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L’Oréal On Track to Outpace Beauty Market in 2020

The French beauty giant’s chief expects the coronavirus “will have a temporary impact on the beauty market in the region.”

PARIS — L’Oréal’s Jean Paul Agon said that assuming the coronavirus follows a similar trajectory to SARS and MERS, it “will have a temporary impact on the beauty market in the region and, therefore, on our business in China and travel retail in Asia, even it it’s too early to assess it.”

The world’s largest beauty company’s chairman and chief executive officer was addressing financial analysts and journalists during a conference on Friday at company headquarters in the Paris suburb of Clichy.

The morning meeting took place hours after L’Oréal on Thursday evening published its results. As reported, the company’s fourth-quarter sales reached 7.88 billion euros, a 9.6 percent rise on a like-for-like basis, exceeding consensus estimates of 7.3 percent.

For 2019, L’Oréal registered sales of 29.87 billion euros, up 8 percent on a like-for-like basis, the group’s best annual gain since 2007.

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Agon said L’Oréal is confident in its capacity to again outperform the beauty market and achieve another year of sales and profit increases in 2020.

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Nicolas Hieronimus, L’Oréal deputy ceo, described the group’s four growth engines as: power brands, category agility, innovation and an “o-plus-o” (or “online-plus-offline”) strategy.

L’Oréal’s numbers were well-received Friday, as the group’s stock closed up 1.1 percent to 270.70 euros.

When asked during the meeting for details about the situation in China, where last year L’Oréal sales rose approximately 35 percent, Agon said due to the Chinese authorities’ decision to extend the Chinese New Year holiday by an extra week, the company’s offices and factories would remain closed until Monday. So he had little new information to share.

“We had a good January, but since the [spread] of the epidemic, the sell-out has become much more difficult,” he said.

One way to recoup some business, however, could be through online sales.

“We are very strong in e-commerce in China,” said Agon, adding L’Oréal is probably the first ranked beauty company in the channel there. “It was almost 50 percent of our business in China last year.”

The percentages rung up online varied by company branch, with the Consumer Products Division generating 60 percent of its sales in China online, and the Luxe Division, about 35 percent.

Still, Agon said, the health situation “certainly will have an impact in the weeks to come.”

The executive and his team are in close contact with their colleagues in China. Agon said he’s in touch daily with the country’s general manager and has learned that none of the group’s 12,000 employees or 12,000 in-store beauty assistants has fallen ill.

“Our priority, of course, is to make sure that our teams are very protected and healthy,” he said.

For L’Oréal, as with other beauty makers, China has been the motor of growth in the Asia-Pacific region, which in 2019 for the first time became L’Oréal’s largest geographic zone, making up 32.3 percent of its overall sales.

“We are number-one in Asia, and Asia has become our number-one continent,” said Agon. “It is the path to the future.”

Aside from strong gains in China, L’Oréal’s business sped ahead in other countries in the region, including registering an uptick of 16 percent in Indonesia, 12 percent in the Philippines and 18 percent in Vietnam.

Last year, Western Europe was L’Oréal’s second-largest geographic zone, followed by Western Europe, North America and Eastern Europe.

By product category, skin care generated 35 percent of L’Oréal’s sales in 2019, up 22.2 percent versus 2018. Makeup was its second-biggest segment, then hair care, hair color and fragrance.

During the presentation, Agon shared some key takeaways from 2019 regarding the beauty market overall. He said it remained highly dynamic, growing between 5 and 5.5 percent, in line with 2018, according to estimates.

“The growth of the market was driven by the same economic, demographic and sociological fundamental evolutions — globalization, growth of the middle classes and the upper classes, aging of the population, men’s consumption, etcetera,” he said.

However, other factors have contributed, too, over the past two years. These include beauty’s digital revolution; the leapfrogging of traditional distribution thanks to e-commerce’s development; young consumers from new markets’ increasing appetite for beauty products, brands and services, and the strong shift toward more premium products on each continent and in every category.

“At the same time, the market was very polarized,” said Agon. “By sector, luxury has been again a booming channel, increasing double-digit and championing the growth of the market. Dermocosmetics is also growing at a very healthy pace, fueled by the global trend toward health and wellness.

“In contrast, the mass market was relatively subdued and professional was a bit slow,” said Agon.

He highlighted e-commerce and travel retail as two channels developing at a rapid clip, with sales growing at 20 percent, while traditional retail suffered.

“By region, growth was clearly driven by Asia, with Mainland China as a main contributor,” said Agon. “Eastern Europe was solid, North America less dynamic than before, and Western Europe was very slightly positive.

“Skin care — the biggest category on the market — grew very fast,” continued Agon. “Makeup and fragrance delivered decent growth, while hair care and hair color had a more moderate progression.”