research and development for a torrent of the new products demanded by a fickle public. Between 1992 and 1996, cosmetic sales in Brazil g rew from $2.6 billion to $5.7 billion. Natura hired a French- based Vietnamese scientist, Anh Tuan Tran, to furnish technology and introduced 108 new products in 1996. Forty percent of its sales came from products not in existence two years earlier. In addition, the co mpany began work on a new factory in Cajamar, five times larger than the existing one in Itapecerica da Serra, and nearer to Sao Paulo (ab out 19 miles away). It was completed in 1999 at a cost of $110 mi llion.

Although Natura followed the lead of big multinational competitors in some respects, it remained a most unusual company that reflected its idiosyncratic founder. Greatly influenced by the thinking of psychia tric pioneer Carl Gustav Jung, Seabra spent more than a decade in Jun gian psychoanalysis and shared the master's interest in mythology as a manifestation of what Jung called the collective unconscious. In hi s garden Seabra erected a Buddhist and a Taoist temple; nearby he pla ced a chapel in homage to St. Francis. Each day of the week, he belie ved, was influenced by a different force of nature. For example, Mond ay, the day of Aphrodite, favored intuition and was suitable for cons idering new products. Although his company relied on opinion surveys and experiments to launch its highly successful Essencial line of per fumes, it initiated its popular Mamae e Bebê (Mother and Baby) line for babies, pregnant women, and new mothers despite a survey ind icating that the market for infant products was too small.

According to Seabra, cosmetics were so associated with superficiality that most people did not realize the power of these products to tran sform personality by reestablishing self-esteem. Unfortunately, Leal told Blecher, "In the world of cosmetics, in particular, there prevai ls deception, illusion, falsehood, in the quest for success at any pr ice." Natura sought to avoid false promises for its products, preferr ing the word antisinais (antisigns--i.e., of aging), rather th an "rejuvenation," since nothing can reverse the march of time. The c ompany did not hire supermodels but instead employed advertising feat uring ordinary women older than 30.

An admirer of Levi Strauss & Co. as a corporate model, especially for ethical conduct, Seabra earmarked a percentage of Natura's divid ends to finance social projects and refused to do business with compa nies that employed child labor. Also a follower of business guru Pete r Drucker, he championed accessible, responsive management that would break down hierarchy, work in teams, and make decisions by consensus . Officially, the firm had three presidents by 1998: Seabra, "preside nt-founder"; Leal, "executive president"; and Passos, "operational pr esident." Seabra took a six-month sabbatical in Paris in 1996, and Le al took one the following year in Boston, where he attended business courses at Harvard University. Responsiveness also extended to the pu blic, and Natura directed hundreds of service personnel to field call s from its clients and salespeople. Employees were paid a median mont hly salary 16 times the national minimum, with the lowest about five times the minimum level. They shared in the profits and held a portio n of the company shares (17 percent in 1998). Natura also made a majo r investment in its salespeople, who were sent to classes in cutaneou s biochemistry and physiology and were not permitted to work for comp etitors.

By 2000 Natura had about 300 items in its portfolio, divided into men 's and women's fragrances; hair care; color cosmetics; facial skin ca re; body care; sun care; bath products; children's products; mother a nd baby products; and vitamin and mineral supplements. Chronos, now e xtended to include body-care products, remained one of its most popul ar lines, along with Mamae e Bebê, Natura color cosmetics and f ragrances, and Natura Homem for men's grooming. The company claimed t o have one of the largest cosmetics research-and-development centers in Brazil, with access to universities and international study center s that kept its researchers up to date with the latest techniques in the fields of dermatology, chemistry, biochemistry, and related subje cts. Natura also was reported to be Brazil's largest investor in scie ntific testing, in order to introduce an average of 120 new products a year.

Another recession, in 1998 and 1999, took a heavy toll on Natura's re venues and profits and led to a 10 percent drop in employees. Neverth eless, in 1999 the company bought Flora Medicinal J. Monteiro da Silv a Ltda., a company almost a century old, which had 300 products and w as researching 280 species of Brazilian plants. This was an essential part of what the company called its "Manhattan Project," which resul ted in the Ekos line, introduced in 2000 with 21 products and develop ed at a cost of BRL 185 million (about $100 million). In 2002 thi s line accounted for 10 percent of company revenues.

The Ekos line consisted of a range of body-care products such as sham poos, bath soaps, massage and moisturizing oils, and perfumes, made f rom exotic fruits, roots, and nuts obtained from the Amazon rainfores t and other Brazilian forests or small, traditional plantations. In a ddition to its commercial advantages for Natura, the indigenous produ cts initiative was seen by the company as offering an alternative to the destruction of fragile environments by the clearing of forests fo r the logging of tropical timber or for mining, cattle raising, or in tensive farming of soybeans and other cash crops. In Brazil's Xingu n ational park, Leal and other Natura executives participated in a fest ival, sleeping in native huts. Two months later, 13 indigenous leader s visited company headquarters, seeking assurances that Natura was co mmitted to buying their products for the long term and not only for t he life cycle of a single cosmetic, at the most, only five years.

Natura, which had established an Internet site for sales in 2000, add ed a printed catalog in 2003, with a circulation of 800,000. It was u pdated every three weeks. The company also was producing a television program broadcast twice weekly on an over-the-air channel. In May 20 04 Natura issued the first initial public offering of stock by a Braz ilian company in more than two years, selling $240.9 million wort h of shares, or 22 percent of total equity, on the Borsa de Valores d e Sao Paulo. The company announced an impressive net profit of BRL 30 0.41 million ($102.5 million) in 2004 (compared with BRL 65.16 mi llion, or $21.16 million in 2003) on net income of BRL 1.84 billi on ($627.99 million). Gross sales, before deducting for commissio ns, came to BRL 2.46 billion, or $839.59 million. It held a 19 pe rcent share of the cosmetics, fragrance, and toiletries market in Bra zil, second only to Avon.

A weakness for Natura was its failure to make an impact abroad; forei gn sales came to only 3 percent of the total in 2004. The following y ear the company opened a retail outlet in Paris. This boutique, on th e Left Bank, a two-level store created to resemble a Brazilian home, initially marketed only the Ekos line, now a collection of at least 7 2 units, and showcased fragrant bowls of grains, flowers, herbs, and other raw ingredients used in its products, which it arranged by scen t and color rather than by function. Natura opened another retail out let, in Mexico City, later in the year. It also was planning to expan d its direct-sales operations into Colombia, Costa Rica, Ecuador, Mex ico, Uruguay, and Venezuela by 2007. The company's sales staff had sw elled to 481,000.

Although Seabra, Leal, and Passos all had grown children, none of the m were working for Natura when they announced in 2005 that they would yield the presidency to Alessandro Carlucci, a 38-year-old executive who had been with the company since completing business school 15 ye ars earlier. As chief executive officer, Carlucci would be in charge of day-to-day management, while Seabra, Leal, and Passos would be cop residents of the administrative council (that is, cochairmen of the b oard).

In addition to the Chronos, Ekos, and Mamae e Bebê lines, Natur a was fielding, in 2005, the Tododin line, a broad range of products for daily use, employing natural ingredients such as milk, sugar, and honey, in cosmetics, fragrances, and toiletries; the Natura Unica li ne of makeup products for the face, lips, and eyes; and Faces de Natu ra, consisting of skin treatment products, cosmetics, and fragrances for young women.

Principal Subsidiaries: Commodities Trading S.A. (Uruguay); In dústria e Comércio de Cosméticos Natura Ltda.; N atura Brasil Cosmética Ltda. (Portugal); Natura Cosméti cos S.A.(Argentina); Natura Cosméticos S.A. (Chile); Natura Co sméticos S.A. (Peru).

Principal Competitors: Avon Cosméticos Ltda.; Botica Co mercial Farmaceutica Ltda.; Indústrias Gessy Lever Ltda.


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