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PEYRELONGUE AND...


PEYRELONGUE AND AGON: PASSING THE BATON AT L'OREAL

Byline: Pete Born

NEW YORK -- Guy Peyrelongue symbolically ended an era Monday by simply offering his chair to his 44-year-old successor, Jean-Paul Agon, the new president and chief executive officer of L'Oreal USA.
"This is Jean-Paul's office now," said the retiring Peyrelongue, who stepped down on Monday after more than 15 years at the helm of L'Oreal's U.S. operations, the French beauty giant's largest foreign affiliate. The 64-year-old Peyrelongue, who will remain on the group's executive committee until retiring at the end of the year, has much to be satisfied with. He quadrupled sales during his tenure, pushing corporate volume beyond the $3 billion mark last year.
As one indication of the startling growth, Peyrelongue pointed out that when he started out, L'Oreal did $21 million in professional hair care sales in 1991 and now it is close to $500 million. Another measure of progress is L'Oreal's share of the department store prestige business. L'Oreal is now second only to prestige leader Estee Lauder with a more than 19 percent market share, according to NPD BeautyTrends.
But while Agon is taking over the helm of Peyrelongue's splendid ship, that grand vessel is sailing through seas that are rougher than veteran retail analysts could ever have fathomed, prior to the Sept. 11 terrorist attacks on New York and Washington. One former store executive estimates that department store beauty areas are now averaging 20 percent off, with 15 percent down now considered a good weekend.
During the first half of the year, L'Oreal had been holding its own. From February through July, L'Oreal's prestige division showed a 4 percent sales gain in department stores, putting it on par with the market, according to NPD.
Agon, who has been in the U.S. since March in an attempt to begin familiarizing himself with the market, remarked during an interview Monday that "I am impressed with the sophistication of the retailers." Agon added that he intends to build upon the success of his businesses "through a close collaboration with retailers." He also indicated that one of his top priorities is to get to know more retailers.
He also praised the L'Oreal staff. "I am very impressed with the quality of people," he said. "This company has fantastic teams."
Agon also spoke highly of L'Oreal's stable of brands and he categorized them into two groups. First came the powerful, established brands that still have potential: Lancome, Ralph Lauren, Maybelline, Redken, Matrix and L'Oreal.
Then there's the second group.
Peyrelongue mentioned L'Oreal's latest acquisition, Shu Uemura. "He invented the art of makeup," he said, adding that "the products are extraordinary. We must find a way to make the brand successful; first we have to find the right distribution strategy. It's a diamond in the rough."
Without missing a beat Agon added, "We have many diamonds in the rough."
The second category of brands included the underdeveloped growth brands. In addition to Shu Uemura, these include, Giorgio Armani color cosmetics, Helena Rubinstein, Kiehl's, Kerastase, Garnier, Biotherm and the La Roche Pose active cosmetics division.
Another brand that stands out is the Soft Sheen/Carson division that specializes in ethnic beauty products. One of the turning points in the development of L'Oreal in America was the acquisition of the Ralph Lauren licensed beauty business in 1984, which gave the New York headquarters a global voice within the corporation. Peyrelongue said the acquisition of Warner Cosmetics also boosted the company's standing in the market. Adding Lauren to the existing brands of Anais Anais, Drakkar and Cacharel, Peyrelongue pointed out, "it made us a player in the prestige fragrance business."
The Chicago-based Soft Sheen/Carson offers a similar situation. Peyrelongue pointed out that it is the market leader in the U.S. with sales of over $100 million and L'Oreal has targeted the ethnic category as a priority on a global basis. It therefore is left to the U.S. to develop the product and advertising to market to consumers of African descent around the world. "It will be one of my priorities," Agon said, adding that L'Oreal had just sponsored a dermatological conference in Chicago probing ethnic physiological questions. [See accompanying story].
Asked how L'Oreal may fare in this bearish environment for the rest of the year, Agon said he is in the process of formulating that with his teams. He said, "We are confident in our program of new launches for the last quarter of this year, and we feel that 2001 will be a good year for L'Oreal USA."
He made no comment on an earlier J.P. Morgan report that projected a reduction of sales growth to less than 1 percent for the third quarter in the U.S. and a normalization to about 5 percent for the fourth quarter. "We reiterate our 'buy' rating on the stock," a Sept. 27 report said. "We believe L'Oreal should once again demonstrate a superior earnings visibility compared with the rest of the sector and and the rest of the market, owing to an almost perfect balance in terms of product line, distribution channel, geographical exposure and brand portfolio.
In the short time he has been meeting with staffers, Agon has already left the first impression with a number of executives of being a firm but fair boss who tries to be constructive, even when being critical.
Agon said that one of the things he relishes about the U.S. operation is its "diversity" in everything from channels of distribution and product to target consumer. Agon stressed that he plans on rolling up his sleeves and working closely with his teams. Because one thing is clear: "I love products."
The new ceo said that his typically peripatetic career at L'Oreal -- from France to Greece; then back to France; to Germany; to Japan, and finally to New York -- has prepared him to rise to the U.S. challenge. All this forced him to develop basic skills and has given him a capacity to adapt to new cultures and different markets. It helped him to develop an open mind, he noted.
Agon joined L'Oreal in Paris in 1978 and worked for three years in sales in marketing departments, and then at the age of 25 was named general manager in Greece in 1981. "I learned how to work with people, how to build positions with strong collaboration, how to adapt to new cultures and to understand what is needed in key moments."
He returned to France, then moved to Biotherm as international managing director, where he went to work on overhauling the promising but troubled brand that suffered from a confused positioning. Agon recalled that its main problem was distribution. In France, it was a pharmacy brand and elsewhere it was marketed in perfumeries and department stores. Agon decided it had a better shot in the latter, more lifestyle-oriented distribution, competing with the likes of Clinique and Clarins.
What was needed, he added, was a clear identity. "Your message has to be simple and consistent," he said. Five years later, he became general manager of L'Oreal in Germany, where he played a role in the acquisition of Jade, which subsequently served as a launching pad for the introduction of Maybelline in the market.
That American mass brand was rapidly becoming a key asset for L'Oreal around the world, and it became a big plus in Agon's next assignment as managing director of the Asia zone, overseeing everything from salon product to department store launches. In 2000, Maybelline became the number one mass brand in Japan with $300 million in sales and a 4 percent market share.
A fateful moment in the growth of the brand came with the pivotal decision to launch a Maybelline mascara, called Wonder Curl. Its ability to provide a curl caught on like wildfire with a Japanese consumer that had to hassle daily with short, straight and stubborn lashes.
Agon echoed a statement by Peyrelongue that his foreign assignments taught him to be entrepreneurial. The retiring executive said the first great moment in his career came when he became part of L'Oreal in 1973 as general manager of the Diparco subsidiary in France. The second decisive step was going to Mexico in 1976 as president of the Cosbel S.A. subsidiary. Seven years later he was promoted to president of all of Latin America.
The entrepreneurial opportunity came with the need to develop a business which was anchored by a salon product business, in a market where 100 percent devaluation occurs every six years. "You are managing a business in a world with a new frontier; you create new dimensions," he recalled. The local market conditions forced managers to think in terms of market share, focusing less on profit, than cash flow. Peyrelongue said this made one think in terms of "the money you can generate, not the money you can borrow."
During this period, his neighbor to the north in New York was Lindsay Owen-Jones, the young president of what was then called Cosmair. In September 1986, Owen-Jones had moved to Paris -- on his way to becoming chairman and ceo -- and Peyrelongue got a phone call. it was an offer to move to New York and he took it.
But when he arrived Peyrelongue was faced with challenges. The acquisition of Warner Cosmetics two years before had not yet led to a integrated effort and there was "a debate about our presence in the mass market."
When Owen-Jones was president, he had astutely diagnosed a need in L'Oreal's business, which had a strong base in the Preference hair color brand. A high water mark had also been set by a rejuvenated Lancome. In between the two extremes was an opening which Owen-Jones drove through with the first mass color line bearing the L'Oreal name.
But the business needed further development when Peyrelongue arrived to find it focused on lip and nail product and driven by promotion. He cut out the promotion, took the base of the business down and started looking for a breakthrough product to ignite the brand. it turned out to be a mascara called Lashout, which subsequently captured a 7 percent market share. "Suddenly the business was growing behind the product not the promotion," Peyrelongue recalled. "It took two years to become profitable."
In the past, L'Oreal had been criticized by market executives for taking too much time in developing the Lauren business. The first major fragrance launch came in 1990, six years after the acquisition. Peyrelongue noted, "maybe people were a little too humble. Integrating a major acquisition takes time," he added, "but people should not take too many years."
He pointed out the company took a surer, more decisive hand in the case of both Maybelline and Kiehl's. Turning to what made him the most proud, Peyrelongue cited his role in becoming a leader of the mass color market with Maybelline and his hand in building the executive teams, which have prospered over the years.
As for what he would like to reconsider, Peyrelongue winked and said he "G-ed too much," as in giving in to too much gift-with-purchase promotion, which was an industrywide tactic in the last decade.
Industry consultant Allan Mottus sees Owen-Jones and Peyrelongue as a team, with the leader of the company putting the building blocks of the culture together and his American chief providing the mortar. Pointing to the Maybelline acquisition, he said, "they took an American brand and made it global. the French brands they made understandable to the Americans."
Of Owen-Jones, he said, "He took a French export firm and turned it into a global company."
Muriel Gonzalez, senior vice president and general merchandise manager of Bergdorf Goodman, said, "He did a tremendous job repositioning Helena Rubinstein. I'm enthusiastic about the plans for Shu Uemura and the Kiehl's acquisition was terrific. He gets a lot of credit for moving the company into areas that made an impact for specialty stores."
Deborah Walters, senior vice president and general merchandise manager at Saks Fifth Avenue, said, "Under his leadership, his companies have contributed great innovation and excitement to our industry. Mr. Peyrelongue has a very strong, talented team in place and I am most confident that the corporation will continue to thrive under the leadership of Mr. Jean-Paul Agon.
Michael Gould, chairman and chief executive officer of Bloomingdale's, said "the measure of any executive is the team that he leaves in place. On those counts," he said, "Guy is an A+."

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