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L’Oréal’s CEO Addresses Beauty Industry Transformation

“The global beauty market has been transformed by the pandemic,” L’Oréal chief executive officer Nicolas Hieronimus said.

PARIS — The global beauty market has been “transformed” by the pandemic, according to L’Oréal chief executive officer Nicolas Hieronimus.

“Consumers want more health and safety in their products, more transparency, more sustainability and more science in an ever more digitalized market,” the beauty executive said Thursday during the company’s 2021 results conference webcast from its headquarters in the Paris suburb of Clichy — his first time presenting the annual meeting as CEO and a day after the company’s full-year 2021 results were released.

“What this year tells us is that the appetite for beauty is huge, universal and that beauty is essential for humans,” he continued. “Beauty is an offer-driven market powered by innovation, technology and by intuition and creativity; beauty is a brand-powered market, where consumers in their infinite diversity relate to brands that come with a personality….Beauty is a market where scale matters: big brands, big renowned star products, win.”

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The global beauty market grew by 8 percent last year, according to estimates from L’Oréal. “After a decline of 8 percent in 2020, 2021 was the year of the rebound,” Hieronimus said.

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As reported, in 2021 the maker of Lancôme, Kiehl’s and L’Oréal Paris products achieved sales of 32.28 billion euros, a 15.3 percent increase on a reported basis and a 16.1 percent rise like-for-like, compared with 2020.

In what it described as “a historic year,” the group registered its strongest growth since 1988, and outgrew the market by a multiplier of two. “L’Oréal outperformed its market in every division, in every zone and in every category,” said Hieronimus, an achievement he described as a “grand slam.” The company benefited from strong demand in the U.S. and North Asia, notably China, despite acknowledging a slowdown there in the second half.

The global beauty market “was driven by skin care and fragrances, while makeup is progressively recovering,” Hieronimus said. “Apart from makeup, all categories are nearly back to their 2019 levels.” The company estimates that the global skin care market clocked 7 percent gains in constant currency terms last year, while fragrance grew 21 percent, makeup by roughly 8 percent and hair products by 6 percent.

By channel, e-commerce increased 6 percent, brick-and-mortar by 6 percent and travel retail by 16 percent, largely driven by ongoing growth in Hainan, China. “Travel retail has experienced a significant rebound but is still far from the pre-pandemic levels, and we can bet on the further recovery of travel retail in 2022,” Hieronimus said.

“E-commerce remains a strong growth driver, but brick-and-mortar has bounced back, despite a few phases of stop and go due to the pandemic,” he said.

For its own operations, “the crisis has allowed us to move away from the long tail of unproductive stores and to focus on growing the best ones, which remain essential to our strategy,” Hieronimus said. This has been a cornerstone of L’Oréal Luxe’s strategy in the U.S. over the past few years, for example, and it has closed 1,300 underperforming doors there.

By geographic zone last year, North America led growth for the global beauty market, with overall sales up 12 percent, according to L’Oréal estimates. Europe, North Asia and Latin America all increased 7 percent, while SAPMENA/SSA (or South Asia Pacific, Middle East, North Africa and Sub-Saharan Africa) grew 5 percent.

Addressing concerns about a slowdown in China, the executive remained bullish. “The Chinese market slowed down in the second half because of high comparatives and new zero-COVID-19 lockdowns, but its growth versus 2019 remains very dynamic, and its medium-term prospect very positive. Three hundred and seventy million people will be added to the middle classes by 2030, and they will want beauty,” he said.

Despite questions about a squeezing of purchasing power due to inflationary pressures as well as supply chain tensions leading to increased prices for the year ahead, Hieronimus was upbeat about 2022. “We are confident in the continued growth of the beauty market. In addition to increased volumes driven by the growth of the middle classes, the market will also continue to premiumize,” he said. “We estimate that the beauty market should grow between 4 and 5 percent in 2022.”

On a company level, L’Oréal is working to mitigate inflationary pressure through multiple initiatives. He explained: “Regarding inflation and cost of goods, it will be a headwind in the first half, and it will be partly offset by our operations team through value analysis substitutions or negotiations.”

As well as through the premiumization of its offer, the company is mitigating cost inflation using AI-powered revenue growth management, mixing price increases, promotions and format strategies, most of which have already been agreed with retail partners, he said.

L’Oréal’s uptooling of and investment in technology is impacting its business on every level, not just in terms of consumer-facing initiatives. “What truly makes L’Oréal future-proof is our transformation around beauty tech and sustainability,” Hieronimus said.

In formulation, for example, he said: “Our AI-powered formulation tools can save us months of efforts as we transform our formula to meet our sustainability goals and comply with ever-changing regulations. AI is also allowing us to leverage in real-time all the comments about our products posted online as we upload them in our research database.”

Among consumer-centric projects, “our brands are already exploring the new worlds of gaming and the metaverse,” Hieronimus said.

 

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