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L’Oréal CEO Says a New Era Is Dawning for Beauty

“It will be an increasingly multipolar era, more fragmented than the previous one,” said Nicolas Hieronimus.

PARIS ­— L’Oréal chief executive officer Nicolas Hieronimus said a new era is dawning for the beauty industry.

That vision was shared while he also surveyed business and the world in 2022, during a conference call with financial analysts and journalists at the company’s headquarters in the Paris suburb of Clichy on Friday morning.

The meeting was held a day after the maker of Lancôme, Garnier and Kérastase products released results for last year.

As previously reported, the group’s net profit in the 12 months ended Dec. 31 rose 24.1 percent versus 2021 to 5.71 billion euros, while operating profit was 7.46 billion euros, a 21 percent increase. Company sales in the period were 38.26 billion euros, advancing 18.5 percent.

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“In a world of polycrisis, we have delivered our best and most balanced growth since 1999, outperforming the [beauty] market in all divisions, geographic zones and categories,” said Hieronimus. “We have reached historical levels of profitability.”

Skin care was L’Oréal’s largest category last year, with sales growing 10.1 percent and accounting for 40 percent of the group’s overall turnover. Makeup, representing 20 percent of company sales, continued its rebound, increasing 9.2 percent, penalized by health restrictions in China.

Hieronimus fielded various questions, including one regarding the lifespan of L’Oréal’s fragrance and beauty license with Yves Saint Laurent, which the group signed with Kering in 2008. He was asked whether Kering has given an early indication about whether it wants to take the brand back.

Kering, which owns and operates the Saint Laurent and Gucci fashion brands, said on Feb. 3 — after months of speculation — that it is restarting an in-house beauty branch. YSL, alongside Gucci, would be the biggest brands in its fragrance and beauty portfolio, if they weren’t already licensed out to L’Oréal and Coty Inc., respectively.

The YSL fragrance and beauty brand is a business that today at L’Oréal generates upward of 1 billion euros a year.

“We take the decision of Kering to enter beauty as a very strong sign that beauty is definitely a category to invest in,” said Hieronimus. “It’s not an easy category, but we have new players.

“And as it relates to the license, I would say that it’s a very, very, very, very long-term license,” he continued. “That’s about all I can say, but there is absolutely no risk that this license is taken back from L’Oréal.”

The executive did not discuss specific acquisition targets during the conference, but later in the day, when asked if L’Oréal will be buying Australian beauty brand Aesop, after conjuncture has swirled for weeks on the subject, the group said: “We do not comment on speculative rumors.”

Back at the conference, Hieronimus was positive about the future.

“While remaining prudent in this world of polycrisis, I am confident in L’Oréal’s ability to build on our strength and deliver another year of growth in sales and profits,” he said.

“At a macro level, and even if currencies should be less favorable in 2023, we see some patches of blue sky among the dark clouds,” the executive continued. “There are a few early signs of reduced inflation on some raw materials. Recession is seen as less likely in many parts of the world, and China is reopening with a clear focus on economic growth.”

Hieronimus called beauty “an essential human need,” and said that even in times of recession there is an ongoing consumer demand for beauty products.

“The beauty market has always been resilient to economic uncertainty,” he continued, adding it has clocked average annual growth of more than 4 percent over the last 23 years. “This has proven true once again in 2022, growing a robust plus 6 percent.”

Hieronimus said L’Oréal believes the beauty market will keep growing at a rate of 4 percent to 5 percent on average during the years to come.

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“In the current inflationary context, we saw limited volume decrease and even though there are nuances by geography and category, our latest consumer panel shows that valorization more than compensates any drop in volume,” he said.

In the fourth quarter of 2022, the beauty market maintained solid growth everywhere in the world, with the exception of China, the executive continued. There was a sharp market contraction there in December.

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“However, we believe in the rebound of the Chinese beauty market after Q1, and we are prepared for it,” said Hieronimus.

He addressed some people’s concerns about the risk of downtrading, especially in developed markets as inflation weighs on consumers’ wallets.

“Needless to say, we monitor this very closely, but feel reassured the market has remained dynamic throughout the year,” said Hieronimus. “We are not seeing significant levels of downtrading in 2022.”

Internal company studies have shown that the L’Oréal consumer is mostly in the upper middle-class bracket, and therefore less vulnerable to inflationary pressures.

“To continue to fuel that consumer appetite, we have a strong pipeline of cutting-edge innovation for ’23, designed to drive consumers toward new and often more premium offerings,” he said.

L’Oréal this year will continue working to improve its gross margin, according to Hieronimus, who said the company will benefit from its 2022 price increases, mostly instigated in the second half.

“They have yet to show their full-year impact, as well as new ones at the beginning of ’23,” he said. “So all in all, with the experiences gained during the pandemic, coupled with our balanced footprint and unique operating model, we are perfectly equipped to drive growth, despite the uncertain environments.”

Hieronimus said that the past few years of crisis and constant change will mark the dawn of a new era.

“It will be an increasingly multipolar era, more fragmented than the previous one, an AI- and tech-led era, with the highest expectations in terms of sustainability, purpose and cultural diversity,” he said.

“In this increasingly complex and fragmented world, having solid roots and structural agility will be essential to a company’s success,” explained Hieronimus. “We have that. Transformation is part of our DNA.”

He contended L’Oréal is uniquely positioned to win in the new era, thanks to the group’s multipolar characteristics. It is, for example, able to grow geographically in and beyond China, in emerging markets and to seize opportunities in North America and Europe.

Hieronimus said L’Oréal’s multipolar divisional model allows the group to go beyond luxury and leverage fast-growing dermatological beauty, premiumize consumer products and make the Professional Products division omnichannel.

L’Oréal has more than 2,000 dedicated experts focused on beauty tech and IT, along with 100 data analysts.

“Our entire RNI organization is being implemented with AI and data, including strategic partnerships with the experts, such as Verily, an Alphabet subsidiary,” said Hieronimus.

“Data and AI will allow us to develop next-level diagnosis services for personalized recommendation to drive loyalty and satisfaction,” he said.

In today’s increasingly fragmented world, Hieronimus said: “We will evolve from universalization to singularization, from offering beauty for all, to beauty for each.”

He highlighted regionally developed innovations with global potential.

“Beauty for each is personalized products, service and experiences, powered by AI, data and beauty tech,” said Hieronimus.