L’OREAL’S INTEGRATION: WHAT A DIFFERENCE A YEAR MAKES
NEW YORK — Family reunions are usually approached with some trepidation, although people are often happy they went.
L’Oreal Retail — the division of Cosmair formed a year ago when L’Oreal’s U.S. hair care and cosmetics groups merged after a dozen years as separate operations — is proving that solidarity can make better business sense, too.
“The greatest concern I had in bringing the groups together was that we might possibly slip, even half a notch,” said Joseph J. Campinell, president and general manager of L’Oreal Retail. “We had two very successful groups that were growing year after year in the face of enormous obstacles in competition, retail consolidation and inventory reduction. To slip would have been unacceptable.”
The U.S. division, which generates about $1 billion at retail annually, actually grew 17 percent last year, according to Campinell.
“Normally, we grow 12 or 14 percent,” he said. “This was the best year we ever had.
“The merger was an opportunity to leverage the L’Oreal equity across the entire beauty category, as opposed to having separate entities focus in on pieces,” Campinell continued. “For example, we are more successful in skin care because we had a cosmetics business. To bring everything under the one umbrella, we can now look across all these groups, all these brands, take the strength of each and make sure that they can be utilized together to achieve something more than each individually would achieve.”
Hair care accounted for roughly 50 percent of the division’s sales last year, with cosmetics generating 35 percent and skin care weighing in with 15 percent. However, the three categories are similar in terms of dollar share in their respective markets — around 12 percent each, according to A.C. Nielsen.
“The greatest advantage that we have is that we can market beauty in its totality,” said Carol J. Hamilton, L’Oreal Retail’s senior vice president of marketing. “A woman doesn’t get up in the morning and say to herself, ‘Oh, I’m going to work on my face today.’ Hair care, skin care and makeup is one complete beauty regimen, and we feel that there’s great opportunity to market to her in that way.”
In the March issue of Allure magazine, for example, the Retail division ran a multiple-page ad called “Making an Entrance” that touted a wide range of beauty products that could be used in preparation for the Academy Awards.
L’Oreal also sponsored The Golden Globe Awards and a recent 7th on Sixth fashion show.
“We can react much more rapidly because the decision-making process is within a single group now,” Campinell said. “It’s much harder to have two groups trying to work together.”
The combined group is also spending more. This year, the company plans to increase its ad budget 25 percent to $166 million across all categories, Hamilton said.
L’Oreal now plans to sign all of its advertising with the tag line “Because I’m worth it.” For 20 years, that line was used only to promote the Preference hair color line.
The creative move “elevates consumer awareness that L’Oreal is the premium product in the mass market,” Hamilton said, adding that it also upgrades the company’s image and “furthers the gap between [L’Oreal] and the next competitor in the marketplace.”
“The message is one of self-esteem,” Hamilton said. “It tells women that they deserve to take care of themselves with high-quality products.”
Spokesmodel Dayle Haddon, who has appeared in print and television ads for the company’s successful Plenitude skin care products, will play a bigger role in delivering the message starting in the second half, Hamilton said.
The company is also looking at different channels of advertising, including Web sites.
“We’re also starting to do more billboards, especially in Hispanic areas,” Hamilton said. “Today, women are not watching as much TV or reading only one magazine.
“We have to reach them in new ways. Our dollars will be more fragmented, but the message will be more targeted.”
David A. Waldock, senior vice president of sales for the consolidated division, said the new format gives the company a chance to do cross-promotions.
“We are matching up products targeted at the same demographics, the same psychographics,” he said.
Last month, the company packaged Plenitude skin care with Excellence hair color products for a special promotion. In stores now, it offers a Color Endure long-lasting lipstick with the purchase of Preference fade-resistant hair color.
The merger also gives the company the flexibility to create more custom retail programs, Waldock said.
“We don’t believe that one approach works for every retailer,” he said. “We could offer different retailers different prepacks, for example.
“The consumer never knew there were ever two divisions,” Waldock said. “But, while we had one consumer, we spoke to the trade as two companies. There is still a separate sales organization for each group, but now there is only one support team dealing with logistics, merchandising, category management and sales operations. By the beginning of 1998, we will be able to ship any L’Oreal products together, with one invoice.”
Vern Brunner, executive vice president of marketing for Walgreen Co., had only praise for the company.
“They are excellent in merchandising,” he said. “They believe in quality of product and performance. I know that from looking at repeat purchasing by consumers. When they introduce a product and say they’ll spend the money to advertise it, they will.
“They understand the fashion world,” Brunner continued. “Their colors are timely. They walked away from color promotions a few years ago, and we’re glad to see them back. We’ve had such an excellent relationship. I see no major negatives.”
Michelle Hobson, who was cosmetics buyer with Salt Lake City-based American Stores for a year and is now director of marketing for beauty care, had one complaint about L’Oreal.
“We frequently had delayed shipments,” she said. “It’s something we’ve been harping about for some time now. Maybelline, on the other hand, is on top of the game. L’Oreal can learn a lot from Maybelline now that Cosmair has acquired the brand.”
L’Oreal, which is carried in 820 of American’s doors, now accounts for 11 percent of the chain’s cosmetics sales, Hobson said, adding that three of the company’s mascara products rank in the top 15 in terms of profit generators for the department.
“L’Oreal has become more flexible with us over the years,” Hobson said. “One of the things we were able to convince the company to do was to put a category captain on its payroll who works exclusively with us to analyze and plan our cosmetics business. It’s only been four months, but we believe this will be an asset for both companies in the long run.”
Campinell said he wants to do more to help retailers and, ultimately, his division. He is under new pressure from across the Atlantic.
In late March, L’Oreal chairman and chief executive officer Lindsay Owen-Jones told the French newspaper Le Figaro that he wanted to rack up retail sales of $20 billion by 2001 or 2002.
The Clichy, France-based company had consolidated sales of $10.58 billion (60.3 billion francs) last year. At a board meeting in Paris this week, executives revealed that Cosmair, the North American subsidiary, accounts for 23 percent of the overall cosmetics business.
“The mass market is very important to us,” said Guy Peyrelongue, Cosmair president and ceo, who also oversees prestige brands, including Ralph Lauren and Lancome. “Last year, [mass brands] represented more than half of our business.”
“In the last eight years, we have more than tripled our sales,” Campinell said of his division. “We have to continue that type of growth, but if that were the only thing we did, with the company’s global approach to business today, we would not consider ourselves successful. We need to contribute to the development of international brands.”
The U.S. division introduced Laboratoires Garnier — one of Europe’s top five beauty companies — to the American market last June. The first Garnier product to ship — Belle Color hair color — is reportedly performing ahead of plan, with a 5 percent share of the $1 billion at retail mass market hair color category, or $50 million.
“Other Garnier brands will be coming in the near future,” Campinell said. “I see the next one in 12 to 18 months. It could be hair care, but we are evaluating different projects. It could be skin care or even sun care.”
The company now holds monthly international marketing meetings and semiannual reviews of its major projects, he said.
“Part of this schedule has been in place for 2 1/2 years, but it was accelerated this year,” Campinell said. “That is evident in our travel activity. A couple of years ago, I was going to Paris three to four times a year. Now, it’s more like eight to 10 times a year. The U.S. has become one of the leading countries in terms of developing projects and programs, especially in merchandising and advertising.”
While most fundamental research is initiated in France, Campinell said that the U.S. laboratory is stepping up its role in developing the application of new technologies.
“Development of technology does not happen simply, although L’Oreal gets 250 to 300 patents every year,” Campinell said, stressing the global nature of the research. “We think of what we have now as ‘the labs of L’Oreal’ — period.”
At last week’s board meeting, it was brought to light that increases in the company’s research spending outpaced its sales gains. Owen-Jones admitted that he was surprised to learn that in France, within two years, L’Oreal will employ more scientists and researchers than assembly line workers.
In the U.S., Cosmair’s Peyrelongue placed his company’s annual research budget at $300 million.
Technology figures prominently in the retail division’s strategy, Campinell said.
“We didn’t miss a beat last year despite the merger because the fundamentals of the two groups were the same,” he said. “We didn’t have to change our philosophy: Drive sales with product technology supported by strong advertising, merchandising and promotions.”
Hamilton outlined some recent L’Oreal innovations. They not only fuel company sales, but work to attract consumers to the mass market channel, she claimed.
L’Oreal, which enjoyed the top brand position in the mass market skin care business for February and March with its Plenitude line, according to Nielsen, is paring down the collection to 17 stockkeeping units from a total of 23. Industry sources estimate that Plenitude currently generates about $90 million a year at retail.
“We had become too confusing to shop,” she said. “We clarified each of the products’ benefits by simplifying the package. We also stressed the service aspect in a self-service environment by creating what we call the ‘skin care companions’ guide on all of the boxes. It tells the shopper which other products work best with her skin type.
“We also hope to have a major skin care launch in September, which we’ll know more about in May,” she said. “There are a few hurdles, but the news will be at the level of Revitalift [anti-wrinkle and firming products] and beyond.”
Revitalift Night, a serum that shipped in mid-March, is seen as another vehicle for incremental sales at mass.
“Only 25 percent of women use a night product now,” Hamilton said. “They know they should, but they don’t want to go to bed with a greasy cream that transfers onto their pillows. The firming ingredient Par-Elastyl can be very sticky unless it is in the right base. Our lab was able to find a patented ingredient that allowed us to introduce the product.”
While L’Oreal has more than 40 percent of the hair color category in the mass market, it only registers a 3 to 5 percent share in the shampoo and conditioner business, according to Campinell.
“We have a great appetite to build that part of the business,” he said.
In mid-February, the company shipped Body Vive, shampoos, conditioners and an add-in body spray that promises to give hair extra volume for at least 12 hours.
“It was an extremely simple proposition,” Hamilton said. “We consider it the second key pillar in the line, after Color Vive, which we launched in 1990 for colored hair. We are bringing to the market a whole new level of products.”
In color cosmetics, the company registered a 22 percent increase last year, Hamilton said.
“We still only do major promotions in the fall and spring, but our summer and holiday promotions are growing,” she said. “We experienced the lowest [store returns] ever with our Metallic Urge nail color promotion, so we are going to do two nail promotions this year.”
The company will also launch new hair products under the Studio Senses label in mid-July. They include The 1st Look, a spray gel hair texturizer, and two hair scents — Warm and Cool — designed to neutralize smoke and cooking odors.
Courting 18-to-24-year-olds, the line aims to expand the hair styling category. The company is even targeting kids, with L’Oreal Kids shampoos in colorful plastic squeeze bottles shaped like fish.
Just about the only area the company is not actively pursuing at the moment is fragrance. Vanderbilt and Chaps continue to hold their own, despite a sluggish retail environment, Campinell said.
“I could launch a new fragrance this year,” he said. “But I’m not sure it will be around in April 1998. That would be totally contrary to my philosophy of doing business.”
“In five years, I see the division close to double what it is today,” Campinell said. “We will see continued development in skin care and shampoos and conditioners. We are untapped in those areas.
“The population, for me, is growing. There are people shopping the mass market today who weren’t shopping it five years ago. The mass market is attracting shoppers from alternate channels. More women are coloring their hair. It’s still only 50 percent penetration. Just that alone gives me a great opportunity. Sophisticated skin care is also underdeveloped in the U.S. Soap and water are still the primary skin care products used, along with Vaseline Intensive Care lotion for a lot of people. That’s like a whole new market for me.
“Even if the U.S. population only grows 2 percent a year, there will still be a new group of people who are going to be available to me over the next five years, people who didn’t really exist 10 years ago. That’s the older consumer, us baby boomers.
“We refuse to grow old, so we’re going to be using cosmetics and skin care products well into our 60s and 70s and 80s. Ten years ago, when you hit 50 or 60, you started to drop out. Now, 50 is considered young. Some of us act younger than our children now.”
— Kim-Van Dang