L’Or

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L’Oréal

41, rue Martre
92117 Clichy
France
(1) 47 56 83 68
Fax: (1) 47 56 86 42

Public Company
Incorporated: 1939
Employees: 27, 600
Sales: FFr24.44 billion (US$4.23 billion)
Stock Exchange: Paris

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 Lancóme, Ambre Solaire, and Cacharel. Its cosmetics sales are 1.5 times those of its closest competitior, Unilever, and more than double those of Revlon and Shiseido. It boasts a worldwide 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, Eugéne 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 of Auréole. His strategy was successful; within two years he established the Société Française 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 perfumiers 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, François 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.

Eugéne Schueller’s promotional talents were recognized in 1953 when he was awarded an advertizing Oscar. Schueller died in 1957 and François 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. Gamier, 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 hairspray Elnett, Recital 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, 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 Eugéne 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%-owned by Bettencourt and 49%-owned by Nestlé. Gesparal controls 72% of L’Oréal’s voting rights. Bettencourt is the largest individual shareholder of Nestlé, holding roughly 5%.

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 Gamier in 1978. This was also a time for diversification for L’Oréal. In 1973 it took a controlling stake of 53.4% 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—while the well-known Kérastase hair products were redesigned.

The 1980s were particularly favorable for L’Oréal. François 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 Lacharriére, 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 FFrl.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 Synthélabo, keeping restructuring to a minimum and increasing its holding from 63% to 65% 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, went 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% stake in the couture house Courréges to Itokin of Japan, although it retained 100% of Courréges 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% 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 did not accord with L’Oréal’s policy of internationalization

L’Oréal was keen to diversify into communications. In 1984 the company took a 10% stake in the French pay-TV company, Canal Plus, with the stake raised to 10.4% in 1986. In 1988, L’Oréal took a 75% 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 Lacharriére 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 Moít 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% 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 entree into the field of luxury goods.

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% of the turnover of both companies come from their home market—and from Unilever, following the latter’s takeover of Elizabeth Arden and Fabergé.

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% from the profits of its sole U.S. agent Cosmair Inc. The only advantage of this system for L’Oréal has been protection from the weakness of the U.S. dollar and from high marketing costs. Other markets targeted for expansion include Japan.

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 agree ments restrict foreigners from taking over French companies before 1994. After this date, Nestlé will have first option to purchase.

In future, L’Oréal may be forced to pay attention to a more discerning generation of customers. As consumers become more environmentally aware, L’Oréal is under increasing pressure 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% from 50% in 1985. So far, L’Oréal’s innovative abilities, emphasis on quality, marketing skills, and sound balance sheet have taken the group to the head of its category.

Principal Subsidiaries

Lancôme Parfums et Beauté; Helena Rubenstein Inc.; Parfums et Beauté International et Cié; Cié et Artoisienne de Gestión; Diparco; H.U.P. (Germany, 98.6%); Laboratoire Gamier Paris; L’Oréal UK.