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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