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In one of the worst global beauty markets in decades, L’Oréal is not only staying the course — it’s raising the ante.
Seeking to maintain, if not gain, market share, the mass market-oriented Consumer Products Division of L’Oréal USA dramatically increased its advertising and promotional spending for the fourth quarter of 2008 by 10.9 percent and promises to keep up the pressure in 2009. The budget is expected to increase again this year, both for the mass division and L’Oréal USA as a whole.
The company is swimming against a strong tide. Beauty sales in the mass market were on a roller coaster last year. For the 52 weeks ended Dec. 27, ACNielsen reported color cosmetics sales up 4.4 percent and women’s fragrance down 8.5 percent. Not only is the market tough, but so is the competition. Archrival Procter & Gamble has vowed not to back down on ad spending and is looking to cut deals giving it more promotional firepower.
Meanwhile at L’Oréal, early indications are that the strategy is working. L’Oréal’s Consumer Products Division — including Maybelline New York, Garnier, L’Oréal Paris and Soft Sheen/Carson — increased sales by 2.3 percent in the fourth quarter, according to Joseph Campinell, president of the Consumer Products Division. He added that L’Oréal’s main competitors dropped a cumulative 2.2 percent in the same period. During the first three quarters of 2008, L’Oréal’s mass market sales were up about 1 percent on a combined basis.
During a recent interview, Campinell explained that this current strategy came out of L’Oréal’s long-running playbook: “In bad times, you spend against the categories — you grow your market share — and when things turn, your market share is higher and you’ll be in a better position.”
“Year-on-year 2008, our consumer sell-through share of market of our categories that we’re in is up,” he continued. “So we’re beating the market and that’s a real indication that our strategy is the right strategy.”
When the market began to seriously soften in July, L’Oréal executives realized a decision had to be made. Charlie Mills, security analyst at Credit Suisse in London, said the company had to make an unpalatable choice: either continue its long string of double-digit earnings gains or forgo that in order to drive long-term revenue growth. “They chose the latter,” he declared, adding sales growth at L’Oréal is “sacrosanct.”
Campinell did not disclose ad dollar outlays, but industry sources estimate that the L’Oréal division spent around $600 million in 2008 on advertising and promotion. While there sometimes is a disparity between what is spent and reported outlays, TNS Media reported the Consumer Products Division spent almost $570.1 million from January to September of 2008, down slightly from the more than $584.2 million of the previous year. Then came the big fourth-quarter surge.
Campinell declined to cite specific results for particular brands, but the combined Consumer Products Division commands a cumulative share of more than 20 percent in the U.S. market, with a business hovering around $3 billion in sales. L’Oréal’s share of the hair coloring market is estimated at more than 50 percent, and color cosmetics is in excess of 30 percent. He was quoting market share data supplied by Information Resources Inc., which does not include Wal-Mart. Citing client confidentiality, IRI declined to elaborate on the figures.
Moreover, Campinell promised to keep his foot on the gas. “We will spend disproportionately against what we think will be a fairly soft market,” he said. “We expect growth in sales and market share.”
In normal times, L’Oréal usually shoots for an annual market share gain of about one point. Despite the record weakness of the economy, Campinell said he expects to still gain anywhere from half a point to a full point for 2009.
It certainly seems doable, judging from the last quarter. For the fourth quarter, CPD’s market share was up better than half a point, Campinell noted.
L’Oréal expects to accomplish this not only with a loaded advertising budget, but with an armload of new products, most of which are starting to hit store shelves now. They include Excellence to Go, a quick home hair coloring kit that L’Oréal has marketed in Europe for eight months under the Excel 10 name. It will compete here with P&G’s Perfect 10. Another launch will be EverPure, a sulphate-free hair care line for color-treated hair. The Garnier brand will introduce Ultra-Lift Pro, a $15 high-tech product that is designed to correct deep wrinkles. Maybelline has an answer to the numerous mascaras that have launched in the market this year. It’s entry is Lash Stiletto and it is now in the stores, backed by a barrage of TV advertising that just started this week. Campinell added many other products are being launched as well, including numerous color items.
“Stiletto is flying out of the stores,” said a buyer in a drugstore chain who did not want to be mentioned on the record. “EverPure is doing very well and is a very good product. No one spends like L’Oréal. L’Oréal has been a great strategic partner. Like any company, their sales vary from week to week, up or down for both L’Oréal and Maybelline, but we are happy with our business.”
A buyer at another chain observed, “During Christmas, we saw an increase in L’Oréal cosmetics, which we attribute to women trading down out of department stores, but to the high end of mass.”
During a store tour in December, Catherine N. Lindner, divisional vice president of marketing development at Walgreens, agreed. She said customers, many used to department stores, have been impressed with the new fixturing and testers in a specially created L’Oréal department in the store.
Campinell had taken issue with some media speculation L’Oréal was losing ground to its mass market rivals. He singled out skin care and pointed out that Garnier’s Nutritioniste launch had scored “as high as a nine share” in the moisturizing category in less than two years. He noted that the Maybelline and Garnier brands together were up 30 percent, while “the category is up 5 [percent].” He added that, in moisturizers, the L’Oréal Paris brand was up 11 percent, twice the category.
In hair color, L’Oréal’s traditional strength, Campinell conceded “the category has fallen and that has hurt us. We have not grown this year. We’re off maybe a point, but we have new launches for 2009 and we still have a 22-point share above our nearest competitor.”
The color cosmetics market was up by only one point, but L’Oréal Paris was “plus-nine,” driven by the launch of Bare Naturale, plus Infallible lipstick, Campinell said.
Looking forward through 2009, Campinell said: “The first three quarters are going to be probably flat, maybe minus one in our categories.” He added that a bit of a turn is expected in the second half “because the weakness really started in July. The fight will be just improving our performance during the first half.”
Much of the criticism of L’Oréal was generated by the quarterly sales figures of the parent company and its U.S. subsidiary, which includes businesses dependent on the beleaguered department stores, as well as the salon division.
Dan Dolev, European HBC associate analyst at Sanford C. Bernstein, declared, “It’s a wise strategy.” But he added that maybe “it’s too little too late.”
Dolev estimates sales for all of L’Oréal USA in the fourth quarter will be down by 6 percent, and he blamed the shortfall on past quarters of cutting advertising and promotional spending. “It is very hard to reverse the erosion,” he said, predicting L’Oréal, the worldwide French parent, will miss both its traditional targets of 6 to 8 percent sales growth and 10 percent earnings per share growth.”
Credit Suisse’s Mills stopped short of making a prediction. While noting that L’Oréal has come out of the fourth quarter with “all guns blazing,” he pointed out that market share growth is dependent on having the right new products. But he reiterated, revenue growth is the Clichy, France-based company’s mantra, and “L’Oréal is nothing if not persistent.”