By  on November 14, 2008

L’Oréal Professional Products wants to get intimate.

That’s not a big surprise given the value strong relationships have in the salon industry. But as the leader of the salon market in the U.S. — and also the world — making and keeping relationships is what’s required to keep L’Oréal Professional Products Division in the number-one spot.

The U.S. salon market, which is estimated to generate about $60 billion annually (including spa services at salons), according to Diagonal Reports, is an industry that is susceptible to an economic downturn. Most salon chains are reporting that consumer traffic is down as clients stretch out their visits and cut down on services. However, David Craggs, president, Professional Division of L’Oréal USA, which makes and markets the Redken, Matrix, L’Oréal Professionnel, PureOlogy, Biolage, Kérastase and Artec brands, among others, said that while he anticipates a 4 to 6 percent decrease for the industry overall for 2008, LPPD, net of diversion cuts, will outperform the market.

For the quarter ended Sept. 30, global sales of professional products at L’Oréal slipped 2.7 percent to 599.4 million euros, or $903 million. For the nine month period, global proffesional sales were up 4.5 percent to 1,848.4 billion euros, or $2.3 billion. North America accounts for about 30 to 35 percent of LPPD’s overall sales.

Positive performances on a number of brands, including double-digit increases for the luxury brands Kérastase and Shu Uemura Art of Hair, as well as for ethnic brand Mizani, are driving sales.

“LPPD results are paradoxical whereas our luxury brands, like Kérastase and Shu Uemura, are showing double-digit growth. Mizani has the strongest growth in the division. Our pillar brands are doing better than the market. But conditions for salons are tough,” Craggs said in a recent interview with WWD. “We will be positive [at the end of the year.] We are getting out of [the acquisition of various distribution centers] what we thought. The proximity with the hairdresser, protecting the channel, finding out more about diversion,” are the main reasons why the division strategically purchased Beauty Alliance, Maly’s West and Columbia Beauty Supply distributorships in 2007 and 2008, bringing L’Oréal’s total distributor sales for the end of 2007 to over $600 million. Fifty percent of distribution is now by company-owned distribution centers. National coverage is estimated by 2012.

Fighting diversion is one of LPPD’s main thrusts going forward. Information Resources Inc. reports that for the third quarter versus second quarter, total diversion sales were down 3.6 percent and LPPD sales at mass were down 9.1 percent, Craggs shared.

To that end, Craggs launched a blog this summer,, in an effort to help fight diversion. The blog looks to “explain to our valued consumers and hairdressers the risks associated with buying professional products from unauthorized outlets,” according to a July 1 entry, the blog’s launch date. Recent entries discuss the premiere of a new investigative video about the risks associated with purchasing salon products from unauthorized retailers.

Craggs describes diversion as “a complex battle with many facets” but at the crux are three main issues: cost, counterfeit and contamination. Products sold in drugstores, he explained, “usually cost about 10 percent to 20 percent more than products sold in salons.”

Recently, it was found that the Midwest retailer Wegmans was selling counterfeit L’Oréal Professional products, which were promptly taken off of shelves after LPPD contacted them.

“We asked them to reveal their sources,” said Craggs of the incident, which he said is both a potential health and an economic hazard. Counterfeit goods in all industries, said Craggs, “are thought to cost U.S. businesses about $200 billion a year, and to facilitate the loss of American jobs, according to the International Anti-Counterfeiting Coalition.”

The company’s new distribution strategy is one that looks not only to help counter diversion but to bring L’Oréal closer to its most important product ambassador: the stylist.

“Distributor acquisition has resulted in better understanding the needs of hairdressers, general service levels, education and additional resources,” said Craggs.

By having such proximity to the hairstylist, L’Oréal is better able to generate ideas to get new customers into salons, including holiday promotions to generate sell-through. “Our total thrust is to think of new ways of getting customers into salons and maximize the visit.”

In 2009, the North America focus is to increase new business and to stimulate the market, which is indeed looking at less foot traffic in salons. In store for some of the brands are major developments in the male arena for L’Oréal Professionnel; a new back bar service for Redken and a new naturally positioned formula for Matrix, according to industry sources.

Craggs acknowledges the importance of natural products in the salon industry, but efficacy is paramount.

“What consumers want is efficacious products that are as natural as possible. That is a legitimate consumer demand, one that we are committed to addressing. PureOlogy is a good example of that as a sulfate-free shampoo,” said Craggs, referring to the brand it acquired in 2007. The firm also has a natural version of L’Oréal Professionnel’s Series Expert in Europe, which undoubtedly will land here, too.

Perhaps one of the biggest opportunities for LPPD, as for all professional companies, is color. According to Diagonal Reports, hair color is the top service in high-end salons, accounting for at least half of salon revenues, compared with less than 20 percent in the budget salon sector. Salon coloring business grew by an average of almost 10 percent for the year, the report said.

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