Forty years after joining L’Oréal, Jean-Paul Agon makes for an unlikely revolutionary.
Yet the chairman and chief executive officer of the world’s biggest beauty company is more bent on change than perhaps at any other time in his storied career, which has seen him methodically rise from product manager to strategic visionary. “I have tried to completely transform L’Oréal to adapt it to what I thought would be the world of tomorrow,” said Agon, whose key accomplishments include catching the digital wave early, pioneering record-producing programs in sustainability and social responsibility and driving growth in key emerging channels, including Asia and travel retail.
Despite his long tenure, Agon shows no signs of slowing down — or resting on his laurels. “If I have one obsession, it is to try to adapt L’Oréal to the evolution of the world, the evolution of consumers, of what they want, what they need, what they desire, in order to permanently be ahead of the game,” he said during an exclusive interview in the company’s expansive New York headquarters in Hudson Yards.
The fixation on being number one is not new to Agon — his successor as ceo and chairman, Sir Lindsay Owen-Jones, was known for driving quarter after quarter of double-digit profit growth. But the complexion of the business, which had revenues of 26.02 billion euros in 2017, is gaining a new accent as the world shifts eastward.
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“Asia-Pacific will become the number-one [sales] zone of L’Oréal in 2019 or 2020 at the latest,” Agon declared, noting the region will be the source of the company’s future growth. “It is there that you have the largest population, the largest demography, and also the most dynamic part of the economy of the world.”
For L’Oréal, the Asia-Pacific zone comprises 10 countries, including China, Japan, Korea, India, Malaysia and Indonesia; the region is projected to exceed North America in sales by the end of this year and Western Europe in 2019. Perhaps just as important, the rise of Asia gives L’Oréal a second engine of competitive aspiration and development in the world.
“Asia, and especially China, is becoming the new most competitive market in the world,” Agon said. “Definitely the U.S. is still a very competitive and forward-moving market. In the past, there was probably only one pole of development and competitiveness in the world, which was the U.S. Now we will have a second pole in Asia. It’s good, because it’s even more stimulating for the company.”
At the end of September, Asia-Pacific accounted for 27 percent of L’Oréal’s global business, running slightly behind North America — 27 percent versus 27.1 percent — a difference of 40 million euros.
Soon, it will grow to more than 30 percent. “It’s going to be one-third of L’Oréal,” Agon said, noting that over the next 10 to 20 years, countries including China, India, Indonesia, Malaysia and Vietnam will continue to explode in importance.
He hastened to add that L’Oréal expects to continue reaping market-share gains from established markets as well. “Our ambition is to grow in every part of the world,” he said. “We are growing and gaining share in North America, we are absolutely committed to keep growing and gaining share even in Western Europe.”
Looking around the globe, Agon predicted that Africa will one day be an important beauty market, too. “African women are among the most motivated in the world for beauty,” he said. “They are passionate about beauty…they are the only women in the world who change their hairstyle on average 10 or 11 times a year.”
Agon foresees the day when he taps a rising young executive to “go and create Africa,” much as Owen-Jones sent him to Asia in 1997 to develop the market there. “I’m afraid I won’t be able to finish that in the next two years,” he said with a smile. “That’s going to be a great mission for my successor.”
Despite Agon ceding the development of Africa to the next generation, this is not the modus operandi of a man winding down after 12 years as ceo and seven as chairman. At age 62, his ardor has not cooled, nor has his globe-trotting through L’Oréal’s network of 150 markets slowed.
All of that momentum has paid off. The recent third-quarter figures were L’Oréal’s best quarterly results since 2007, before the Great Recession. Sales reached 6.47 billion euros, up 6.2 percent in reported terms, and 7.5 percent on a like-for-like basis, broadly beating financial analysts’ expectations. The surge was pushed by sales of the Luxe and the Active Cosmetics divisions.
Indeed, the word “retirement” does not dwell comfortably in Agon’s vocabulary. Asked when he will name a successor, since he had previously stated his intention to remain ceo until he turns 65 in 2021, France’s statutory limit and L’Oréal’s traditional retirement age, the ceo dismissed the question with a broad smile and a breezy answer: “When it will be the time for that.”
However, it has been long speculated in and out of the company that Nicolas Hieronimus, deputy ceo, has been chosen as Agon’s successor. There has been no comment from the company or any of its executives.
In the meantime, the present L’Oréal chief has plenty to do and shows no inclination of slowing down. He is “obsessed” with modernizing and arming L’Oréal to be the champion of what is yet to come. Agon is driven by change, which he sees everywhere. “The world and L’Oréal have changed more in the past four years than in the previous 36,” he remarked.
Agon recently began talking up his results in leading a trifecta of seismic “revolutions” — putting L’Oréal in the forefront of the digital, sustainability and corporate responsibility movements, including gender equality and closing the pay gap to 1 to 3 percent. “Our intention is to eliminate completely any gap in the very near future,” Agon asserted.
The transformation that has received the most attention from outside the company is L’Oréal’s role in the forefront of the digital revolution in beauty, dating back to 2010, which Agon branded “the year of digital.”
“Undoubtedly, Agon’s greatest achievement was the early realization that a digital ‘tsunami’ was about to hit the industry,” said Eva Quiroga, an analyst at Deutsche Bank, “and the unwavering investment in ensuring that L’Oréal would remain at the very forefront of that.”
As a measure of its quick start and determination, L’Oréal has dominated the Enterprise ratings of the Gartner L2 annual digital rankings by finishing number one every year since 2013. For 2018, however, the company ended up sharing the top spot in U.S. beauty with Estée Lauder Cos. Inc. Both giants scored 113 digital IQ points when the respective portfolios were judged on a consistent and like-for-like basis without including recent acquisitions. Four of L’Oréal’s brands finished in L2’s top 10 genius rankings — the most of any group — with Maybelline claiming the number two spot in Genius territory for the second year in a row. The company also had a second Genius brand, number three NYX.
For Agon, the goal is not just to inject digital thinking into all areas of L’Oréal — it is to use digital to transform the very nature of the company itself. “My ambition for L’Oréal,” he said, “is to become the beauty tech company of tomorrow.”
While Agon is credited with spearheading the big transformations, he always gives credit to the organization for its ability to change. “L’Oréal has a kind of magic capacity to regenerate itself, both because we are leading the way, but also because all the teams are really participating in this regeneration,” he said.
The latest among these mini-revolutions is a far-reaching internal program that is being designed in-house to produce a more nimble, agile and responsive organization that empowers the staff, particularly middle management. Agon described the program, which is called Simplicity and is still in development, as a “cultural revolution” that aims to “change [the atmosphere] to a collective, cooperative and collaborative behavior and spirit within L’Oréal.”
That is a feat for a company that has 82,600 employees spread around the world, and has sometimes been associated with hierarchical tendencies.
“This cultural revolution is a very important one,” Agon said, leaping up from his seat to grab a chart set up like a tic-tac-toe board that contains the new mantras of the corporate culture, such as “teams are the new heroes,” “cooperation is the new confrontation,” “empowerment is the new management,” “problem-solving is the new meeting behavior.”
Part of the change has centered around opening up L’Oréal’s male-dominated hierarchy to more women. Agon recounted a 2002 Cosmetic Executive Women speech, during which he was asked if L’Oréal was still “a boys’ club.” He clearly relishes his track record in promoting more women to senior ranks, noting that almost half of the group’s board is female, and that L’Oréal was the number-one company for gender equality, according to a 2017 survey of 3,000 companies worldwide. “That’s a revolution,” he said, “a revolution and an adaptation to the world.”
Agon credits the organization with being willing to change. “When you explain to them why we had to reinvent ourselves, and transform the way we work, they are extremely positive.” But it starts with the ceo, his vision, passion and constant sense of purpose, said those in the company.
“His energy, his fantastic leadership — he puts it all behind his priorities,” said Frédéric Rozé, president and ceo of L’Oréal USA. “Traveling, meeting the teams, showing how convinced [he is], involved, committed behind those priorities. It’s quite impressive. It’s pretty clear for everyone in the company that this impulse starts with him.”
Rozé observed that Agon brought in a “more direct, simpler” style of managing and interacting with people than his “impressive” predecessor.
Among those who agree that Agon has succeeded in his main goal of equipping L’Oréal to deal with the world of this century is Javier Escalante, equity research analyst at Evercore ISI. He pointed out that Agon not only expanded L’Oréal’s global footprint, with the market business growing from 27.1 percent of total global sales in 2006, the year Agon became ceo, to 40.5 percent in 2017, but that he also made it more profitable by building localized supply chains with factories and infrastructure in the emerging markets. Normally the profitability is higher in a company’s core business than in the new territories.
“The expansion in [L’Oréal’s] emerging markets has been very profitable, which is something that companies like Procter & Gamble and Unilever haven’t been able to do,” Escalante said, adding that last year, L’Oréal’s new markets edged out North America in profit margin by more than a percentage point and trailed Western Europe, the home zone, by less than three points.
According to L’Oréal’s 2017 annual report, new markets posted an operating margin of 20.3 percent, versus 19.2 percent for North America and 22.9 percent for Western Europe. “That is quite an accomplishment,” Escalante said.
A prime example of L’Oréal’s penchant for investing in emerging markets lies in the Asia Zone, which only had 10 employees working out of an apartment in 1997 when Owen-Jones told Agon to go east and organize a zone out of L’Oréal’s small, scattered operations across the region, building a meaningful business, practically from scratch. It is a story that Agon loves telling.
“We were very small in Asia [in 1997], less than 5 percent of the sales of the group,” he recalled. “But thank god, at that time [Owen-Jones] realized, and we realized together, that it was urgent to build a business in that continent.”
Twenty-one years later, a managing director runs a headquarters based in Hong Kong, overseeing operations in 10 countries and research and innovation labs in Japan, Shanghai and Mumbai.
“We have factories all over the zone in Japan, in China, in Indonesia, in India,” Agon said. “We have everything it takes to grow the business there.”
The company is certainly reaping the reward of being early to China. “L’Oréal is the number-one beauty company in Asia,” Agon declared, “total Asia, total Asia-Pacific, ahead of all the international companies that started much before us. We’re also ahead of Japanese or Korean companies in the region.
“In China, [it’s the] same story,” he continued. “We have become the number-one player there, and we are number one on all fronts. We are number one in luxury, number one in skin care, number one in men’s care, makeup, professional, pharmacy active cosmetics,” he enumerated. “And it’s just the beginning of the story.”
When reminded that Procter & Gamble is number one in hair care, Agon objected. “We didn’t miss it because we didn’t want to tackle it,” he said. “That’s because P&G had built a very strong fortress on its hair-care brands in China.”
He said L’Oréal’s hair-care strategy in China was analogous to one that the company had employed elsewhere. “In the U.S., we waited 20 or 30 years before launching a hair care line. It was Fructis, which was pretty successful, but it was [launched] only 20 years or 30 years after having established a subsidiary in the U.S. It was attacking some very strong competitors on their main categories, so we kept that for the end. It’s going to be the same for China,” he concluded.
Agon is clearly focused on China as the heart of the Asia-Pacific zone. “In terms of dynamism of the market, in terms of modernity, speed of transformation and evolution, this is definitely the big part of the region.”
He is looking to compete with locally relevant brands, as well as international ones. In addition to owning Shu Uemura in Japan, L’Oréal bought Magic Holdings in 2014, which has a mask business that Agon wants to further strengthen in the treatment market.
Referring to Magic’s Mei Ji skin-care brand, Agon said, “[the name] means ‘Immediate Beauty.’ “It has the potential to become a larger skin-care brand on the Chinese market.”
In May, L’Oréal bought Nanda Co. Ltd., the South Korean lifestyle, fashion and makeup company, which includes the 3CE color cosmetics brand.
“Now we have one Korean brand, one Chinese brand and one Japanese brand,” Agon said. “It’s a nice portfolio to play with and we don’t exclude other acquisitions in the future.”
Agon has already gotten into the Asia rhythm, plugging it into his voracious travel schedule. In a two-week period, he was in Shanghai twice, first as a member of Mayor Ying Yong’s advisory board, then to attend the opening of CIIE, China’s inaugural China International Import Expo, which was spearheaded by Chinese President Xi Jinping.
While it was gaining ground in Asia, L’Oréal was also aggressively increasing its digital capabilities, acquiring such digitally savvy beauty brands as NYX and Urban Decay, and technology plays like Modiface, a leader in augmented reality. Escalante gives Agon and L’Oréal high marks for looking beyond e-commerce and realizing the power of social media. “The brilliance has to do with realizing that e-commerce is not a channel, that digital is content. It is how you elicit desire and close transactions with consumers. That requires a new kind of capability that is not necessarily easy to find and to work with in a creative environment. That makes [Agon] an even more formidable competitor.”
One key move is L’Oréal’s work on programmatic advertising, which individually reaches consumers with a product pitch they may be interested in, increasing chances of a sale. “That is all artificial intelligence, knowing who is interested so he gets the conversion. This is what L’Oréal is investing in,” said Escalante.
A key differentiator of L’Oréal’s digital strategy is that the company has embedded digital into every aspect of the organization, rather than segregating technology into its own silo. Agon believes that by using a decentralized test-and-learn strategy, L’Oréal can effectively harness and cascade key learnings across the organization. “We are not a big boat — we are a flotilla of large, medium and small vessels. This decentralization is key, because digital is still at the stage of test and learn,” he said. “The idea that you can decentralize everything, that every brand in every country can test and then everyone can learn from this, allows us to cross-fertilize across brands.”
Agon wins kudos for hiring Lubomira Rochet, L’Oréal’s chief digital officer, in 2014, and allowing her the freedom to implement her digital vision.”Not only was she hired as a younger person, but put onto the executive committee of the company right away reporting to Jean-Paul,” pointed out Mark Astrachan, managing director of Stifel Financial Corp. “He understood the importance of what the future held and he wasn’t afraid to step on people’s toes. Overall she had a strategy, and he had a lot of trust in her to do it.”
Rather than focus on the e-commerce aspect of the opportunity, Agon believes the true value of digital lies in its recasting of the consumer relationship. “The e-commerce part isn’t our number-one priority,” he said, noting that e-commerce, about 10 percent of sales, is growing 38 percent (for the year-to-date at the end of September) and represents 50 percent of the company’s sales growth. “The number one thing is the new relationship with the consumer.”
That closeness to the consumer has enabled L’Oréal to reignite growth in its heritage brands, making them more relevant for Millennial consumers around the globe. L’Oréal’s luxury division, consisting of power names like Lancôme, Giorgio Armani and Yves Saint Laurent, is up in the double digits. “Digital isn’t the end of the big brands,” Agon said. “It’s completely the opposite. Lancôme, Giorgio Armani, Kiehl’s — all are having their best years ever,” he continued, ticking off the gains: Lancôme, up almost 15 percent; Yves Saint Laurent Beauté, up 14 percent; Armani, up 21 percent, and Kiehl’s, up 24 percent.
L’Oréal’s leadership in sustainability has been another key focus. Five years ago, Agon created the Sharing Beauty With All program, to ensure the group is at the forefront of sustainability in terms of manufacturing and materials. Agon said L’Oréal is already ahead of its 2020 goals for key benchmarks like its carbon footprint, and Newsweek named it the number-one company in the magazine’s annual green ranking. In 2025, 100 percent of the group’s plastic packaging will be refillable, reusable, recyclable or compostable. “We are really ahead in this field,” said Agon, “and we keep pushing.”
But there are challenges, too. The Consumer Products business, L’Oréal’s mass-market arm, has slowed. Maybelline New York and L’Oréal Paris both posted gains “of almost 5 percent” for the third quarter, but the Consumer Products and Professional divisions posted lower single digits in the quarter. Agon himself is relatively sanguine about this. “I’m not worried. In my 40 years, we have seen there are cycles and I’m pretty sure the mass market will accelerate again,” he said — but some analysts said it is a pain point. A recent Euromonitor report noted that L’Oréal is facing increased pressure “from local players developing competitive solutions, and trendy Western brands which are very digitally savvy.”
But in the overall scope of things, Agon’s tenure is a win. The company has had only four long-serving ceos (plus Charles Zviak who died in 1989 after being named president and ceo in 1984) in its 109-year history, and Agon has clearly made his mark despite following a legendary leader who built the global L’Oréal.
“Agon truly made global work,” said Carol Hamilton, group president in charge of acquisitions at L’Oréal USA. “Owen-Jones declared the importance of global for the group and actually started the focus on all things global, but Jean-Paul has really realized it,” she said. “It was Jean-Paul who has made it functional and optimized that way of working. We have become a truly global power.”
In addition, “he was an early adopter of all things digital. He embraced the reality and opportunity of social media in the early stages,” she continued. “He was motivated by the incredible prowess of social media, both at Urban Decay and NYX.”
Shifting to a larger picture, Hamilton said, “He is very keen on changing the culture of the company, simplifying the decision-making process and empowering employees. He really does want to leave a company that is more agile and modern.”
Agon sees his legacy as transforming the company and adapting it for the 21st century. “It’s what every ceo of L’Oréal has to do regularly and probably there will be another episode of reinvention in 10 or 20 years,” he said. “I’m very grateful to the L’Oréal teams because they are able and willing to reinvent themselves.”
But Quiroga of Deutsche Bank sees other factors. In addition to Agon’s digital awakening — his biggest achievement in her view — Agon also built on the accomplishments of his predecessors with a focus on top line organic growth while letting margins widen and adding consumers by shifting the sales mix into faster growing emerging markets.
Then there’s something else that was also true of other ceo’s: “And that will take some time to assess — who he will appoint as his successor,” Quiroga said. “Part of François Dalle’s legacy was the appointment of a very young Owen-Jones at the head of L’Oréal,” she said, referring to L’Oréal’s second ceo following founder Eugène Schueller. “And part of Owen-Jones’ legacy was to have identified Jean-Paul Agon, who was exactly what the company needed at that point in time.
“When I recently talked to Agon about his thoughts on succession,” she concluded, “his comment was, ‘I have been thinking about it since my first day on the job.’”
Agon’s Impact on Sales Over the Last Decade:
L’Oréal FY 2007
Total sales: 17.06 billion euros
Western Europe: 7.25 billion euros
North America: 4 billion euros
Rest of the World: 4.65 billion euros (breakdown below)
Asia: 1.58 billion euros
Latin America: 1.12 billion euros
Eastern Europe: 1.14 billion euros
Other Countries: 808 million euros
Consumer Products: 8.28 billion euros
Luxury Products: 3.93 billion euros
Professional Products: 2.39 billion euros
Active Cosmetics: 1.25 billion euros
The Body Shop: 787 million euros
Dermatology: 368 million euros
L’Oréal FY 2017
Total sales: 26.02 billion euros
Western Europe: 8.13 billion euros
North America: 7.35 billion euros
New Markets: 10.55 billion euros (breakdown below)
Asia Pacific: 6.15 billion euros
Latin America: 1.95 billion euros
Eastern Europe: 1.75 billion euros
Africa, Middle East: 692.4 million euros
Consumer Products: 12.12 billion euros
L’Oréal Luxe: 8.47 billion euros
Professional Products: 3.35 billion euros
Active Cosmetics: 2.08 billion euros