In one of the worst global beauty markets in decades, L’Oréal is not only staying the course — it’s raising the ante.
Seeking to maintain, if not gain, market share, the mass market-oriented Consumer Products Division of L’Oréal USA dramatically increased its advertising and promotional spending for the fourth quarter of 2008 by 10.9 percent and promises to keep up the pressure in 2009. The budget is expected to increase again this year, both for the mass division and L’Oréal USA as a whole.
The company is swimming against a strong tide. Beauty sales in the mass market were on a roller coaster last year. For the 52 weeks ended Dec. 27, ACNielsen reported color cosmetics sales up 4.4 percent and women’s fragrance down 8.5 percent. Not only is the market tough, but so is the competition. Archrival Procter & Gamble has vowed not to back down on ad spending and is looking to cut deals giving it more promotional firepower.
Meanwhile at L’Oréal, early indications are that the strategy is working. L’Oréal’s Consumer Products Division — including Maybelline New York, Garnier, L’Oréal Paris and Soft Sheen/Carson — increased sales by 2.3 percent in the fourth quarter, according to Joseph Campinell, president of the Consumer Products Division. He added that L’Oréal’s main competitors dropped a cumulative 2.2 percent in the same period. During the first three quarters of 2008, L’Oréal’s mass market sales were up about 1 percent on a combined basis.
During a recent interview, Campinell explained that this current strategy came out of L’Oréal’s long-running playbook: “In bad times, you spend against the categories — you grow your market share — and when things turn, your market share is higher and you’ll be in a better position.”
“Year-on-year 2008, our consumer sell-through share of market of our categories that we’re in is up,” he continued. “So we’re beating the market and that’s a real indication that our strategy is the right strategy.”
When the market began to seriously soften in July, L’Oréal executives realized a decision had to be made. Charlie Mills, security analyst at Credit Suisse in London, said the company had to make an unpalatable choice: either continue its long string of double-digit earnings gains or forgo that in order to drive long-term revenue growth. “They chose the latter,” he declared, adding sales growth at L’Oréal is “sacrosanct.”