How “New Markets” Will Shape L’Oréal’s Future

­­­­­­­L’Oréal (PINK: LRLCY) is one of the leading international beauty companies with presence in 130 countries across five continents. The company has been seeing increasing growth from emerging markets, or what it refers to as “New Markets”, for more than a decade. It defines these new markets as consisting of four regions: Asia Pacific, Latin America, Eastern Europe and Africa & the Middle East. Out of the $29 billion revenues that the company generated in 2012, around 36% came from Western Europe while North America contributed 25%. The contribution of new markets to its total sales, however, has grown dramatically from 15.5% in 1995 to 27.1% in 2006 and 39.4% in 2012. ^[1]

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Historical Expansion In New Markets

The fall of the Berlin Wall gave L’Oréal entry into the Eastern European market in 1990. The years 1994 and 1997 were significant milestones in the company’s history as it expanded in India and China respectively, and 2000 was a turning point for the company as strong economic growth in its new markets resulted in an accelerated pace of growth in sales. L’Oréal has launched extremely successful brands like Kérastase in hair salons, Lancôme in Luxury products and Maybelline & L’Oréal Paris in mass-market products in these markets.

Current Scenario In The New Markets And Future Outlook

L’Oréal’s sales growth in new markets stood at 9.2% in 2012 as it outpaced the overall cosmetics market growth in these markets by 270 basis points, which in itself was higher than the worldwide cosmetics market growth by 190 basis points. The company has an ambitious plan to add 1 billion new customers, and this high growth rate in the new markets would play an important role in achieving the goal. To match the growing demand for cosmetics in these markets, the company rolled out production facilities in Indonesia and Mexico in 2012 and plans to open another in Egypt this year. It has also added 9 subsidiaries in the last 5 years in these markets to cater to the rising demand for its products. ^[2]

The new markets have grown at an exceptional pace over the past decade. Revenue from these markets would grow faster as the spending capacity of an average consumer increases further owing to higher GDP growth. In addition to this, the consumption of cosmetics products per person is 10 to 20 times lower than that in mature countries. This provides an ample opportunity for the market size of cosmetics to grow over the coming years. You can see for yourself the impact of an increase in market share of L’Oreal by tweaking the interactive chart below. ^[1]

Increased Focus On China

The Chinese market will play an important role in achieving the company’s ambition of adding 1 billion new customers. L’Oréal Chairman and CEO Jean-Paul Agon expects to add about 250 million new Chinese consumers in the next 10-15 years supported by the leading position of the company’s Luxe brand in China. L’Oréal Luxe has spearheaded the luxury beauty market in the country since it first launched Lancôme in 1993. Since then, the company has successfully launched 10 luxury brands and has grown at 1.3 times the market. ^[3]

The company’s constant investment in research and development to adapt its products to cultural habits, texture preferences and skin care routines of Chinese men and women has made Luxe a successful brand in China. L’Oréal plans to open its first Yves Saint Laurent Beauté boutique in China shortly to further strengthen its position. ((L’Oréal invents the luxury beauty of tomorrow in China, April 2013))

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1. L’Oréal Registration Document, 2012 [↩] [↩]
2. CAGE Conference Presentation, 2013 [↩]
3. L’Oréal invents the luxury beauty of tomorrow in China, April 2013 [↩]