GENEVA — Procter & Gamble Co. is ramping up the pressure on L’Oréal in the battle for number one in beauty.
The Cincinnati-based personal care giant is already a powerhouse in fragrance and now is making moves to snare a lion’s share of the faster-growing prestige cosmetics and treatment market — both L’Oréal mainstays — as well.
In often-heard P&G speak, the company is looking for a game changer. “Our ambition is to be a leader in the prestige beauty space, just as our ambition was when we entered prestige fragrances,” said Patrice Louvet, president of P&G’s global prestige division, in a recent interview here.
“If we look at the size of the prestige beauty market, it hit $70 billion globally this year and is estimated to reach $90 billion five years from now,” said Louvet. “Fragrances account for around 38 percent of the beauty business globally, as does skin care, with color making up the rest. As P&G has strong expertise across the company in fragrances and also in cosmetics, we felt we had a right to win the broader prestige space.”
P&G’s total beauty business, including its mass divisions featuring Olay and Cover Girl, ranks a solid number two at an estimated $18.6 billion in volume, versus L’Oréal’s $24.36 billion, according to last year’s WWD Beauty Biz Top 100 survey.
Louvet laid out P&G’s action plan for an anticipated push into the hypercompetitive luxury market. As a first step, the old P&G prestige fragrances division has been fused into a new operating unit, P&G Prestige, incorporating its existing luxury beauty portfolio. Brands in that portfolio include the high-end skin care treatment line SK-II, The Art of Shaving men’s grooming collection, men’s skin care label Zirh, DDF dermatological skin care, Frédéric Fekkai hair care and Dolce & Gabbana’s makeup collection, which was launched in 2009.
Louvet observed, “Ten years ago we were nowhere in prestige fragrances. Now we’re number two and we’re actually very close to being number one globally.”
P&G built up momentum in the prestige fragrance market via a licensing agreement with Dolce & Gabbana in December 2005, rolling out The One fragrance in 2006, the year it also inked a license with Gucci. The personal care company actually entered the fragrance market 18 years ago, with a business that industry sources estimated at less than $50 million. Now, P&G’s fragrance volume is estimated by sources at $4 billion in retail sales.
As a starting point for P&G Prestige’s transition into a full-fledged luxury beauty player, Louvet pointed to the company’s overall corporate strategy: to touch and improve the lives of more consumers, in more parts of the world, more completely. “The corporate strategy is, frankly, a perfect fit for how we see our growth strategy in prestige,” he said. Referring to the part about addressing consumers more completely, Louvet said this led its prestige division to look across all the beauty categories including skin care, hair and color cosmetics in order to fully address a women’s beauty needs.
When asked if capturing new markets was a factor in broadening the prestige division, Louvet said P&G Prestige has an existing global presence, but is “NATO-centric,” referring to its firm foothold in Europe and North America. “As population demographics shift, we want to make sure we are where the consumer of the future is. This will mean expanding east and south. It’s not only about Asia, although this is a big opportunity along with Latin America.”
Louvet said the new luxury beauty division will aim to “touch,” or reach, more consumers through a combination of factors, including expanding its existing product offer and enlarging its presence in the male grooming arena. “Historically, we’ve catered more towards women for total beauty and grooming. It’s also true for prestige, even though we’re probably one of the divisions more balanced as we have great male and female fragrances,” he said, citing Dolce & Gabbana, Gucci, Hugo Boss and Lacoste from its scent portfolio as possessing strong male businesses. “We clearly want to do more in the male sector.”
Offering products across the key prestige beauty tiers will provide growth opportunities in the sector, according to Louvet. “We want to play in the uberprestige sector, where skin care is priced at $500 and $1,000, as well in the more accessible fragrance tiers, too.”
Louvet envisages capturing the prestige beauty market though a combination of organic growth and acquisitions. Although he declined to discuss specific category targets for acquisitions, when pressed, he said: “We’re looking across prestige beauty, but any acquisition needs to fit our portfolio. Yes, we’re always looking, but we’ll see what comes up.”
He deftly sidestepped the recurrent questions of the past, in which the market periodically speculates about a possible acquisition of the Estée Lauder Cos. Inc. and, more recently, Beiersdorf.
Defining organic growth, Louvet referred to fuelling its existing portfolio of “phenomenal fragrance brands” as well as driving SK-II’s continued explosive growth. “It’s doing incredibly well. It posted double-digit growth last year and will again this year.” Sources estimate that SK-II’s retail volume is more than $1 billion.
When asked if bringing the skin care brand’s spa concept to Europe was a possibility, he replied: “It could be,” suggesting a sizeable shift, and a commitment by the division to evolve beyond its traditional mainstream roots. “For me, spas are about brand building, rather than just generating revenue, building the equity of the brand and creating a brand experience.”
Louvet emphasized P&G is not in a race to expand color cosmetics. “It’s about being selective, and we’ll continue to expand at the pace we feel is right. This is luxury, and it’s about being exclusive and selective,” he said, referring to Dolce & Gabbana’s makeup line, which, according to Louvet, had “outperformed expectations” since its launch in 2009.
Recent acquisitions — including The Art of Shaving and Zirh skin care — Louvet highlighted as possessing “significant global potential outside of the U.S.”
When asked how the unit intends to make the transition from marketing luxury fragrances to addressing prestige beauty’s extensive customer service needs, Louvet was quick to point out the firm’s existing experience in the sector. “There is this misconception we’re only fragrances,” he said. “SK-II has been part of this part of our business for a year now, so we feel like we have a good model for marketing skin care. Humbly speaking and based on our SK-II experience, we know how to do skin. Yes, it is a different model, but the fundamentals are the same.”
Louvet said the same logic applied to color: “Color is closer to skin than to fragrances, but we have a lot of experience in the company on marketing color as a whole — not prestige experience, but I think we can tap into our prestige skin care and fragrance experience, too.”
On the subject, Carolyn Tastad, vice president of global market operations, said: “We recognize the difference, we really do, and it all continues to go back to grounding everything we do in the consumer. We’re so fundamentally committed to that, and the unique insights that we have, they become guiding.”
Louvet said P&G’s core strengths resonate in the prestige space, referring to the company’s strong belief in consumer understanding through constant research, brand-building abilities, innovation, go-to-market capabilities and the ability to execute.
“These are our key strengths and play very well in the prestige space. There are obviously unique aspects to the luxury space — you can’t do Pantene like you do Dolce & Gabbana,” he said. “But our attention to detail and execution — which we feel like we’ve mastered, and we keep raising the bar — gives us confidence.
“There’s a geographical dimension and a channel dimension, too,” continued Louvet of the division’s luxury beauty strategy, referring to e-commerce, travel retail and spas as specific market opportunities. “The digital space is where we want to play a leadership role, too.”
Tastad added that e-commerce is an example of how the company intends to grow holistically: “We want to continue to innovate, evolve and lead with the consumer at heart.”
Louvet said he was keen to see how P&G Prestige can transfer a one-to-one level of service to consumers online. “Not only do we have the capability to build this type of service in-store, but we also have to be able to take it online. In the spirit of leading this industry, it’s where we’re placing our emphasis,” he said.
Driving an expanded beauty business will require an increased investment on many levels, particularly in the U.S., where the luxury beauty sector is heavily focused on department store floors and one-on-one sales consultants. “From an overall standpoint, we have a dedicated team in New York, and, as with any business we run, we need to understand our key business drivers and how to deliver them,” said Tastad. She explained that, as the business shifted from being fragrance oriented, it has expanded its sell-through team.
“As we moved into other parts of the business, such as The Art of Shaving and Frédéric Fekkai, we had to extend our capabilities in order to service spas and salons. As each part of the business evolves, we will always make sure we have the capabilities in place to support these parts of the business. In some cases, this will mean building new ones, and in others, expand existing skills. But we’ll look at that very much end to end,” she concluded.
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