Paris – L’Oréal chief executive officer Nicolas Hieronimus painted a picture of the beauty market today – and tomorrow – during a call Wednesday morning with financial analysts and journalists.
He spoke to them after the company released earnings for the second quarter and first half of 2024, after the close of the Paris bourse on Tuesday.
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In the first six months of the year, L’Oréal’s net profits rose 8.8 percent to 3.65 billion euros on sales that gained 7.5 percent on a reported basis and 7.3 percent in like-for-like terms to 22.12 billion euros.
Shares of L’Oréal, maker of Lancôme, Yves Saint Laurent and Garnier products, closed Wednesday up 2.1 percent to 400.65 euros.
The company estimates that the global beauty market grew between 5 percent and 6 percent in the first half.
“We’ve outperformed again, and that’s after three years of very strong share gains,” Hieroniums said, adding that L’Oréal’s growth has been well balanced between value and volume since the start of an inflationary crisis in 2021.
In the half, the growth of the L’Oréal product category was led by hair care, with sales advancing 14.9 percent to 3.5 billion euros, and fragrances, with sales advancing 14 percent to 2.6 billion euros. Next was makeup, skin care and hair color.
Hieronimus noted strong growth in all retail channels – with online sales increasing by 7.8 percent and offline sales increasing by 7.2 percent. Online has changed dramatically in emerging markets, where it grew three times faster than offline.
The global beauty map is being redrawn. The top three geographies contributing to L’Oréal’s sales gains were the US, Mexico and DACH cluster, which includes Germany, Austria and Switzerland.
“We are becoming a fairer company. In the first half, the size of our business in emerging markets was equal to the size of our business in mainland China, which means they are now having a real impact,” said Hieronimus.
North Asia, a key market, was discussed at length. L’Oréal sales were then down 1.7 percent on a like-for-like basis.
“Let me help you unpack that number,” he said, starting with mainland China, which accounts for two-thirds of the region’s sales. “After a very small recovery at the beginning of the year, market growth turned negative in the second quarter, as the base of comparison was very high. And we’re not seeing any uptick in consumer confidence, which is critical to growth in beauty.”
Overall, L’Oréal estimates that the beauty market was down 2 percent to 3 percent.
“Within that, there was a wide variety of trends,” Hieronimus said. “Mass went up a bit, and luxury went down in the high single digits. In that context, we grew by plus 0.8 percent and continued to outperform the market.”
In the region, L’Oréal gained share in three of its divisions – notably Luxe, which went six points ahead of the market. Dermatological Beauty Scheme has tripled in mainland China, and now accounts for 11 percent of group sales there.
In Hainan, the Chinese island that is a duty-free shopping destination, the beauty market was down 30 percent.
“We are seeing a steady increase in arrivals, but conversion rates are still soft,” Hieronimus said.
There, L’Oréal slightly outperformed the market in terms of outbound sales, and continued to gain share, with sales steadily improving quarter after quarter.
Elsewhere in North Asia, growth picked up in the mid-teens, driven by dynamic trends in travel retail and strong increases in markets such as Japan, due to a rise in tourism.
Hieronimus also looked to the future, reiterating that L’Oréal expects the beauty market to remain dynamic and grow by around 4.5 percent this year – slightly above the long-term average of 4 percent.
“In North Asia, we don’t see much change in the second half,” Hieronimus said. “We expect growth in mainland China to remain slightly negative, and travel retail sales to gradually improve. Emerging markets should maintain the double-digit rhythm.
“Growth in Europe should continue to normalize with less value, as it already has in the US,” he continued.
He said, to put things in perspective, if the global beauty market grew by 4.5 percent every year, that would add 100 billion euros by 2030.
“Right we would be more than happy to take an even more significant share,” said Hieronimus.
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Recruiting new consumers is an important aspect of L’Oréal’s growth.
“There is still a lot to do,” he said.
L’Oréal estimates that there are approximately 4 billion consumers, or approximately half of the world’s population, in the total edible beauty market.
“Of those, we only touch about 30 percent,” explained Hieronimus.
In developed markets, the level is close to 60 percent, and in emerging markets, around 25 percent. Meanwhile, in North Asia, it stands at less than 15 percent.
“I believe we can reach 2 billion consumers in the next ten years,” said Hieronimus.
Emerging markets will be crucial in this regard, where L’Oréal’s share is below average, “and we are only at the beginning of our conquest,” he said.
New brands will be introduced in new geographies. In India, for example, L’Oréal has been focusing on professional and consumer products only for years. However, last year, for the first time, it launched CeraVe, its first Dermatological Beauty division brand in the country, and the group is now introducing some of its Luxe brands.
Market share gains in China are also being boosted by the introduction of luxury brands, such as Aesop or Prada, the acceleration of CeraVe, as well as door openings in lower cities.
L’Oréal has a market share in North America of 14 percent, below that of Europe, where it is 20 percent. Hieronimus said in North America, growth will be fueled by a strong economy as well as an increasingly multi-ethnic population that looks beautiful.
“We’re already seeing this with Gen Z and Gen Alpha,” he said.
Expansion opportunities in Europe include Central and Eastern Europe. Consumer purchasing power and beauty sophistication are increasing there.
“In Poland, where our market share is about half that of France, we expect our business to double in the next four to five years,” said Hieronimus.
Different clusters of consumers create other recruitment opportunities.
By 2030, there will be an additional 200 million Baby Boomers, for example. Today, they make up 21 percent of the population in North America and 18 percent in Europe. By the end of the decade, there will be 100 million more Gen Z consumers, who will account for about 12 percent of global beauty spending. A third of Gen Z global beauty consumers will be in the South Asia and Middle East/North Africa region, or SAPMENA.
The sophistication of routines will also help dynamize the beauty market in the long term, according to Hieronimus. All this adds muscle to L’Oréal.
“We are the world’s largest player in beauty – 1.6 times our nearest competitor – and size matters in beauty,” he said. “Barriers to entry may be falling, but barriers to scale are only going up.”
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