Company History:
L'Oréal,
one of the largest companies in France, is the world's largest manufacturer of
high-quality cosmetics and perfumes, producing such well-known brands as
Lancôme, Ambre Solaire, and Cacharel. Its total sales are &Dollar;2.4
billion ahead of those of its closest competitor, Unilerver, an more than
double those of Revlon and Shiseido. It boasts a world-wide distribution
network as well as the industry's highest research-and-development budget and
the largest cosmetological laboratories in the world.
L'Oréal's
story begins in turn-of-the-century Paris, at a time when women of the
demi-monde 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 Auréole. His strategy was successful; within two
years he established the Société Francaise 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.
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, Francois 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 Francois Dalle took over as
chairman and CEO at 39 years of age.
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, 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, which is 51
percent-owned by Bettencourt and 49 percent-owned by Nestlé. Gesparal controls
72 percent of L'Oréal's voting rights. Bettencourt is the largest individual
shareholder of Nestlé, holding roughly five 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 Anaïs Anaïs, now reckoned to be the world's best-selling perfume. In
addition, the well-known Kérastase hair products were redesigned.
The
1980s were particularly favorable for L'Oréal. Francois 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 FFr 1.4 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 Synthelabo, 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, wet 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.
In
1988, Lindsay Owen-Jones became the new chairman and chief executive 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 Mo¨t 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 is valuable in itself.
In 1991
L'Oréal found itself embroiled in a bitter dispute with Jean Frydman, a former
director of Paravision. Frydman--who holds 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 Francois 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.
The
cosmetics industry is still growing, but there is increasing rivalry. While
L'Oréal's alliance with Nestlé should protect it from corporate marauders, it
is still vulnerable to competition in Western markets from 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.
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
has said that it sees opportunities for further profit growth in the United
States, which represents one-third of the world market. Currently, despite
having full control of strategy, management, and marketing in this region,
L'Oréal reaps only 5.5 percent from the profits of its sole U.S. agent Cosmair
Inc. One advantage of this system for L'Oréal has been protection from the
weakness of the U.S. dollar and from high marketing costs--Cosmair handles a
sales volume of over &Dollar;1 billion that provides the company with the
flexibility to launch new products which can ten be transferred to L'Oréal
affiliates worldwide. Other markets targeted for expansion include Japan.
L'Oréal
was 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 &Dollar;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 10 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 remains 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 are centralized.
There
has been speculation as to the fate of L'Oréal when Bettencourt, in her mid-60s
in 1990, relinquishes her corporate involvement. The French government is
taking a strong interest in the issue. French government agreements restrict
foreigners from taking over French companies before 1994. Should she decide to
sell, Nestlé will have first option to purchase.
As
consumers became more environmentally aware, L'Oréal fell under increasing
pressur4e to conform to new standards of product safety. The company has been
forced to phase out the use of chlorofluorocarbons which are said to be harmful
to the ozone layer. L'Oréal has also come under attack from the animal-rights
lobby, which accuses the company of subjecting laboratory animals to inhumane
tests, although L'Oréal claims that animal testing of new products is down to 5
percent from 50 percent in 1985.
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 planned to
expand into the mass-market fragrance business, introducing at least two new
fragrances by 1995. Owen-Jones seemed to have laid the groundwork necessary to
support such an expansion , and L'Oréal appeared well prepared to defend its
number one position, fortified by a strong research and development base,
sharpened marketing skills and a sound balance sheet.
