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Active ingredient

3 July 2020 By Dasha Afanasieva

L’Oreal Chief Executive Jean-Paul Agon is learning the limits of his company’s anti-ageing products. Turning 65 next year means it’s time for him to retire from the role. Dealmaking, which has helped L’Oreal outperform many rivals, will be more difficult for his successor than it was when Agon’s tenure began in 2006.

Buying up brands and giving them a global push with the $180 billion firm’s vast distribution muscle has amplified growth. Last year, like-for-like sales grew 8%, the fastest in 12 years. This has required L’Oreal to call some big trends early, such as prestige and dermatologist-recommended skincare.

For example, CeraVe, the skincare line it acquired in 2017, grew 40% year-on-year in the first quarter of 2020. These divisions have made up some of the losses from the professional haircare unit which suffered from salon closures. Since 2006, L’Oreal stock has handed over a 400% return to shareholders.

The issue his likely successor, deputy CEO Nicolas Hieronimus, faces are fancier prices for fancy cosmetic brands. Skincare brand Drunk Elephant last year fetched a valuation of more than 8 times sales, according to Forbes, when it was sold to Shiseido. Even if the coronavirus has tamped them down, animal spirits in the sector are still rampant. The make-up businesses of Charlotte Tilbury and Kim Kardashian West were valued at a cool $1 billion each in recent weeks.

The remedy is already in L’Oreal’s tool kit. Using e-commerce to reach more consumers, particularly in China, where L’Oreal says online is the favoured channel for beauty browsing and shopping, makes each existing brand or expensive new acquisition work harder and contribute more to the top line. Agon, who is also chairman of the group, has already boosted e-commerce through partnerships with local and global platforms.

The good news for Agon’s heir is that there’s still room for growth. Even in a developed market like the United States, the average consumer will spend $68 on skincare next year, according to Euromonitor. In less prosperous South Korea, where the concept of a 10-step skincare routine originated, they will spend almost twice as much. The post-Covid-19 slowdown may throw up some wrinkles, but as an affordable luxury, L’Oreal’s future can be smooth.


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