L’Oreal SA – 2013
Forest R. David
A. Case Abstract
Headquartered outside of Paris in Clichy, Hauts-de-Seine, France, L'Oréal is the world's largest
cosmetics and beauty company. Specializing in hair color, skin care, sun protection, make-up,
perfumes, and hair care, L’Oreal is the leading nanotechnology patent-holder in the USA. L’Oreal
recently opened a huge new factory in Indonesia. L'Oréal is a listed company with 66,000 employees,
but the founder's daughter Liliane Bettencourt and the Swiss food company Nestle each control over a
quarter of the shares and voting rights. In November 2012, L'Oréal began construction of the largest
factory in the Jababeka Industrial Park in Cikarang, Indonesia with a total investment of US$100
million. The production will be absorbed 25 percent in Indonesia and the rest will be exported.
L’Oreal’s sales in Indonesia are growing rapidly. L'Oréal is also building a Research and Innovation
Center in Bom Jesus Island Rio de Janeiro, Brazil at an estimated cost of 30 million euros (70,000,000
reals).
B. Vision Statement (proposed)
To be the cosmetics company of choice that women, men, and children the world over rely upon to feel
more beautiful.
C. Mission Statement (proposed)
Our mission is to design, produce, and distribute the world’s best fragrances, perfumes, and personal
care products (2) to women, men, and children (1) by utilizing the latest technological improvements
(4). We empower our highly creative team of researchers to develop safe, eco-friendly (7) products
that will enable our firm to profitably grow (5) handsomely. We strive to be one of the most socially
responsible (8) firms on the planet (3) and appreciate our employees (9) making that happen while
always following the “golden rule.” (6)
1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees
D. External Audit
Opportunities
1. The worldwide cosmetics market grew 4.4% in 2011 representing $197.4 billion.
2. Major BRIMC and minor growth countries have several million middle class citizens and are
projected to account for 5 of the 10 largest economies by GDP by 2020.
3. BCG reports the Chinese middle class is expected to increase from 150 million to +400 million in
10 years. 340+ urban locations will increase to 550 million in 10 years.
4. Direct retail sales in the US increased 4.6% to $29.9 billion in 2011 of which 78% were women
and 89% worked part time.
5. Google Offers, Living Social, and Groupon have launched apps for Android phones to alert
consumers to deals through mobile devices.
6. 91% of new products pacesetters were brand extensions (expanded effectiveness, new
technologies, improved processes, new/unique formulas, varieties, designs or patterns).
7. Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal
products aboard aircraft.
8. Latino and Asian population is expected to nearly triple (Hispanics, with the highest consumption
of personal care products in 2009, are expected to grow from 16.7% in 2012 to 21.2 in 2025.
9. 29% of consumers made at least one consumer packaged good purchase online in 12 months.
OTC drugs and health & beauty supplies ranked highest in respondents buying the brand they
want the most.
10. To reduce currency volatility, companies can hedge their exposure with futures contracts (an 8.8%
annual increase of dollar index).
Threats
1. Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal
products aboard aircraft.
2. Consumption of cosmetic products per inhabitant is 10 to 20 times lower in immature countries
than in mature BRIMC countries.
3. China’s GDP growth target is 7.5%, which is well below the range recorded in 5 years; India
slowed growth by 5.3% in Q1 2012.
4. Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US) for $1.7 billion; Coty agreed to
acquire OPI Products (nail salon products) for $1 billion.
5. P&G is a global leader in personal and beauty care products 20% in Western Europe; $14 billion
net in restructuring, cost reduction, & marketing reduction over next five years.
6. Avon markets Regenerist and Anew skin products to baby boomers; Johnson & Johnson launched
a line of E-Pulse, Skin-Electro-Stimulation technology (skin rejuvenation/anti-aging.
7. 54% of the female respondents in 2008 said they would “buy the brand they want the most”’
(down to 45% in 2010 and 43% in 2011).
8. Avon sales in India increased 57.4% due to direct sales in 2011.
9. Due to weak US economic environment and higher pricing of green products, consumers may be
deterred from buying green products.
10. Avon and Revlon both offer perfume products in their portfolio.
Competitive Profile Matrix
L’Oreal is performing slightly better than Revlon and significantly better than Avon according to the
CPM above. A new area tactic for L’Oreal would be engage in direct sales especially in Latin America.
EFE Matrix
L’Oreal’s performance is average in addressing external issues. Moving forward, the firm could
benefit from entering the direct sales market in Latin America.
E. Internal Audit
Strengths
1. 27 international brands distributed in over 130 countries. L’Oreal has 5 regional hubs worldwide.
2. The Body Shop’s total operating profits were €77 million in 2012, up 9% from 2011. The Body Shop
has over 70 brands in 60 countries (presence in global travel retail outlets across 44 markets).
3. L’Oreal has €790 million invested in R&D in 2012 and had 3,676 researchers throughout 19 research
and 16 evaluation centers; filed 613 patents in 2011.
4. L’Oreal achieved an approximately 14% sales growth in new markets in 2012, with total sales in 2012
amounting to €1.5 billion.
5. L’Oreal achieved 4% operating profit growth in Western Europe in 2012, with €1.6 billion in operating
profits.
6. L’Oreal has positioned 41 production plants across current markets, including a new one in Russia;
opening new sites in Mexico, Indonesia, and Egypt.
7. L’Oreal’s North America segment achieved 18.5% operating profit growth in North America in 2012.
8. Global predictive center (Lyon) reconstructs 130,000 units of biological tissues for predictive
evaluation of ingredients and products; 9 reconstructive skin and cornea models developed (reduces
time to market).
9. The Dermatology Branch (Galderma) total sales were €796 million in 2012, up 13% from 2011.
10. L’Oreal conducts in-house packaging of products at their plants through the wall-to-wall program
(reduces transportation costs and waste generation).
Weaknesses
1. L’Oreal suffered a -2.8% sales loss in its Eastern European Market in 2011, despite a 3.9% market
growth.
2. L’Oreal lacks a Beauty Tools division, unlike its chief competitor Revlon.n its
3. L'Oreal's organizational structure limits its ability to create integrated brand promotion strategies for its
distinctive SBU’s.
4. L’Oreal has a limited number of perfume, bath, and baby products in its portfolio compared to
competitors.
5. L’Oreal lacks energy efficient production facilities in North America similar to ones in Belgium, Spain,
India, and France.
6. L’Oreal does not practice direct selling strategies in their marketing initiatives as compared to
competitors (Avon and Mary Kay).
7. L’Oreal has consolidated key market segments under “New Markets”; limits managerial response to
changes in major geographic SBU’s.
8. L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief competitor Revlon (1.2).
9. L’Oreal’s cost of operations (55.05%) is higher than its chief competitor Revlon (49.42%).
10. When selecting different country options, L’Oreal’s website has defective or nonexistent navigation
and translation capabilities. European Market in 2011, despite a 3.9% market growth (Ops
profit: -$734.79 million)
Financial Ratio Analysis (L’Oreal numbers are in Euros)
Profit Margin Percent L’Oreal Industry
Gross Margin 71.03 49.88
Pre-Tax Margin 17.61 17.41
Net Profit Margin 12.84 13.01
Liquidity Ratios
Debt/Equity Ratio 0 0.36
Current Ratio 1.23 0.76
Quick Ratio 0.72 0.45
Profitability Ratios
Return On Equity 14.59 18.47
Return On Assets 9.99 8.44
Return On Capital 14.55 12.14
Efficiency Ratios
Income/Employee 484,074 48,902
Revenue/Employee 3.77 M 461,611
Receivable Turnover 6.41 11.86
Inventory Turnover 3.07 5.81
Asset Turnover 0.78 0.65
L’Oreal is doing extremely well financially.
Net Worth Analysis (in millions)
L’Oreal is one of the largest firms in the industry and is worth about $77 billion euros.
IFE Matrix
L’Oreal’s performance is above average in addressing internal issues. Moving forward, the firm needs to
expand its footprint in the USA market as well as increase perfume, bath, and baby products.
F. SWOT
SO Strategies
1. Establish joint venture with Parlain Co Ltd or Sa Sa Intl Holdings Ltd (China); BK Corporation
(Mumbai); Natura and/or O Boticario (Brazil). (S4, O2, O3)
2. Increase North American Sales by 15% over 3 years through IBP, direct selling, and eMarketing by
targeting the growing population of Hispanic and Asians. (S7, O4, O8)
3. Increase sale of Body Shop, Dermatology Branch products 12% over 3 years through eMarketing and
global travel retail outlets. (S2, S9, S10, O5, O7, O9)
WO Strategies
1. Decentralize by establishing separate geographic profit centers to achieve 20% growth over 3 years in
New Markets and 6% in Eastern Europe over 3 years. (W1, W3 W7, W8, O1)
2. Develop IBP marketing campaign with direct selling to achieve 15% sales growth in the US, and 20%
in BRIMC. (W3, W6, O2, O3, O4, O8)
3. Improve website design and eCommerce as part of IPB marketing campaign to increase online sales
25% over 3 years. (W10, O5, O9)
ST Strategies
1. Achieve 20% sales growth in New Markets by increasing production to 100% in 16 existing and 3 new
plants, incorporating direct sales methods, and acquiring/JV’s with three distributors. (S4, S6, T2, T3,
T8).
2. Body Shop will increase sales 9% over 3 years in its global travel retail outlets through 5 new perfume
and brand extensions of existing products. (S2, T1, T10)
3. Increase sales of current products in North America 15% over 3 years by increasing production and
distribution to 100% at 9 existing facilities and a new one in Mexico. (S6, S7, T4, T6, T7, T9)
4. Increase sales 15% over three years of more affordable green and specialty products in all markets,
using its efficiencies in R&D, production, and packaging to control costs. (S3, S6, S8, S10, T6, T9)
5. Increase sales 6% over 3 years in Western Europe through sales of current products (Sanaflore). (S5,
S6, T5, T6)
WT Strategies
1. Invest $20 million to improve its Website design and eCommerce capabilities to increase online sales
25% over 3 years. (W10, T 8)
2. Develop 5 new perfumes and increase portfolio of affordable bath and body products in all markets.
(W4, T10)
G. SPACE Matrix
L’Oreal is positioned in the Aggressive Quadrant of the SPACE Matrix and should establish a joint venture with
Natura in Brazil.
H. Grand Strategy Matrix
The firm is doing well as a market leader and should focus on expanding sales in the USA and Latin
America.
I. The Internal-External (IE) Matrix
Segment 2012 Total Sales
(in € millions)
Consumer Products €10,713
L’Oreal Luxe 5,568
Professional Products 3,002
Active Cosmetics 1,528
Other 1,651
Total €22,463
L’Oreal is doing well in all business segments but should expand its perfume and baby items.
J. QSPM
K. Recommendations
1. Establish joint ventures with (€1.5 billion): Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd (China), BK
Corporation (India), and Natura or O Boticario (Brazil).
2. Hire key executives (CIO, CLO, CTO, Presidents) (€15 Million)
3. Establish 10,000 direct sales force. (€150 Million)
4. Improve website design & eCommerce. (€10million)
5. Initiate an Integrated Brand Promotion marketing campaign to increase global sales over next 3 years.
(€155 million)
L. EPS/EBIT Analysis (in millions expect for EPS and Share Price)
Amount Needed: €330
Stock Price: € 127.05
Shares Outstanding: 606
Interest Rate: 4%
Tax Rate: 26%
L’Oreal should finance with debt as economic conditions improve. However, the amount of capital
requested here is not significant as revealed by little change in EPS equity and debt financing.
M. Epilogue
In October 2013, the online retail services company Demandware struck a deal with L'Oreal whereby
L'Oreal will use Demandware's commerce platform to promote its 25 beauty product brands around the
globe through online, mobile and social media. L'Oreal first began working with Demandware in 2010 to
promote several luxury brands in North America — including Kiehl's, Lancôme, and Yves Saint Laurent
Beauté — and later added its professional products division in the U.S.
L’Oreal reported excellent Q1 2013 sales as indicated in the following table. Note the fast growth area was
Africa/Middle East and the slowest growth area was Western Europe. Note the slight decline in
Professional Products sales from the prior year quarter. Regarding its operations in Africa, L’Oreal in April
2013 acquired the Health & Beauty business of Interconsumer Products Limited in Kenya, which had
annual sales of about 15 million euros. L’Oreal sells popular brands in Africa, including SoftSheen Carson.
Chapter 25: L’Oreal SA
10 Basic Questions
1: A
2: C
3 B
4: A
5: D
6: B
7: D
8: A
9: C
10: D
15 Applied Questions
Vision and Mission Statements
1: A
2: D
3: B
4: A
5: A
Competitive Profile Matrix (CPM)
1: D
2: D
3: A
4: A
5: D
Strategic Position and Action Evaluation (SPACE) Matrix
1: B
2: D
3: C
4: C
5: A
