Here’s How L’Oréal Plans To Continue Its Digital Innovation
L’Oreal (OTC:LRLCY) is probably the most digitally advanced beauty company working on several initiatives to bring technology to its beauty products. The company recently announced a strategic investment in “Founders Factory”, a multi sector digital accelerator and incubator, which will allow L’Oreal to deeply connect itself to a global ecosystem of world-class start-ups and entrepreneurs operating in the field of beauty. Based on this partnership, the company will become Founders Factory’s exclusive partner for investments in beauty tech start-ups word wide. L’Oreal has been ahead of competition in its digital innovations, with products such as an augmented reality based app called “Makeup Genius” and a skin sensor designed to monitor ultraviolet light exposure. We believe digital innovations will drive L’Oreal’s growth in future and, with its investment in Founders Factory, the company gets access to several beauty tech start-ups that can be instrumental in new digital initiatives of the company in future.
Digital Channels Are Influencing Purchase Of Beauty Products
L’Oreal’s investment in research and innovation is the highest in the industry and the company is continuing to invest in digital innovation. Through its partnership with Founders Factory, the company will develop five incubated companies each year and co-create two new companies from scratch each year. Investments in research and innovation, especially digital innovations, should drive revenues for L’Oreal in the long term, as beauty purchases are now increasingly being influenced by digital channels. A recent Euromonitor International beauty survey revealed a strong digital influence on the purchase of colour cosmetics in 2015. The new imaging technology which can provide consumer’s access to try out different looks before making a final purchase has been a strong purchase influencer. Personalized product recommendations based on skin types are getting popular among consumers. One example is L’Oreal’s skin patch, which helps consumers measure their UV (ultra violet) exposure to find the right protection product. Online user reviews, communities or forums are also influencing a large number of consumers to purchase colour cosmetics and skin care products. Interactivity and personalization that leads to smart skin care is prized by consumers. L’Oreal’s focus on similar digital initiatives should help the company drive revenues in the long term.
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According to our estimates the skin care segment accounts for nearly 30% of L’Oreal’s valuation and we expect its market share in this segment to increase steadily from 12% in 2016 to more than 14% by the end of our forecast period.
L’Oreal’s focus on digital innovations is part of its long term strategy and we believe this will be a key growth factor in future. The investment in Founders Factory and subsequent access to start-ups will enable L’Oreal to accelerate these innovations and maintain its competitive edge.
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