How Digital Initiatives And Strategic Acquisitions Are Key For L’Oreal’s Growth

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L'Oreal

The most digitally advanced beauty company, L’Oreal (OTC:LRLCY),  saw a 40% year on year surge in its e-commerce sales in the first nine months of 2015. In the growing digital era, L’Oréal can benefit from this first mover advantage and its digital initiatives will be key for its growth in the future. Since 2014, the company did a series of strategic acquisitions to expand regionally, improve its focus on research and development, and expand its distribution network. We believe these acquisitions will enable L’Oréal to spread its footprint globally and improve profitability.

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E-commerce Could Drive Beauty Product Sales In the Future

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Over the past few years, L’Oréal has undergone a major digital transformation. In 2014, L’Oréal’s online sales grew 30% on a year-on-year basis and contributed to around 6% of its total revenues. The company has launched a range of digital initiatives to drive sales and brand loyalty. These include launching a beauty app called “Make up Genius” which uses advanced facial mapping technology allowing users to “try” products virtually. The company hopes to bring out similar apps for hair color, styling, and skin care products on the back of the success of this app. L’Oréal is also focused on social media marketing (dedicates 16% of its media to digital formats) and using “live chat” to provide personalized skin care advice, along with using data and analytics to identify beauty trends ahead of the game. The company is currently working with the University of Illinois on flexible wearable electronics, designed to collect and transmit data from the body, and has also partnered with bio-printing start-up Organovo to look at the potential of 3D-printed skin production to test products for toxicity and efficacy. With an impressive line-up of digital initiatives, L’Oréal does appear to be ahead of the curve. The New York based research agency, L2 ThinkTank.com found that while the global beauty industry grew at 6% in 2013, sales through the e-commerce channel witnessed a 29.1% growth during the same period, and we believe L’Oréal is well poised to leverage this trend and improve its revenues through e-commerce.

Strategic Acquisitions For Regional Expansion

L’Oréal has met the regional expansion challenge through strategic acquisitions in China (Magic Holdings) and Brazil (Niely Cosmeticos). It expanded its African presence by entering into an agreement with CFAO. We believe these acquisitions to expand its global footprint are key for the company’s future growth. The global beauty market is estimated to double its size in the next 10 to 15 years, with the top markets being China, U.S., Brazil, and India. Also, by the year 2020, over 50% of beauty consumers will belong to tropical and hot climates and around 60% of the global population will inhabit major urban areas that are prone to pollution. [1]. Thus, L’Oreal’s focus on regions outside the U.S., especially China, Brazil, and India is key for its growth in the future. While the company is ramping up its investments in India, it used the acquisition route to tap into the Chinese and Brazilian market, and we believe growth in these markets will drive future revenues for L’Oréal.

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Notes:
  1. Challenging Growth In The Luxury And Cosmetics Sector, 2014 edition, Ernst and Young []