PARIS, 2 June 2009 (AFP) – L’Oréal, celebrating its centenary on Thurday 4 June, has risen to the top of the global cosmetics markets through acquisitions and innovations, but the economic crisis could weaken a well-oiled strategy.

Photo : AFP

Moderation is the leitmotif for the French giant during its anniversary, as economic turbulence has weighed heavily on sales since the end of 2008. On Thursday 4 June therefore, the group will content itself with presenting “one hundred projects of generosity”, launched for the occasion.

With annual sales of €17.5 billion and a 16% share of the market, L’Oréal is the global leader in the sector, ahead of the American group Procter & Gamble and the German Beiersdorf – the inventor of Nivea cream – according to the Beauty Top 100 rankings.

Its successive directors, only five in a century, have used three driving forces – innovation, publicity and internationalization – to construct an immense brand portfolio, ranging from Garnier and Vichy to Lancôme and Giorgio Armani, passing The Body Shop and Gemey-Maybelline on the way.

“L’Oréal is capable of proposing innovative products, subsequently more expensive, which guarantees them a regular progression for their sales,” explained an analyst at an international bank.

From the first sun cream launched in 1935 by the chemist Eugène Schueller, founder of the group, to the opening of a research centre in Chicago in 2003 specialising in black skin, innovation is written in its genes L’Oréal was pleased to state.

François Dalle, the successor to Mr Schueller in 1957, enlarged and organised the field of research in make-up, body-care and perfume.

Another pillar for the group is marketing. Eugène Schueller “was one of the pioneers of modern advertising”, highlighted the historian Jacques Marseille. In 1954 for example, he sent battalions of L’Oréal vans criss-crossing France to distribute small cartons of Dop shampoo to children.

Since then, the group has presented a galaxy of stars endlessly repeating that they’re “worth it”, and in 2008 alone it spent more than €5 billion on publicity.

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Their global expansion accelerated in the 90s with the arrival of British CEO Lindsay Owen-Jones, who went on to make multiple acquisitions in the USA and Japan and to create subsidiaries in China and India.

By 1988, L’Oréal made 67% of its sales outside of France, in 2005, 88%. For 23 consecutive years its profits have increased by more than 10%.

But, the eruption of recession in 2008 has jammed the mechanism: profits have fallen, net sales curbed and, for the first time in a long time, L’Oréal is closing factories in Europe.

“At the end of the recession, they risk having to partly reinvent their business model if consumers keep their new habit of buying cheaper products,” said the bank analyst.

Experts feel that its diversified brands and its strong presence in emerging markets, which are continually growing, will protect the group from any decline.

But its future will also hang on the future decision of its two leading shareholders: the Swiss food group Nestlé (29.6% of capital) and the Bettencourt family (30.8%), led by Liliane Bettencourt, the sole inheritor of Eugène Schueller, now one of the richest women in the world.

Since the end of April, these shareholders have been free to sell their shares and maintain a mutual right of first refusal until 2014.

To this uncertainty is added a dispute between Lilian Bettencourt and her daughter Françoise, who accuses her of giving almost €1 billion to the photographer François-Marie Banier.

By Jonathan Fulwell (Source: AFP/Gaëlle GEOFFROY)