Download L`Oreal SA – 2013

L’Oreal SA – 2013
Forest R. David
A.
Case Abstract
Headquartered outside of Paris in Clichy, Hauts-de-Seine, France, L'Oréal is the world's largest
cosmetics and beauty company. Specializing in hair color, skin care, sun protection, make-up,
perfumes, and hair care, L’Oreal is the leading nanotechnology patent-holder in the USA. L’Oreal
recently opened a huge new factory in Indonesia. L'Oréal is a listed company with 66,000 employees,
but the founder's daughter Liliane Bettencourt and the Swiss food company Nestle each control over a
quarter of the shares and voting rights. In November 2012, L'Oréal began construction of the largest
factory in the Jababeka Industrial Park in Cikarang, Indonesia with a total investment of US$100
million. The production will be absorbed 25 percent in Indonesia and the rest will be exported.
L’Oreal’s sales in Indonesia are growing rapidly. L'Oréal is also building a Research and Innovation
Center in Bom Jesus Island Rio de Janeiro, Brazil at an estimated cost of 30 million euros (70,000,000
reals).
B.
Vision Statement (proposed)
To be the cosmetics company of choice that women, men, and children the world over rely upon to feel
more beautiful.
C.
Mission Statement (proposed)
Our mission is to design, produce, and distribute the world’s best fragrances, perfumes, and personal
care products (2) to women, men, and children (1) by utilizing the latest technological improvements
(4). We empower our highly creative team of researchers to develop safe, eco-friendly (7) products
that will enable our firm to profitably grow (5) handsomely. We strive to be one of the most socially
responsible (8) firms on the planet (3) and appreciate our employees (9) making that happen while
always following the “golden rule.” (6)
1.
2.
3.
4.
5.
6.
7.
8.
9.
Customers
Products or services
Markets
Technology
Concern for survival, growth, and profitability
Philosophy
Self-concept
Concern for public image
Concern for employees
D.
External Audit
Opportunities
1.
2.
The worldwide cosmetics market grew 4.4% in 2011 representing $197.4 billion.
Major BRIMC and minor growth countries have several million middle class citizens and are
projected to account for 5 of the 10 largest economies by GDP by 2020.
3. BCG reports the Chinese middle class is expected to increase from 150 million to +400 million in
10 years. 340+ urban locations will increase to 550 million in 10 years.
4. Direct retail sales in the US increased 4.6% to $29.9 billion in 2011 of which 78% were women
and 89% worked part time.
5. Google Offers, Living Social, and Groupon have launched apps for Android phones to alert
consumers to deals through mobile devices.
6. 91% of new products pacesetters were brand extensions (expanded effectiveness, new
technologies, improved processes, new/unique formulas, varieties, designs or patterns).
7. Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal
products aboard aircraft.
8. Latino and Asian population is expected to nearly triple (Hispanics, with the highest consumption
of personal care products in 2009, are expected to grow from 16.7% in 2012 to 21.2 in 2025.
9. 29% of consumers made at least one consumer packaged good purchase online in 12 months.
OTC drugs and health & beauty supplies ranked highest in respondents buying the brand they
want the most.
10. To reduce currency volatility, companies can hedge their exposure with futures contracts (an 8.8%
annual increase of dollar index).
Threats
1.
Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal
products aboard aircraft.
2. Consumption of cosmetic products per inhabitant is 10 to 20 times lower in immature countries
than in mature BRIMC countries.
3. China’s GDP growth target is 7.5%, which is well below the range recorded in 5 years; India
slowed growth by 5.3% in Q1 2012.
4. Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US) for $1.7 billion; Coty agreed to
acquire OPI Products (nail salon products) for $1 billion.
5. P&G is a global leader in personal and beauty care products 20% in Western Europe; $14 billion
net in restructuring, cost reduction, & marketing reduction over next five years.
6. Avon markets Regenerist and Anew skin products to baby boomers; Johnson & Johnson launched
a line of E-Pulse, Skin-Electro-Stimulation technology (skin rejuvenation/anti-aging.
7. 54% of the female respondents in 2008 said they would “buy the brand they want the most”’
(down to 45% in 2010 and 43% in 2011).
8. Avon sales in India increased 57.4% due to direct sales in 2011.
9. Due to weak US economic environment and higher pricing of green products, consumers may be
deterred from buying green products.
10. Avon and Revlon both offer perfume products in their portfolio.
Competitive Profile Matrix
L'Oreal
Critical Success Factors
Brand Recognition & Reputation
Price and Quality Perception
Breadth and Depth of Product Lines
Market Share
Production Efficiency
Growth in Mature Markets
Growth in Emerging Markets
Product Innovation
Direct Sales
eCommerce & Web Marketing
Celebrity Spokes Models
Creative Packaging
Totals
Revlon
Avon
Weight Rating Score Rating Score Rating Score
0.08
0.09
0.15
0.12
0.08
0.06
0.06
0.07
0.04
0.08
0.12
0.05
1.00
3
3
3
4
4
4
4
4
2
4
3
3
0.24
0.27
0.45
0.48
0.32
0.24
0.24
0.28
0.08
0.32
0.36
0.15
3.43
4
4
4
2
3
3
3
3
1
2
4
4
0.32
0.36
0.60
0.24
0.24
0.18
0.18
0.21
0.04
0.16
0.48
0.20
2
2
2
3
2
2
2
2
4
3
1
2
3.21
L’Oreal is performing slightly better than Revlon and significantly better than Avon according to the
CPM above. A new area tactic for L’Oreal would be engage in direct sales especially in Latin
America.
0.16
0.18
0.30
0.36
0.16
0.12
0.12
0.14
0.16
0.24
0.12
0.10
2.16
EFE Matrix
Weight Rating Weighted Score
Opportunities
1. The worldwide cosmetics market grew 4.4% in 2011 representing
0.02
2
0.04
$197.4 billion with no devaluation, bannalization, or
massificaation.
2. Major BRIMC and minor growth countries have several million
0.08
2
0.16
middle class citizens and are projected to account for 5 of the 10
largest economies by GDP by 2020.
3. BCG reports the Chinese middle class is expected to increase
0.06
2
0.12
from 150 million to +400 million in 10 years. 340+ urban locations
will increase to 550 million in 10 years.
4. Direct retail sales in the US increased 4.6% to $29.9 billion in
0.06
1
0.06
2011 of which 78% were women and 89% worked part time.
5. Google Offers, Living Social, and Groupon have launched apps
0.04
4
0.16
for Android phones to alert consumers to deals through mobile
devices.
6. 91% of new products pacesetters were brand extensions
0.05
4
0.20
(expanded effectiveness, new technologies, improved processes,
new/unique formulas, varieties, designs or patterns.
7. Federal Aviation Safety requirements restrict passengers from
0.06
4
0.24
carrying more than 4 oz. of personal products aboard aircraft.
8. Latino and Asian population is expected to nearly triple
0.08
4
0.32
(Hispanics, with the highest consumption of personal care
products in 2009, are expected to grow from 16.7% in 2012 to 21.2
in 2025.
9. 29% of consumers made at least one consumer packaged good
0.05
2
0.10
purchase online in 12 months. OTC drugs and health & beauty
supplies ranked highest in respondents buying the brand they
want the most.
10. To reduce currency volatility, companies can hedge their
0.07
3
0.21
exposure with futures contracts (an 8.8% annual increase of
dollar index).
Weight Rating Weighted Score
Threats
1. Federal Aviation Safety requirements restrict passengers from
0.03
4
0.12
carrying more than 4 oz. of personal products aboard aircraft.
2. Consumption of cosmetic products per inhabitant is 10 to 20
times lower in immature countries than in mature BRIMC
0.05
2
0.10
countries.
3. China’s GDP growth target is 7.5%, which is well below the
range recorded in 5 years; India slowed growing 5.3% in Q1
0.05
2
0.10
2012.
4. Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US)
for $1.7 billion; Coty agreed to acquire OPI Products (nail salon
0.04
3
0.12
products) for $1 billion.
5. P&G is a global leader in personal and beauty care products
20% in Western Europe; $14 billion net in restructuring, cost
0.06
2
0.12
reduction, & marketing reduction over next five years.
6. Avon markets Regenerist and Anew skin products to baby
boomers; Johnson & Johnson launched a line of E-Pulse, Skin0.03
2
0.06
Electro-Stimulation technology (skin rejuvenation/anti-aging.
7. 54% of the female respondents in 2008 said they would “buy the
0.04
3
0.12
8. Avon sales in India increased 57.4% due to direct sales in 2011.
0.07
1
0.07
9. Due to weak US economic environment and higher pricing of
green products, consumers may be deterred from buying green
0.04
2
0.08
products.
10. Avon and Revlon both offer perfume products in their portfolio.
0.02
1
0.02
TOTALS
1.00
2.52
L’Oreal’s performance is average in addressing external issues. Moving forward, the firm could
benefit from entering the direct sales market in Latin America.
E.
Internal Audit
Strengths
1.
2.
3.
4.
5.
6.
7.
8.
9.
27 international brands distributed in over 130 countries. L’Oreal has 5 regional hubs worldwide.
The Body Shop’s total operating profits were €77 million in 2012, up 9% from 2011. The Body Shop
has over 70 brands in 60 countries (presence in global travel retail outlets across 44 markets).
L’Oreal has €790 million invested in R&D in 2012 and had 3,676 researchers throughout 19 research
and 16 evaluation centers; filed 613 patents in 2011.
L’Oreal achieved an approximately 14% sales growth in new markets in 2012, with total sales in 2012
amounting to €1.5 billion.
L’Oreal achieved 4% operating profit growth in Western Europe in 2012, with €1.6 billion in operating
profits.
L’Oreal has positioned 41 production plants across current markets, including a new one in Russia;
opening new sites in Mexico, Indonesia, and Egypt.
L’Oreal’s North America segment achieved 18.5% operating profit growth in North America in 2012.
Global predictive center (Lyon) reconstructs 130,000 units of biological tissues for predictive
evaluation of ingredients and products; 9 reconstructive skin and cornea models developed (reduces
time to market).
The Dermatology Branch (Galderma) total sales were €796 million in 2012, up 13% from 2011.
10. L’Oreal conducts in-house packaging of products at their plants through the wall-to-wall program
(reduces transportation costs and waste generation).
Weaknesses
L’Oreal suffered a -2.8% sales loss in its Eastern European Market in 2011, despite a 3.9% market
growth.
2. L’Oreal lacks a Beauty Tools division, unlike its chief competitor Revlon.n its
3. L'Oreal's organizational structure limits its ability to create integrated brand promotion strategies for its
distinctive SBU’s.
4. L’Oreal has a limited number of perfume, bath, and baby products in its portfolio compared to
competitors.
5. L’Oreal lacks energy efficient production facilities in North America similar to ones in Belgium,
Spain, India, and France.
6. L’Oreal does not practice direct selling strategies in their marketing initiatives as compared to
competitors (Avon and Mary Kay).
7. L’Oreal has consolidated key market segments under “New Markets”; limits managerial response to
changes in major geographic SBU’s.
8. L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief competitor Revlon (1.2).
9. L’Oreal’s cost of operations (55.05%) is higher than its chief competitor Revlon (49.42%).
10. When selecting different country options, L’Oreal’s website has defective or nonexistent navigation
and translation capabilities. European Market in 2011, despite a 3.9% market growth (Ops profit:
1.
-$734.79 million)
Financial Ratio Analysis (L’Oreal numbers are in Euros)
L’Oreal
71.03
17.61
12.84
Industry
49.88
17.41
13.01
Liquidity Ratios
Debt/Equity Ratio
Current Ratio
Quick Ratio
0
1.23
0.72
0.36
0.76
0.45
Profitability Ratios
Return On Equity
Return On Assets
Return On Capital
14.59
9.99
14.55
18.47
8.44
12.14
Efficiency Ratios
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
484,074
3.77 M
6.41
3.07
0.78
48,902
461,611
11.86
5.81
0.65
Profit Margin Percent
Gross Margin
Pre-Tax Margin
Net Profit Margin
L’Oreal is doing extremely well financially.
Net Worth Analysis (in millions)
L'Oreal Company Worth Analysis
Stockholders' Equity - (Goodwill + Intangibles)
Net Income x 5
(Share Price/EPS) x Net Income
Number of Shares Outstanding x Share Price
€ 11,828
€ 14,335
€ 73,885
€ 77,030
Method Average
€ 44,270
Avon Company Worth Analysis
Stockholders' Equity - (Goodwill + Intangibles)
Net Income x 5
(Share Price/EPS) x Net Income
Number of Shares Outstanding x Share Price
$722
-$213
$3,570
$9,479
Method Average
$3,390
L’Oreal is one of the largest firms in the industry and is worth about $77 billion euros.
IFE Matrix
Weight Rating Weighted Score
Strengths
1. 27 international brands distributed in over 130 countries. L’Oreal
0.04
3
0.12
has 5 regional hubs worldwide.
2. The Body Shop’s total operating profits were €77 million in 2012
up 9% from 2011. The Body Shop has over 70 brands in 60
0.05
3
0.15
countries (presence in global travel retail outlets across 44
markets.
3. L’Oreal has €790 million invested in R&D in 2012 and had 3,676
researchers throughout 19 research and 16 evaluation centers;
0.06
4
0.24
filed 613 patents in 2011.
4. L’Oreal achieved approximately 14% sales growth in new
0.14
4
0.56
markets in 2012 with total sales in 2012 amounting to €1.5 billion.
5. L’Oreal achieved 4% operating profit growth in Western Europe
in 2012 with €1.6 billion in operating profits.
6. L’Oreal has positioned 41 production plants across current
markets including a new one in Russia; opening new sites in
Mexico, Indonesia and Egypt.
7. L’Oreal’s North America segment achieved 18.5 operating profit
growth in North America in 2012.
8. Global predictive center (Lyon) reconstructs 130,000 units of
biological tissues for predictive evaluation of ingredients and
products; 9 reconstructive skin and cornea models developed
(reduces time to market).
9. The Dermatology Branch (Galderma) total sales were €796 million
in 2012 up 13% from 2011.
10. L’Oreal conducts in-house packaging of products at their plants
through the Wall-to-wall program (reduces transportation costs
and waste generation).
0.06
3
0.18
0.08
4
0.32
0.07
3
0.21
0.03
4
0.12
0.04
3
0.12
0.02
3
0.06
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Weight Rating Weighted Score
Weaknesses
L’Oreal suffered -2.8% sales loss in its Eastern European Market
0.08
2
0.16
in 2011, despite a 3.9% market growth.
L’Oreal lacks a Beauty Tools division which its chief competitor,
0.05
2
0.10
Revlon, does have.n its
L'Oreal's organizational structure limits its ability to create
0.03
1
0.03
integrated brand promotion strategies for its distinctive SBU’s.
L’Oreal has a limited number of perfume, bath, and baby
0.02
1
0.02
products in its portfolio compared to competitors.
L’Oreal lacks energy efficient production facilities in North
0.02
1
0.02
America similar to ones in Belgium, Spain, India and France.
L’Oreal does not practice direct selling strategies in their
marketing initiatives as compared to competitors (Avon and
0.06
2
0.12
Mary Kay).
L’Oreal has consolidated key market segments under “New
Markets”; limits managerial response to changes in major
0.06
2
0.12
geographic SBU’s.
L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief
0.02
1
0.02
competitor, Revlon’s (1.2).
L’Oreal’s cost of operations (55.05%) is higher than its chief
0.03
1
0.03
competitor, Revlon’s (49.42%).
When selecting different country options, L’Oreal’s website has
defective or nonexistent navigation and translation capabilities.
0.04
2
0.08
European
TOTALS
1.00
2.78
L’Oreal’s performance is above average in addressing internal issues. Moving forward, the firm needs to
expand its footprint in the USA market as well as increase perfume, bath, and baby products.
F.
SWOT
SO Strategies
1.
2.
3.
Establish joint venture with Parlain Co Ltd or Sa Sa Intl Holdings Ltd (China); BK Corporation
(Mumbai); Natura and/or O Boticario (Brazil). (S4, O2, O3)
Increase North American Sales by 15% over 3 years through IBP, direct selling, and eMarketing by
targeting the growing population of Hispanic and Asians. (S7, O4, O8)
Increase sale of Body Shop, Dermatology Branch products 12% over 3 years through eMarketing and
global travel retail outlets. (S2, S9, S10, O5, O7, O9)
WO Strategies
1.
2.
Decentralize by establishing separate geographic profit centers to achieve 20% growth over 3 years in
New Markets and 6% in Eastern Europe over 3 years. (W1, W3 W7, W8, O1)
Develop IBP marketing campaign with direct selling to achieve 15% sales growth in the US, and 20%
in BRIMC. (W3, W6, O2, O3, O4, O8)
3.
Improve website design and eCommerce as part of IPB marketing campaign to increase online sales
25% over 3 years. (W10, O5, O9)
ST Strategies
1.
2.
3.
4.
5.
Achieve 20% sales growth in New Markets by increasing production to 100% in 16 existing and 3 new
plants, incorporating direct sales methods, and acquiring/JV’s with three distributors. (S4, S6, T2, T3,
T8).
Body Shop will increase sales 9% over 3 years in its global travel retail outlets through 5 new perfume
and brand extensions of existing products. (S2, T1, T10)
Increase sales of current products in North America 15% over 3 years by increasing production and
distribution to 100% at 9 existing facilities and a new one in Mexico. (S6, S7, T4, T6, T7, T9)
Increase sales 15% over three years of more affordable green and specialty products in all markets,
using its efficiencies in R&D, production, and packaging to control costs. (S3, S6, S8, S10, T6, T9)
Increase sales 6% over 3 years in Western Europe through sales of current products (Sanaflore). (S5,
S6, T5, T6)
WT Strategies
1.
2.
G.
Invest $20 million to improve its Website design and eCommerce capabilities to increase online sales
25% over 3 years. (W10, T 8)
Develop 5 new perfumes and increase portfolio of affordable bath and body products in all markets.
(W4, T10)
SPACE Matrix
FP
Conservative
Aggressive
7
6
5
X = 0.6
Y = 1.0
4
3
2
1
CP
-7
-6
-5
-4
-3
-2
-1
1
2
3
4
5
6
7
IP
-1
-2
-3
-4
-5
-6
-7
Defensive
Internal Analysis:
Financial Position (FP)
Return on Investment
Leverage
Liquidity
Working Capital
Net Profit Margin
Financial Position (FP) Average
Internal Analysis:
Competitive Position (CP)
Market Share
Product Quality
Product Life Cycle
Customer Loyalty
Capacity Utilization
Competitive Position (CP) Average
SP
7
4
3
6
4
4.8
-3
-4
-3
-4
-2
-3.2
Competitive
External Analysis:
Stability Position (SP)
Technological Changes
Rate of Inflation
Demand Variability
Price Range of Competing Products
Barriers to Entry in Market
Stability Position (SP) Average
-5
-3
-4
-5
-2
-3.8
External Analysis:
Industry Position (IP)
Growth Potential
Profit Potential
Financial Stability
Extent Leveraged
Resource Utilization
Industry Position (IP) Average
5
4
3
3
4
3.8
L’Oreal is positioned in the Aggressive Quadrant of the SPACE Matrix and should establish a joint venture with
Natura in Brazil.
H.
Grand Strategy Matrix
Rapid Market Growth
Quadrant II
Quadrant I
Weak
Competitive
Position
Strong
Competitive
Position
Quadrant III
Quadrant IV
Slow Market Growth
The firm is doing well as a market leader and should focus on expanding sales in the USA and Latin
America.
I.
The Internal-External (IE) Matrix
The Total IFE Weighted Scores
Strong
4.0 to 3.0
4.0
I
Average
2.99 to 2.0
II
Weak
1.99 to 1.0
III
V
VI
High
Consumer Products
3.0
IV
The
EFE
Total
Medium
Weighted
Scores
L'Oreal Luxe
Professional Products
Active Cosmetics
2.0
Low
1.0
VII
VIII
IX
Segment
Consumer Products
L’Oreal Luxe
Professional Products
Active Cosmetics
Other
Total
2012 Total Sales
(in € millions)
€10,713
5,568
3,002
1,528
1,651
€22,463
L’Oreal is doing well in all business segments but should expand its perfume and baby items.
J.
QSPM
Increase
North
America
Sales by
15% over 3
years
Weight
Opportunities
1. The worldwide cosmetics market grew 4.4% in 2011 representing
$197.4 billion with no devaluation, bannalization, or
0.02
massificaation.
2. Major BRIMC and minor growth countries have several million
middle class citizens and are projected to account for 5 of the 10
0.08
largest economies by GDP by 2020.
3. BCG reports the Chinese middle class is expected to increase
from 150 million to +400 million in 10 years. 340+ urban
0.06
locations will increase to 550 million in 10 years.
4. Direct retail sales in the US increased 4.6% to $29.9 billion in
0.06
2011 of which 78% were women and 89% worked part time.
5. Google Offers, Living Social, and Groupon have launched apps
for Android phones to alert consumers to deals through mobile
0.04
devices.
6. 91% of new products pacesetters were brand extensions
(expanded effectiveness, new technologies, improved
0.05
processes, new/unique formulas, varieties, designs or patterns.
7. Federal Aviation Safety requirements restrict passengers from
0.06
carrying more than 4 oz. of personal products aboard aircraft.
8. Latino and Asian population is expected to nearly triple
(Hispanics, with the highest consumption of personal care
0.08
products in 2009, are expected to grow from 16.7% in 2012 to
21.2 in 2025.
9. 29% of consumers made at least one consumer packaged good
purchase online in 12 months. OTC drugs and health & beauty
0.05
supplies ranked highest in respondents buying the brand they
want the most.
10. To reduce currency volatility, companies can hedge their
exposure with futures contracts (an 8.8% annual increase of
0.07
dollar index).
Increase
New
Markets
Sales by
20% over 3
years
AS
TAS
AS
TAS
3
0.06
4
0.08
2
0.16
4
0.32
2
0.12
4
0.24
0
0.00
0
0.00
4
0.16
2
0.08
4
0.20
3
0.15
3
0.18
4
0.24
0
0.00
0
0.00
4
0.20
2
0.10
2
0.14
4
0.28
Weight
Threats
1. Federal Aviation Safety requirements restrict passengers from
0.03
carrying more than 4 oz. of personal products aboard aircraft.
2. Consumption of cosmetic products per inhabitant is 10 to 20
times lower in immature countries than in mature BRIMC
0.05
countries.
3. China’s GDP growth target is 7.5%, which is well below the
range recorded in 5 years; India slowed growing 5.3% in Q1
0.05
2012.
4. Shiseido Co (Japanese cosmetics) acquired Bare Essentials (US)
for $1.7 billion; Coty agreed to acquire OPI Products (nail salon
0.04
products) for $1 billion.
5. P&G is a global leader in personal and beauty care products
20% in Western Europe; $14 billion net in restructuring, cost
0.06
reduction, & marketing reduction over next five years.
6. Avon markets Regenerist and Anew skin products to baby
boomers; Johnson & Johnson launched a line of E-Pulse, Skin0.03
Electro-Stimulation technology (skin rejuvenation/anti-aging.
7. 54% of the female respondents in 2008 said they would “buy the
brand they want the most”’ (down to 45% in 2010 and 43% in
0.04
2011).
8. Avon sales in India increased 57.4% due to direct sales in 2011.
0.07
9. Due to weak US economic environment and higher pricing of
green products, consumers may be deterred from buying green
0.04
products.
10. Avon and Revlon both offer perfume products in their portfolio.
0.02
AS
TAS
AS
TAS
3
0.09
4
0.12
2
0.10
4
0.20
1
0.05
4
0.20
3
0.12
1
0.04
4
0.24
2
0.12
0
0.00
0
0.00
4
0.16
3
0.12
0
0.00
0
0.00
3
0.12
1
0.04
3
0.06
4
0.08
Increase
North
America
Sales by
15% over 3
years
Weight
Strengths
1. 27 international brands distributed in over 130 countries.
0.04
L’Oreal has 5 regional hubs worldwide.
2. The Body Shop’s total operating profits were €77 million in 2012
up 9% from 2011. The Body Shop has over 70 brands in 60
0.05
countries (presence in global travel retail outlets across 44
markets.
3. L’Oreal has €790 million invested in R&D in 2012 and had 3,676
researchers throughout 19 research and 16 evaluation centers;
0.06
filed 613 patents in 2011.
4. L’Oreal achieved approximately 14% sales growth in new
0.14
markets in 2012 with total sales in 2012 amounting to €1.5 billion.
5. L’Oreal achieved 4% operating profit growth in Western Europe
0.06
in 2012 with €1.6 billion in operating profits.
6. L’Oreal has positioned 41 production plants across current
markets including a new one in Russia; opening new sites in
0.08
Mexico, Indonesia and Egypt.
7. L’Oreal’s North America segment achieved 18.5 operating profit
0.07
growth in North America in 2012.
8. Global predictive center (Lyon) reconstructs 130,000 units of
biological tissues for predictive evaluation of ingredients and
0.03
products; 9 reconstructive skin and cornea models developed
(reduces time to market).
9. The Dermatology Branch (Galderma) total sales were €796
0.04
million in 2012 up 13% from 2011.
10. L’Oreal conducts in-house packaging of products at their plants
through the Wall-to-wall program (reduces transportation costs
0.02
and waste generation).
Increase
New
Markets
Sales by
20% over 3
years
AS
TAS
AS
TAS
3
0.12
4
0.16
2
0.10
3
0.15
2
0.12
3
0.18
0
0.00
0
0.00
0
0.00
0
0.00
2
0.16
4
0.32
0
0.00
0
0.00
3
0.09
2
0.06
3
0.12
2
0.08
3
0.06
4
0.08
Weight
Weaknesses
1. L’Oreal suffered -2.8% sales loss in its Eastern European Market
0.08
in 2011, despite a 3.9% market growth.
2. L’Oreal lacks a Beauty Tools division which its chief competitor,
0.05
Revlon, does have.n its
3. L'Oreal's organizational structure limits its ability to create
0.03
integrated brand promotion strategies for its distinctive SBU’s.
4. L’Oreal has a limited number of perfume, bath, and baby
0.02
products in its portfolio compared to competitors.
5. L’Oreal lacks energy efficient production facilities in North
0.02
America similar to ones in Belgium, Spain, India and France.
6. L’Oreal does not practice direct selling strategies in their
marketing initiatives as compared to competitors (Avon and
0.06
Mary Kay).
7. L’Oreal has consolidated key market segments under “New
Markets”; limits managerial response to changes in major
0.06
geographic SBU’s.
8. L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief
0.02
competitor, Revlon’s (1.2).
9. L’Oreal’s cost of operations (55.05%) is higher than its chief
0.03
competitor, Revlon’s (49.42%).
10. When selecting different country options, L’Oreal’s website has
defective or nonexistent navigation and translation capabilities.
0.04
European
AS
TAS
AS
TAS
0
0.00
0
0.00
3
0.15
4
0.20
3
0.09
4
0.12
4
0.08
3
0.06
0
0.00
0
0.00
2
0.12
4
0.24
0
0.00
0
0.00
2
0.04
4
0.08
2
0.06
4
0.12
2
0.08
4
0.16
TOTALS
K.
3.55
4.42
Recommendations
1. Establish joint ventures with (€1.5 billion): Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd (China), BK
Corporation (India), and Natura or O Boticario (Brazil).
2. Hire key executives (CIO, CLO, CTO, Presidents) (€15 Million)
3. Establish 10,000 direct sales force. (€150 Million)
4. Improve website design & eCommerce.
(€10million)
5. Initiate an Integrated Brand Promotion marketing campaign to increase global sales over next 3 years.
(€155 million)
L.
EPS/EBIT Analysis (in millions expect for EPS and Share Price)
Amount Needed: €330
Stock Price: € 127.05
Shares Outstanding: 606
Interest Rate: 4%
Tax Rate: 26%
EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS
Common Stock Financing
Recession
Normal
$3,300
$3,900
0
0
3,300
3,900
858
1,014
2,442
2,886
609
609
4.01
4.74
EBIT
Interest
EBT
Taxes
EAT
# Shares
EPS
Recession
$3,300
11
3,289
855
2,434
607
4.01
20 Percent Stock
Normal
$3,900
11
3,889
1,011
2,878
607
4.74
Boom
$4,600
0
4,600
1,196
3,404
609
5.59
Recession
$3,300
13
3,287
855
2,432
606
4.01
Debt Financing
Normal
$3,900
13
3,887
1,011
2,876
606
4.74
Boom
$4,600
11
4,589
1,193
3,396
607
5.60
Recession
$3,300
3
3,297
857
2,440
608
4.01
80 Percent Stock
Normal
$3,900
3
3,897
1,013
2,884
608
4.74
Boom
$4,600
13
4,587
1,193
3,394
606
5.60
Boom
$4,600
3
4,597
1,195
3,402
608
5.59
L’Oreal should finance with debt as economic conditions improve. However, the amount of capital
requested here is not significant as revealed by little change in EPS equity and debt financing.
M.
Epilogue
In October 2013, the online retail services company Demandware struck a deal with L'Oreal whereby
L'Oreal will use Demandware's commerce platform to promote its 25 beauty product brands around the
globe through online, mobile and social media. L'Oreal first began working with Demandware in 2010 to
promote several luxury brands in North America — including Kiehl's, Lancôme, and Yves Saint Laurent
Beauté — and later added its professional products division in the U.S.
L’Oreal reported excellent Q1 2013 sales as indicated in the following table. Note the fast growth area was
Africa/Middle East and the slowest growth area was Western Europe. Note the slight decline in
Professional Products sales from the prior year quarter. Regarding its operations in Africa, L’Oreal in
April 2013 acquired the Health & Beauty business of Interconsumer Products Limited in Kenya, which had
annual sales of about 15 million euros. L’Oreal sells popular brands in Africa, including SoftSheen Carson.
€ MILLION of Sales
BY DIVISION
Professional Products
Consumer Products
L'Oréal Luxe
Active Cosmetics
Cosmetics total
BY GEOGRAPHIC ZONE
Western Europe
North America
New Markets, of which:
- Asia, Pacific
- Latin America
- Eastern Europe
- Africa, Middle East
Cosmetics total
The Body Shop
Dermatology
Group total
Chapter 25: L’Oreal SA
10 Basic Questions
1:
A
2:
C
3
B
4:
A
5:
D
6:
B
7:
D
8:
A
9:
C
10:
D
15 Applied Questions
Vision and Mission Statements
1:
A
2:
D
1st QUARTER
2012
1st
QUARTER
2013
%CHANGE
REPORTED
755.6
2,769.5
1,315.5
468.6
5,309.1
752.6
2,920.8
1,422.0
497.6
5,593.0
0.0%
6.5%
7.2%
7.2%
5.8%
-0.4%
5.5%
8.1%
6.2%
5.3%
1,953.9
1,263.4
2,091.7
1,124.3
433.5
360.0
173.8
5,309.1
180.4
153.5
5,643.0
1,990.4
1,371.4
2,231.1
1,188.4
458.7
389.7
194.3
5,593.0
181.9
156.7
5,931.6
1.7%
6.3%
9.4%
7.7%
11.8%
9.2%
15.0%
5.8%
1.8%
-0.4%
5.5%
1.9%
8.5%
6.7%
5.7%
5.8%
8.2%
11.8%
5.3%
0.8%
2.1%
5.1%
3:
B
4:
A
5:
A
Competitive Profile Matrix (CPM)
1:
D
2:
D
3:
A
4:
A
5:
D
Strategic Position and Action Evaluation (SPACE) Matrix
1:
B
2:
D
3:
C
4:
C
5:
A