By  on June 1, 2009

As an avid sailor, Jean-Paul Agon has learned from weathering past storms to keep an eye trained on the horizon.

It’s a particularly apt lesson for these times. The impressive profit and sales increases of his first two years as chief executive officer of L’Oréal were swept away by one of the worst beauty markets in decades. For 2006, profits jumped 11.9 percent to 1.83 billion euros, or $2.3 billion, on a sales gain of 8.7 percent to 15.79 billion euros, or $19.84 billion. And 2007 was another banner year. Then came 2008, when L’Oréal posted 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. The first quarter of 2009 eked out a 0.3 percent sales gain.

But even as the recession holds its grip and archrival Procter & Gamble continues to challenge L’Oréal’s dominance, the company that helped define the modern beauty era is about to celebrate its centenary. Its 52-year-old ceo, though, is thinking ahead to the next 100 years and what it will take to sustain L’Oréal’s preeminent leadership position.

“We must prepare for what we will become after the end of the crisis, because the crisis won’t last forever,” he says, during a wide-ranging interview in his 10th-floor office in the Paris suburb of Clichy. “The big question is, what should we do in order to get out of the crisis even stronger than when we came in?”

Not only have L’Oréal’s fortunes changed in a relatively short period, but so has the industry around it. “Two years ago, the growth of the cosmetics market worldwide was at a peak, at plus-5 percent,” he says. “Now the business environment has changed completely.”

While declining to give a projection for L’Oréal, Agon ventures an opinion that the cosmetics market “as a whole will stay slightly positive worldwide this year, which would be something good.”

The question of L’Oréal’s position has become an issue of more than academic interest. Press reports have surfaced, quoting data from Euromonitor International, saying P&G has moved ahead of L’Oréal into the number-one position as the world’s largest beauty company. But once the figures are calculated to exclude product categories not traditionally counted as a classic definition of beauty — oral hygiene, bar soap, liquid soap and male and female razors — then L’Oréal remains on top globally, according to Euromonitor data. The consumer tracking firm certifi ed L’Oréal’s 2008 global ranking, with the exclusion of the four personal care categories. For 2008, the study shows L’Oréal with a 12.7 percent global share and P&G ranking second, with 9.4.

In addition, the NPD/IRI Cross Channel Monitor rates L’Oréal number one among corporations across both the prestige and mass channels in the U.S. for calendar-year 2008.

Looking ahead, Agon says he has identified the vital, core elements that drive the L’Oréal model, but there are other dynamics that need to be changed “to reinvent the company.”

His list of fundamental drivers are: L’Oréal’s focus on beauty; its quest for innovation and quality dating back to the founding days of Eugène Schueller; its international roster of brands and all-encompassing global reach; the company’s debt-free financial muscle, and, finally, its multichannel, multilayered worldwide distribution network.

Under the heading of what needs to change, Agon first zeroes in on product innovation. “We have to move more towards what I call ‘accessible innovation,’” he says, “targeting a very broad customer base.”

To that end, Laurent Attal, who has been president and ceo of L’Oréal USA for the last four years, is transferring back to Paris as executive vice president  and managing director of research and innovation. He will succeed L’Oréal’s retiring R&D chief, Jean-François Grollier. In addition to spearheading R&D, Attal will oversee the year-old innovation department.

“R&D is more than ever a priority,” Agon says. “We believe in quality, we believe in innovation, and the only way to have an advantage in terms of innovation and quality is to have better R&D. That’s why we have the biggest R&D in the world, the highest ratio in terms of investment and 3,000 scientists.

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