WWD.com/beauty-industry-news/beauty-features/changing-of-the-guard-at-l-oreal-568856/
government-trade
government-trade

Changing of the Guard at L’Oreal

The baton has been passed at L'Oreal USA. Laurent Attal, now U.S. head of the division, and predecessor Jean-Paul Agon, talk business.

NEW YORK — The baton has been passed at L’Oréal USA.

The first indication of what is to come for the world’s largest cosmetics company surfaced recently during a joint interview with Jean-Paul Agon, the former president and chief executive officer of L’Oréal USA, who returned to Paris last week with the expectation of ultimately taking the helm of the French parent, and Laurent Attal, who has succeeded Agon as head of the U.S. operation.

In Paris, Agon, 49, will work at the side of chairman and ceo Lindsay Owen-Jones until April 2006, when Owen-Jones is expected to tap Agon as his successor as ceo. Owen-Jones is then expected to take a role as non-executive chairman and president of L’Oréal’s board, capping one of the most storied careers in the industry’s history.

Owen-Jones, a Welshman who recently was knighted as Knight Commander of the British Empire by Queen Elizabeth, is the architect of the modern L’Oréal, having transformed a major French export player into a global behemoth with a diversified management and a globalized portfolio of brands. He set the bar for something that has seldom been seen — creating a menu of every kind of beauty, American, European and Asian, under one roof.

Agon seems to have the temperament for building on the Owen-Jones formula. Having worked in Greece, France, Germany, China and Japan during his L’Oréal career, he has always been eager to embrace new cultures.

“I am a strong believer in globalization,” Agon said. “I really believe, personally, that there are huge opportunities around the world with new countries just opening [to outside investment] right now.”

While conceding that L’Oréal is in every major market, Agon maintains that L’Oréal’s presence remains underdeveloped in emerging markets.

“Take China,” he said “We started the business in 1997. It’s growing very fast, but we are still quite small, so the potential for growth is infinite. Brazil is a big country. We are there, but we are still testing the opportunities.”

Adding Russia and India to the list, Agon pointed out that when he began his career 25 years ago, countries like China, Russia and India were closed to outside investment. “The world has completely changed,” he noted. “For a company like L’Oréal, with all of our portfolio of brands, we’re well diversified in all types of beauty activities. I think that all these new countries are immense reservoirs for growth.”

This story first appeared in the July 15, 2005 issue of WWD.  Subscribe Today.

He added, “I’m extremely optimistic about our capacity to create long-term growth on top of the growth that will come from the already developed countries.”

Business expansion is also on the mind of his U.S.-based successor. “My objective is to build a sustainable, long-term growth,”said Attal. “Each division will have to continue to gain market share and fight for leadership in each product category. For instance, in skin care, I think that there is the opportunity for us to bring equality and progress, and to gain market share, so we have to bring the most innovative technologies and to keep recruiting the best talent we can in the market.”

Attal, 47, has an unusual background for a cosmetics executive, which perhaps allows him to look at things differently. Having earned a Ph.D. in medicine with a specialty in dermatology, he decided to combine his medical schooling with a business degree. It was a rare combination in 1985, when he received an MBA from INSEAD in Paris.

He joined L’Oréal in 1986 and managed several business units in France before being named ceo of the Vichy brand in 1994. In 1998, he was promoted to head the Active Cosmetics division, which includes the Vichy, La Roche-Posay and Innéov brands. That is one of the categories L’Oréal had tagged as a major vehicle for future growth.

But when Attal took over the business, 95 percent of sales were confined to Western Europe “with a portfolio of brands with very high potential, but facing a lack of identity and losing confidence and support from the distribution.” The problem, he noted, was that “Vichy was a very, very strong brand — but this was a beauty brand in the pharmacy channel.”

The turning point came after Attal adopted what he described as “a very bold positioning.” Vichy was completely refocused as a health brand. Today Vichy’s motto is “Health is vital, start with your skin.” As another example on the health focus, L’Oréal launched a joint venture in 2002 with Nestle, the second-biggest L’Oréal shareholder. The product line consisted of ingestibles to promote beauty, notably the condition of skin and hair.

As a result, Attal achieved his overall goal of turning “the Active Cosmetics division into a global, highly profitable and today the fastest-growing division in the L’Oréal group,” accounting for 5 percent of corporate sales.

He said the experience “taught me to be very entrepreneurial, resilient, resistant, tough and, above all, to bring out the best in people. I think that’s an important part of my experience, to foster inspiration and energy. It was, for me, my great achievement,” he said, professing a great belief in the human element. “Success starts with people,” he said. “People are our most precious asset and that esteem for people, their ideas and differences, is the only path to sustain a long-term growth.”

With his retail experience consisting largely of European pharmacies, Attal is taking a crash course in American department stores, drugstore chains and discounters. “One of the most important priorities is to get to know our retail partners,” Attal said, adding that he hopes to be able “to bring new ideas and concepts to each of the channels.” His strategy is to combine product innovation and strong partnerships with brands in each of the channels.

Four years ago, when Agon arrived from Paris to take over from the retiring Guy Peyrelongue, he was greeted with the fallout from 9/11. Smoke still hung over Ground Zero and the business was reeling, particularly in department stores.

Since then, L’Oréal rallied and surged. While noting that “the business environment has not been very easy these last four years,” Agon declared with satisfaction that “we — the team here — have accomplished what we wanted to accomplish.” Then he ticked off the statistics — including a 30 percent increase in sales over four years to about $4 billion in total U.S. business. He described that rate as two or three times the market growth.

According to the company, L’Oréal’s share of Consumer Division mass market business shot from a 21.4 percent in 2001 to 24.1 percent in 2004.

Agon said he originally set three goals, the first of which was to stimulate growth. The second was to gain market share. The third was to expand existing big brands while growing emerging brands.

As one indicator, he noted that the professional salon division went from a 28 percent share to 35 percent over these four years. “Each brand — Matrix, Redken, L’Oréal Professional — has grown significantly,” he noted.

Breaking down the mass market gains, he noted hair color grew from 52 percent to 56 percent; hair care, 6 percent to 11 percent; styling, 7 percent to 12 percent; cosmetics, 33 percent to 36 percent, and skin care, 10.5 percent to 13.5 percent. And Garnier, driven by the launch of Fructis, exploded from $60 million to over $350 million in sales.

Agon asserted that in the Luxury Products Division, globally, Lancôme and Ralph Lauren have kept their position. Lancôme has made gains in color and has second-half launches slated in skin care. although it’s admittedly weak in fragrance. Lauren become the number-one designer scent. Giorgio Armani, Kiehl’s, Biotherm and Shu Uemura all have at least doubled in sales in the past four years.

According to the company, quoting NPD Beauty figures, L’Oréal’s total projected department store beauty business held roughly even in share from 19 percent in 2001 to 18.7 percent for 2004. Sources say the dip was caused mainly by the maturation of Lancôme and Lauren, as well as the shutdown of Helena Rubinstein. The Armani division gained ground, but not enough. NPD Beauty says L’Oréal’s share of the department store fragrance market grew from 18.6 percent in 2001 to 19.1 percent in 2004.

His third objective was “to not only strengthen the existing big brands — like L’Oréal, Maybelline, Lancôme, Ralph Lauren and Matrix — but also to grow those brands that were smaller at the time, like Armani, Kiehl’s, Shu Uemura, Kérastase, Garnier and L’Oréal Professional.”

“We have been able to grow our big brands at a reasonable pace, at least at the market pace,” he said. “But on top of that, we have been able to grow our emerging brands to become strong players.”

Robert Mettler, chairman and ceo of Macy’s West in San Francisco, said, “Agon brought a portfolio and global-brand orientation to the company.” Asked what challenges he would find in Paris, Mettler replied that Agon faces the same industry riddle that vexes everyone — how to get more growth out of well-developed big brands.

Industry analyst Allan Mottus rated Agon as doing “extremely well” in his two main challenges of holding off Procter & Gamble and gaining market share. “He made L’Oréal USA the up-and-coming bullpen,” Mottus asserted. “The retailers have put them in the growth segment.”

He predicted that Agon would complement Owen-Jones. “He will be able to work in the same world that Owen-Jones created, but he now will become its overseer.” Mottus added, “Agon will bring more of an organizational framework to digest what Owen-Jones did, then build on top of it.”