L'Oréal Lays Out 2009 Game Plan

Higher ad spending, job cuts part of strategy.

Lancôme’s new Oscillation mascara

Lancôme’s new Oscillation mascara.

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PARIS — If there’s a motto for L’Oréal in this, its centennial year, it could be “leaner and meaner.”

The world’s largest beauty company this year plans to up its advertising outlay while at the same time cutting its number of stockkeeping units, introducing lower-priced items, implementing a hiring freeze in certain markets and focusing on innovative products, L’Oréal chief executive officer Jean-Paul Agon told financial analysts at a meeting Tuesday at the firm’s headquarters in Clichy, just outside of Paris.

For 2009, Agon said L’Oréal’s organic growth should rise faster than the cosmetics market overall, which is expected to remain positive despite a difficult first quarter and half. He anticipates gains from the integration of YSL Beauté, a more positive monetary effect and the company’s consumer products and active cosmetics, for instance.

“The greatest uncertainty is in luxury products, for which it is harder to make any kind of forecast,” he said.

As reported, L’Oréal posted 2008 net profits that fell 26.6 percent year-on-year to 1.95 billion euros, or $2.87 billion at average exchange. The company’s full-year revenues came in at 17.54 billion euros, or $25.81 billion, up 2.8 percent.

L’Oréal’s net profits excluding nonrecurrent items after minority interests rose 1.2 percent to 2.06 billion euros, or $3.04 billion. Its earnings per share gained 3.8 percent to 3.49 euros, or $5.14. (At constant exchange, the increase was 6.8 percent.) Operating cash flow was 1.85 billion euros, or $2.72 billion, down 9.1 percent.

“In 2008, as did a number of other companies, L’Oréal faced an extremely difficult environment with a slowdown in markets and also inventory reductions by our distributor customers who themselves were subjected to very difficult financial pressures,” said Agon. “Because of this particularly adverse environment, our organic growth slowed down to 3.1 percent in line with the estimated growth in the worldwide market.

“Generally speaking, however, we put up good resistance,” he continued, explaining the company maintained its market share and in some cases grew it. “Overall, therefore, in a particularly difficult world economic environment, the L’Oréal group has continued its growth, but rates were highly differentiated by division and by region because there were great differences in the effect of the economic crisis in each case.

“In North America, where our sales trend was minus 4.8 percent, the crisis had a violent impact on both consumers and distributors,” said Agon. “Our market share declined slightly in luxury products because of promotional pressure from our competitors. On the other hand, we have held onto and even strengthened our positions in the mass market.

“The difficulties in the United States had a severe impact on the group’s overall growth in 2008, and if North America is excluded, L’Oréal’s growth rate would have been 5.1 percent,” he added, explaining other regions, such as Asia, had a good performance.

Agon said despite troubles in North America, L’Oréal has “conserved our growth-driving resources, and we ended this year with the best possible conditions to prepare for 2009. We consider that we are very well-equipped to tackle this new year while being aware of the fact that the economic climate will continue to be difficult at least until the summer.”

Agon said L’Oréal’s advertising and promotional spending has remained at the same level for several years as a percentage of sales despite a continuous and significant decline in the cost of media, plus point-of-sale and promotional items.

“Our intention for 2009 is to accelerate in the same direction with a dual impact,” said Agon. “Firstly, we intend to further strengthen investment allocated to advertising and promotional resources. Secondly, we intend to take full advantage of what is currently a buyer’s market in which costs have already started falling very sharply.”

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