L’Oréal USA, the New York-based subsidiary of L’Oreal (PINK:LRLCY), has signed a five-year agreement with PFSweb to develop and manage multiple end-to-end e-commerce website and solutions for L’Oréal’s most popular and prestigious brands in the U.S. Online sales have been growing consistently at over 10% in the U.S. and soon more than half of retail sales are likely to be online or web-influenced, especially for prestige beauty brands. L’Oreal competes Revlon (NYSE:REV) and Estee Lauder (NYSE:EL) in the prestige beauty market.
L’Oreal Gradually Going Digital
More and more customers today are migrating from traditional channels such as drugstores and hair salons to the online cosmetics channels that are convenient as well as cost-effective. PFSweb has already launched customized e-commerce websites for four L’Oréal brands, including Kiehl’s, Lancôme, Yves St. Laurent and Giorgio Armani in 2010. Two additional brand sites are expected to launch in 2012.
Currently, Estée Lauder is the market leader of online cosmetics sales in the U.S. and has recently expanded its online sales in Latin America. North America generates more than 20% of L’Oreal’s annual global sales and has been growing at 5% in 2011.
Web Sales in the U.S.
According to Forrester Research, e-commerce sales in the U.S. will keep growing at a 10% compound annual growth rate to reach $250 billion by 2014, up from $155 billion in 2009. In 2009, online retail sales grew at 11%, compared to just 2.5% for all retail sales. Also, e-commerce sales will represent 8% of all retail sales in the U.S. by 2014, up from 6% in 2009.
To make online sales and marketing further more important, a far larger portion of offline sales in the U.S. today are “web-influenced”. According to Forrester, online and web-influenced offline sales combined accounted for 42% of total retail sales and that percentage will is likely to grow to 53% by 2014.
The Trefis price estimate of $23 implies an upside of about 10% to the current market price.