L'Oréal SA - Company Profile, Information, Business Description, History, Background Information on L'Oréal SA

41, rue Martre
92117 Clichy

Company Perspectives:

Our Professional Products Division strives to promote the global development of highly innovative and exclusive hair care products for salon use, and the expansion of the salon profession through a policy of active partnership centered on hairdresser training. The mission of our Consumer Products Division is to develop beauty products for the widest possible range of customers by offering highly innovative products at competitive prices through mass-market retail channels. The Luxury Products Division devotes itself to maintaining the highest possible quality in its products, packaging, merchandising, and communications, thus confirming the brands as world-renowned signatures. And our Active Cosmetics Department strives to create and develop dermo-cosmetic healthcare brands that meet the highest standards of skin care safety and effectiveness, as proven by clinical tests.

History of L'Oréal SA

L'Oréal SA, one of the largest companies in France, is the world's largest manufacturer of high-quality cosmetics, perfumes, hair care, and skin care products. Its brands are found in over 150 countries and include such well-known names as Lancôme, Maybelline, Garnier, Redken, and Matrix. The company is known for its involvement in research and development--it spent 3 percent of sales on cosmetology and dermatology research in 2000--and owns a 19.5 percent stake in the pharmaceutical firm Sanofi/Synthélabo. Liliane Bettencourt and her family control 51 percent of Gesparal, a holding company that owns 54 percent of L'Oréal. The Swiss food giant, Nestlé S.A., owns the remaining 49 percent of Gesparal.

Early 19th Century Origins

L'Oréal's story begins in turn-of-the-century Paris, at a time when women of the demimonde dyed their hair, their choice restricted to fiery red or coal black. In 1907, Eugène Schueller, a young chemist, began to concoct the first synthetic hair dyes by night in his kitchen and sell them to hair salons in the morning under the brand name of Auréole. His strategy was successful; within two years he established the Société Française des Teintures Inoffensives pour Cheveux, which soon afterward became L'Oréal.

In 1912, the company extended its sales to Austria, Holland and Italy and by 1920 its products were available in a total of 17 countries, including the United States, Brazil, Chile, Peru, Equador, Bolivia, and the Soviet Union, and in the Far East. At this stage, L'Oréal consisted of three research chemists and ten sales representatives.

Rapid Growth: 1920s-50s

Schueller's timing had been singularly fortunate. The end of World War I was celebrated by the Jazz Age, when short hairstyles became fashionable, with a new emphasis on shape and color. By the end of the 1920s, there were 40,000 hair salons in France alone and L'Oréal's new products O'Cap, Imédia Liquide, and Coloral captured the growing market. In 1928, the company made its first move toward diversification, purchasing the soap company Monsavon.

In the 1930s and 1940s, platinum-haired screen idols such as Jean Harlow and Mae West made blond hair especially popular and bleaches such as L'Oréal Blanc sold well. L'Oréal was quick to make use of both old and new media to promote its products. In 1933, Schueller commissioned famous artists of the time to design posters and also launched his own women's magazine, Votre Beauté. Dop, the first mass-market shampoo, was promoted through children's hair-lathering competitions at the highly popular French circuses. and by 1938 L'Oréal was advertising its hair products with radio jingles.

During this period, L'Oréal demonstrated its ability to meet new consumer demands. When the Front Populaire won the 1936 elections and introduced the first paid holidays for French workers, L'Oréal's Ambre Solaire was ready to capture the new market for suntan lotions. Meanwhile, the company's sales network was expanding on both a national and an international scale. Products began to be sold through pharmacies and perfumers and new Italian, Belgian, and Danish subsidiaries were established between 1936 and 1937.

Even the outbreak of World War II in 1939 failed to curb the company's growth. At a time of strict rationing, women permed their hair and bought cosmetics to boost their morale. L'Oréal launched the first cold permanent wave product, Oréol, in 1945. At the same time, the company continued to expand; by the end of the war there were 25 research chemists and distribution had been extended to the United Kingdom, Argentina, and Algeria.

During this period, François Dalle and Charles Zviak joined the group, both recruited by Monsavon at a time when the cosmetics industry held far less attraction for graduate chemical engineers than the atomic-energy or oil industries. Both men would play an important role in the company's future; by 1948, Dalle had already been appointed joint general manager of L'Oréal.

The consumer boom of the 1950s and the arrival of new blond screen idols Marilyn Monroe and Brigitte Bardot (originally a brunette) meant further expansion for L'Oréal. By 1950, a research-and-development team of 100 chemists had created further innovative products, including the first lightening tint, Imédia D, introduced in 1951, and the first coloring shampoo, Colorelle, introduced in 1955, which answered an increasing demand for subtlety. The company advanced further into the field of skin care, entering into technological agreements with the company Vichy, in 1954. Vichy was to become part of the L'Oréal group in 1980.

Eugène Schueller's promotional talents were recognized in 1953 when he was awarded an advertising Oscar. Schueller died in 1957 and François Dalle took over as chairman and CEO at 39 years of age.

Focus on R&D and Acquisitions: 1960s-70s

The 1960s were years of revolution, both cultural and commercial. As music and fashion became increasingly teen-oriented, there was a growing interest in conserving--or simulating--youthful looks. At the same time hundreds of new boutiques, supermarkets, and chain stores sprang up to supply this rapidly growing market. L'Oréal made a growing commitment to capital investment. In 1960, a new research-and-production center was established in Aulnay-sous-Bois, bringing the number of research staff up to 300. In 1963 and 1964, the company opened new cosmetological and bacteriological facilities, evidence of a highly scientific approach to skin care. Another production unit, Soprocos, opened in St. Quentin in 1965, and over the decade new distribution outlets were established in Uruguay, Algeria, Canada, Mexico, and Peru. L'Oréal was listed on the French stock exchange in 1963, during a period of restructuring within the group. In 1962, owing to the boom in hair-product sales, L'Oréal sold Monsavon in order to concentrate on its core business. At the same time it bought the hair-hygiene specialist Cadoricin. In 1964, L'Oréal bought Jacques Fath perfumes and a year later Lancôme thereby gaining a significant entry into the high-quality skin-care, make-up, and perfume market and gaining increased access to perfumery outlets. Garnier, a hair-product company, and Laboratoires d'Anglas were also added to the group. In 1968, the company took major stakes in Golden in the United Kingdom and in Ruby, a personal hygiene and household products manufacturer. In the same year, L'Oréal bought the fashion and perfumes house André Courrèges.

With increased resources and expertise, L'Oréal launched a number of successful products, many of which are market leaders to this day. These included the hair spray Elnett, Récital hair dyes, and the perfume Fidji. Fidji was launched under the Guy Laroche brand name.

In 1969, L'Oréal recruited a young Welshman, Lindsay Owen-Jones, from the prestigious Fontainebleau business school INSEAD. An Oxford languages graduate, he would go on to become the fourth chairman and managing director of L'Oréal. At the age of 25, he became general manager of L'Oréal's public-products division in Belgium and turned around unprofitable subsidiaries in France and Italy, before going to the United States to take charge of L'Oréal's distributor, Cosmair Inc. in 1980.

L'Oréal benefited from the emphasis on health and fitness in the 1970s. From this time onwards, L'Oréal's earnings outstripped those of any other French blue chip and grew twice as fast as the cosmetics-industry average. L'Oréal's success permitted further commitment to research and development; the number of research staff rose from 500 in 1970 to 750 in 1974. New production facilities were opened in France and in 1979 the International Centre for Dermatological Research was established at Sofia-Antipolis, in the south of France, for the treatment of skin disorders and aging.

Over the decade, structural and tactical changes were made within the group, based on the findings of the 1969 management study done by McKinsey & Co. The year 1970 saw the establishment of new operational divisions and management structure. A few years later, the company began to speed up the process of internationalization, with particular emphasis on New Zealand, Australia, Japan, and Hong Kong. In 1976, L'Oréal signed a technical-assistance contract with the Soviet Union.

Expansion into overseas markets--particularly Japan--was aided greatly by the company's new alliance with the Swiss foods giant Nestlé S.A., to whom Eugène Schueller's daughter, Madame Liliane Bettencourt, sold nearly half of her L'Oréal stock in 1974. The two allies established a French holding company, Gesparal--51 percent-owned by Bettencourt and 49 percent-owned by Nestlé. Gesparal controlled 72 percent of L'Oréal's voting rights, while Bettencourt remained largest individual shareholder of Nestlé, holding roughly 5 percent.

Throughout the 1970s, L'Oréal continued to make purchases within the cosmetics and hair-care industry: Biotherm in 1970; Gemey, Ricils, and Jeanne Piaubert in 1973; and Roja in 1975. The latter merged with Garnier in 1978. This was also a time for diversification for L'Oréal. In 1973, it took a controlling stake of 53.4 percent in the pharmaceutical company Synthélabo, a specialist in the production of cardiovascular drugs and hospital materials, followed in 1979 by the purchase of Metabio-Joullie, manufacturer of aspirins, over-the-counter drugs, veterinary, cosmetic, and dietary items. Metabio-Joullie and Synthélabo were merged in 1980 under the latter's name. In 1977, L'Oréal ventured into another complementary field, magazine publishing, taking stakes in Marie-Claire Album and Interedi-Cosmopolitan.

Meanwhile, in the new division Parfums et Beauté International, several of L'Oréal's most successful products were launched--Vichy's moisturizer Equalia and the Cacharel perfume Anais Anais, reckoned to be the world's best-selling perfume. In addition, the well-known Kérastase hair products were redesigned.

Continued Success: 1980s

The 1980s were particularly favorable for L'Oréal. François Dalle won the post of first vice-president on Nestlé's administrative council, the title of Man of the Year in the chemicals and cosmetics sector from the Fragrance Foundation of the United States, and title of Manager of the Year from the Nouvel Economiste. In 1984, he gave up the leadership of L'Oréal, although he continued to act as chairman of the group's strategic committee. The position of chairman and CEO went to Charles Zviak. Lindsay Owen-Jones became vice-president and Marc Ladreit de Lacharrière, joint vice-president, soon to take control of the company's financial policy.

This event was followed by some restructuring within the group; in 1985 the Parfums et Beauté division was split into three departments--Lancôme/Piaubert, perfumes, and active cosmetics--and five geographical areas. At the same time the new management clearly felt it necessary to centralize control of the company's finances, and in 1987 a financial bulletin was issued announcing the creation of L'Oréal Finances, which would implement the financial strategy established approximately ten years before.

In 1986, L'Oréal's shares were distributed to investors outside France for the first time when the company raised FFr1.4 billion through a one-for-ten rights issue, offering new shares to stockholders. This was followed, in 1987, by a one-for-five stock split.

At this time, L'Oréal began to play an increasingly active role in the management of Synthélabo, which, after merging with Metabio-Joullie, had become France's third-largest pharmaceutical company. Synthélabo's research-and-development budget was increased considerably, allowing the company in 1982 to become the first private laboratory to participate in the World Health Organization's project for research and education in neuroscience.

During the 1980s, Synthélabo enhanced its international status, setting up joint marketing affiliates in the United States and Britain with the U.S. company G.D. Searle, and establishing joint ventures in Japan with Fujisawa and Mitsubishi Kasei. The company also took controlling stakes in Kramer of Switzerland, in 1982, and LIRCA of Italy in 1983. Nevertheless, Synthélabo continued to report poor sales figures, owing to difficulty in updating its product line and unfavorable market conditions in France. L'Oréal subsequently reiterated its commitment to Synthélabo, keeping restructuring to a minimum and increasing its holding from 63 percent to 65 percent after October 1987's Black Monday, when the shares fell considerably. L'Oréal saw that the solution to Synthélabo's problems lay in extending its overseas sales, thereby offsetting unfavorable domestic pricing and reimbursement policies. By the end of the decade, profitability had improved and some promising new drugs were ready to be approved for marketing in the 1990s.

Meanwhile, L'Oréal's research-and-development facilities continued their steady growth, with research staff reaching 1,000 by 1984. L'Oréal's enormous commitment to research resulted in the success of products such as Lancôme's Niosôme, launched in 1986, one of the few anti-aging creams found to be effective by independent dermatologists.

If this was the age of high-tech skin care, it was also the era of designer brands. In 1980, a new distribution company, Prestige et Collections, was created for Cacharel, whose perfume Loulou, launched in 1987, went on to become a best seller. In 1984, Nestlé took over Warner Cosmetics of the United States on behalf of L'Oréal's U.S. agent Cosmair, thereby acquiring for the group the prestigious names of Ralph Lauren, Paloma Picasso, and Gloria Vanderbilt. At this stage, however, L'Oréal was interested only in the perfumes and cosmetics divisions of the designer brands. In 1983, the company sold its 49.9 percent stake in the couture house Courrèges to Itokin of Japan, although it retained 100 percent of Courrèges Parfums.

A further addition to the L'Oréal group was the Helena Rubenstein skin-care and cosmetics range. In 1983, L'Oréal began by taking major stakes in Helena Rubenstein's Japanese and South American subsidiaries, the former integrated with Lancôme in the new Japanese affiliate, Parfums et Beauté, in 1984. In 1988, L'Oréal bought Helena Rubenstein Inc., a U.S. company that was in financial difficulties as a result of the sharp drop in sales following the founder's death. It would not be an easy matter to bring the company back into profit. Bought in the same year, Laboratoires Goupil, a dental-care-products manufacturer whose toothpastes held over 90 percent of the French market, was also unprofitable, but it was felt that L'Oréal's skillful marketing could remedy the situation. L'Oréal's last acquisition of the 1980s was the skin-care specialist Laboratoires Roche Posay.

While making acquisitions, L'Oréal also took the opportunity to sell off unwanted components of the group. These included the personal hygiene and comfort products of Laboratoires Ruby d'Anglas and Chiminter, which were felt to be too far outside the group's main area of interest and not in accord with L'Oréal's policy of internationalization.

L'Oréal was keen to diversify into communications. In 1984, the company took a 10 percent stake in the French pay-TV company, Canal Plus, with the stake raised to 10.4 percent in 1986. In 1988, L'Oréal took a 75 percent stake in Paravision International, an organization charged with the creation, production, and distribution of audiovisual products for an international audience. The following year, L'Oréal entered by way of Paravision into a joint venture with the U.S. company Carolco Pictures Inc., to handle foreign television-distribution and programming rights.

New Leadership in 1988

In 1988, Lindsay Owen-Jones became the new chairman and chief executive officer of L'Oréal at the age of 42. Marc Ladreit de Lacharrière became director and executive vice-president while Charles Zviak moved on to the chairmanship of Synthélabo. Zviak died the following year, having been one of the few chemists to attain leadership of a major French company. The end of the decade was marked further by rumors of L'Oréal's involvement in a proposed joint takeover bid for the French luxury-goods company Louis Vuitton Moët Hennessy, together with Vuitton's head, Monsieur Racamier, and Paribas/Parfinance. Although the existence of such a plan was denied by L'Oréal, the company joined with Orcofi, a Vuitton-controlled holding company, to buy 95 percent of the perfume and couture house Lanvin.

L'Oréal explained that although Vuitton owned Dior and Givenchy, competitors in the perfume and cosmetics market, L'Oréal had no Vuitton shares and no intention of attacking the company. On the contrary, the Vuitton alliance would give L'Oréal an entrée into the field of luxury goods. Although Lanvin lost money since L'Oréal's acquisition, company officials remained optimistic, declaring that the experience gained from running a luxury boutique was valuable in itself.

In 1991, L'Oréal found itself embroiled in a bitter dispute with Jean Frydman, a former director of Paravision. Frydman--who held dual Israeli-French citizenship--had filed suit against the company, charging it with "fraudulent behavior and racial discrimination" stemming from the 1989 sale of the Frydman family's 25 percent share of Paravision--L'Oréal's film distribution division--after being pressured by François Dalle. Frydman alleged that L'Oréal violated a 1977 French law prohibiting companies from participating in an Arab boycott against Israel when the company forced his resignation and the sale of the family's stake at an unfair price because of his business ties to Israel. The ensuing investigation created a minor scandal in France by digging up unsavory facts about founder Eugène Schueller's anti-Semitic, fascist politics during World War II. Later that year, however, Frydman dropped the suit in exchange for a letter of apology from Dalle.

During the 1990s, the cosmetics industry experienced growth, but with increasing rivalry. While L'Oréal's alliance with Nestlé protected it from corporate marauders, it continued to be vulnerable to competition in Western markets in the early 1990s from the likes of Japanese competitors Shiseido and Kao--although 90 percent of the turnover of both companies come from their home market--and from Unilever, following the latter's takeover of Elizabeth Arden and Fabergé.

International Expansion: Late 1980s-90s

In the years following his appointment as chairman and CEO, Owen-Jones set about making L'Oréal a genuinely international company. He began cultivating an integrated international team of top managers, enabling the company to quickly respond to and capitalize on consumer trends worldwide. Owens-Jones also supported greater cooperation between L'Oréal's numerous brand names and divisions. After Lancôme Niosôme was developed in 1986, L'Oréal then translated the new technology into a mass market L'Oréal skin-care line sold under the name Plentitude. Plentitude was launched in Europe and Australia in the late 1980s, and within two years of its U.S. launch in 1989, it had captured a 10 percent share of the market.

It was precisely this kind of synergy between subsidiaries, analysts say, that led to L'Oréal's 15 percent overall profit growth in the 1980s. In the boom years of the 1980s, high-end lines such as Lancôme and Helena Rubenstein performed extremely well. When the prestige market slumped in the early 1990s, such mass market lines as L'Oréal were poised to pick up the slack.

L'Oréal also eyed the U.S. market, which represented one-third of the world market, as one with opportunities for further profit growth. At the time, despite having full control of strategy, management, and marketing in this region, L'Oréal reaped only 5.5 percent from the profits of its sole U.S. agent Cosmair Inc. One advantage of this system for L'Oréal was protection from the weakness of the U.S. dollar and from high marketing costs--Cosmair handled a sales volume of over $1 billion that provided the company with the flexibility to launch new products which could then be transferred to L'Oréal affiliates worldwide. Other markets targeted for expansion during the early 1990s included Japan.

L'Oréal was also one of the first western companies to set up shop in the former Soviet Union, forming Soreal, a joint-venture with the Russian chemical company Mosbytchim. L'Oréal invested $50 million in the venture to produce approximately 40 million units of deodorant, perfume, shampoos, and hair sprays annually. Soreal products were sold in 1992 at a mere 100 outlets in Moscow and at an additional ten throughout Russia. Hard currency was difficult to come by as banks either collapsed or were unaccustomed to dealing with Western businesses. In order to obtain the equipment necessary to upgrade production, Soreal created Maroussia, a women's fragrance that was imported to Western Europe in exchange for machinery and materials.

L'Oréal's structure during this time remained unchanged, with the group consisting of a federation of competitive companies, including 147 production and distribution facilities worldwide, divided into five divisions. Only research and development facilities and overall management control were centralized. There was speculation as to the fate of L'Oréal when Bettencourt, in her mid-60s in 1990, relinquishes her corporate involvement. The French government took a strong interest in the issue. French government agreements restricted foreigners from taking over French companies before 1994. However, by 2001 Bettencourt still controlled her interest in the firm: should she decide to sell, Nestlé would have first option to purchase, and Bettencourt remained tight-lipped about her future plans.

As consumers became more environmentally aware, L'Oréal fell under increasing pressure to conform to new standards of product safety. The company was forced to phase out the use of chlorofluorocarbons which are said to be harmful to the ozone layer. L'Oréal also came under attack from the animal-rights lobby, which accused the company of subjecting laboratory animals to inhumane tests, although L'Oréal claimed that animal testing of new products was down to 5 percent from 50 percent in 1985. By 1989, the firm stopped animal testing altogether.

As L'Oréal entered the mid-1990s, the company found itself engaged in a battle with rivals Proctor & Gamble and Unilever for worldwide domination of the mass cosmetic and fragrance markets. L'Oréal seemed determined to remain the leader, hiking its advertising budget by as much as 50 percent for some products, and creating a whole new image for most of its color cosmetics. The company was also reaching out to customers by repackaging its merchandise and making display cases more accessible and user-friendly.

L'Oréal also made several strategic moves to solidify its market position. In 1994, it purchased control of Cosmair from Nestlé and Bettencourt. The following year, it acquired the Maybelline brand for $600 million. The company also purchased two drug companies that year including Germany-based Lichtenstein Pharmazeutica and Irex, based in France.

As part of its continued focus on the U.S. market, the firm formed L'Oréal Retail division in 1996, merging its U.S. hair care and cosmetics businesses under one umbrella. It continued to introduce new products in this market, including the Garnier hair care brand. By that time, its Cosmair subsidiary accounted for 23 percent of L'Oréal's entire cosmetics business.

Strategic Acquisitions: Late 1990s and Beyond

In 1998, the company launched a global advertising campaign with the tagline, "Because I'm worth it." Under the leadership of Owen-Jones, L'Oréal began making a series of acquisitions that would bring it closer to its goal of becoming one of the world's top four brands. It also renewed its focus on its emerging markets including Asia and Eastern Europe. In China, Maybelline was sold in 40 cities and the company hoped to up that number to 80. Owen-Jones stated in a 1998 Women's Wear Daily article, "It's the beginning of the Chinese snowball. There have been three million Maybelline lipsticks sold. Our aim is to make sure every Chinese woman has a lipstick in her hand instead of the Little Red Book." Latin America also became a key market focus, especially after an economic crisis shook the Asian region in the latter half of the 1990s.

In 1998, Cosmair acquired Soft Sheen Products Inc., a leading ethnic hair care firm. The ethnic market was now considered to be among the top growth opportunities in the cosmetics industry. The following year, Elf Aquitaine and L'Oréal merged their pharmaceutical subsidiaries to create Sanofi-Synthélabo, creating the second-largest pharmaceutical company in France. Long-known for its dedication to research and development, L'Oréal continued forging ahead on that front. The company signed a five-year partnership agreement with the United Nations Organization for Education, Science, and Culture (UNESCO) entitled "For Women in Science." As part of the program, female researchers would be given grants to pursue scientific research. During 1999, sales continued to increase--up 12.1 percent over the previous year. Western Europe accounted for 56.1 percent of company sales, while North America accounted for 27.1 percent. That year, the company reported the strongest profit growth of the decade.

L'Oréal entered the new millennium with continued success. It purchased Carson Inc., the leading ethnic cosmetics firm, cementing L'Oréal's position in that market. It also acquired Ylang Laboratories Ltd., an Argentine cosmetics firm, and the Scandinavian Respons brand from Colgate Palmolive Inc. Kiehl's Since 1851 Inc. was also purchased along with Matrix Essentials Inc. In order to take advantage of its parent company's strong brand recognition, Cosmair's name was changed that year to L'Oréal USA.

The company had a record year in sales and profits during 2000, and L'Oréal remained the market leader in the cosmetics industry with a 16.8 market share. In Japan, sales increased by 46 percent and Maybelline became the leading mass-market cosmetics brand in the country. Along with its acquisitions, L'Oréal launched several new products, including Maybelline's Water Shine lipstick and Full 'n' Soft Mascara, Age Perfect Skincare by L'Oréal Paris, Garnier's Fructis Style product line, and fragrances Ralph by Ralph Lauren and Miracle by Lancôme.

During 2001, the company continued to divest non-core, slow-growth businesses. L'Oréal announced plans to sell its interest in its Marie-Claire magazine holdings along with its Lanvin S.A. subsidiary. It also strengthened its position in the dermatological cosmetics market with the purchase of the BioMedic's brand name from CosMedic Concepts Inc.

Attributing much of its prosperity to its global branding strategy, L'Oréal remained confident that its success would continue into the future. "Blink an eye, and L'Oréal has just sold 85 products around the world, from Redken hair care and Ralph Lauren perfumes to Helena Rubinstein cosmetics and Vichy skin care," claimed a 1999 Business Week article. With its strong market position, L'Oréal seemed poised to continue its dominance in the cosmetics industry well into the future.

Principal Subsidiaries: Carson Holdings Ltd. (South Africa); Kiehl's Since 1851 Inc. (United States); Matrix Essentials Inc. (United States); Lancôme Parfums et Beauté & Cie; Lancôme Institute et Cie; Helena Rubenstein Inc; Laboratoire Garnier Paris; L'Oréal UK Ltd.; L'Oréal USA; Maybelline Ltd. (Hong Kong); Parfums Cacharel et Cie; Parfums Guy Laroche; Parfums Ralph Lauren; Redkin Laboratories GmbH (Germany).

Principal Competitors: The Estée Lauder Companies; Proctor & Gamble Co.; Shiseido Company Ltd.


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