3. Presentation Outline
I. Introduction
II. Mission/Vision
III. Internal Assessment
a. Financial Ratios
b. Organizational Chart
c. Market Positioning Map
d. Marketing Strategy
e. Value of the Firm
f. Strengths/Weaknesses
g. IFE
IV. External Assessment
a. Competitor Analysis
b. CPM
c. Opportunities/Threats
d. EFE
V. Strategy Formulation
a. SWOT
b. SPACE
c. BCG
d. IE
e. GSM
f. QSPM
g. Recommendations
VI. Strategy Implementation
a. EPS/EBIT Analysis
b. Projected Statements and
Ratios
VII. Conclusion
4. HISTORY OF L’Oreal:
- L’Oreal was founded in France in 1909.
- One century of expertise in cosmetics.
Group Profile:
- $ 26.2 billion consolidated sales in 2011
- 27 global brands
- 613 patents filed in 2011
- Present in 130 countries in 5 continents.
COMPANY OVERVIEW
5. Headquarters: Clichy, Hauts-de-Seine, France
Chairman and Chief Executive Officer:
Jean-Paul Agon
Employees: 68,900
Operational Groups: 6 Divisions
Non-executive Director & Major Shareholder:
Natalia Streignard
Area Served: Worldwide
COMPANY OVERVIEW
6. Consumer Products ($12,687.4, 48%)
Luxury Products ($ 6,192.1, 24%)
Professional Products ($ 3,629.4, 14%)
Active Cosmetics ($ 1,833.9, 7%)
Dermatology Branch ($ 909.1, 3%)
The Body Shop ($ 990.2, 4%)
Total ($26,242.6, 100%)
PRODUCTS and SERVICES
In $ millions except percentages
8. Western Europe $ 9,348.1 (36%)
North America $ 5,683.9 (22%)
New Markets: $ 9,311.3 (35%)
Asia-Pacific ($ 4,669.2, 18%)
Latin America ($ 2,168.4, 8%)
Eastern Europe ($ 1,724.6, 6%)
Africa, Middle East ($ 749.1, 3%)
Dermatology Branch $ 909.1 (3%)
The Body Shop $ 990.2 (4%)
Total Revenues $ 26,242.6(100%)
2011 Revenues by Geo Divisions
In $ millions except percentages
9. 2011 Sales by Division ($ Millions)
Western
Europe,
$9,348.10
North
America,
$5,683.90
Asia-Pacific,
$4,669.20
Latin America,
$2,168.40
Eastern Europe,
$1,724.60
Africa & Middle
East, $749.10
Dermatology
Branch,
$909.10
The Body Shop,
$990.20
Total 2011 Sales = $26,242.6 million
10. BEAUTY FOR ALL
For more than a century, L’Oréal has devoted itself solely to one business: beauty (2). It is a
business rich in meaning, as it enables all individuals (1) to express their personalities, gain self-
confidence and open up to others (7).
Beauty is a language. (6).
L’Oréal has set itself the mission of offering all women and men worldwide (3) the best of
cosmetics (2) innovation (4) in terms of quality, efficacy and safety (8). It pursues this goal by
meeting the infinite diversity of beauty needs and desires all over the world (3).
Beauty is universal. (6)
Since its creation by a researcher (4) the group has been pushing back the frontiers (7) of
knowledge (4). Its unique Research arm enables it to continually explore new territories and invent
the products of the future, while drawing inspiration from beauty rituals the world over (6).
Beauty is a science. (6)
Providing access to products that enhance well-being, mobilizing its innovative strength (4) to
preserve the beauty of the planet and supporting local communities (8). These are exacting
challenges, which are a source of inspiration and creativity for L’Oréal.
Beauty is a commitment. (6)
By drawing on the diversity of its teams (9), and the richness and the complementarity of its brand
portfolio (2), L’Oréal has made the universalization of beauty its project for the years to come.
L’Oréal, offering beauty for all. (6)
Current Vision & Mission Statement:
11. At L’Oreal, we believe beauty is language,
science, commitment, universal, and
permeates all (6). Our mission is to
empower our highly creative team of
researchers to design innovative (4, 7),
healthy products (2), and our attentive
employees (9) to remain responsive to the
diverse tastes of our radiant customers (1)
who confidently express their inner and
outer beauty in our continuously expanding
markets around the world (3, 5). Our
shareholders can take pride in their
investment knowing they contribute to one
of the most socially responsible (8) and
profitable (5) providers of magnificence (7).
Beauty for all.
Improved Vision & Mission Statement:
12. Revlon Inc. mission is to emerge
as the leader (5) in cosmetic and
personal care (2) throughout the
world (3). Revlon takes pride (7)
in manufacturing (4) the top skin
care (2) and strives to please
young and older women (1)
alike.
Revlon Inc. Vision is to satisfy
the needs of their customers (1)
with glamour and excitement (7)
that they provide at an affordable
price (8).
Competitor’s Vision & Mission Statement:
14. (2011) L’Oreal Revlon Industry
Growth Rate (2010-2011) % 0.0435 0.0454 0.044
Revenues $ 26,242.6 1,381.4 202,535
Gross Profit Margin % 0.7124 0.6434 0.4931
OPS Profit Margin % 0.1704 0.1472 0.1368
Net Profit Margin % 0.1200 0.0387 0.1067
Current Ratio % 1.0831 1.5469 0.52
Quick Ratio % 0.7953 1.2161 0.40
Return on Assets % 0.0909 0.0461 0.0185
Financial Ratio Analysis:
Revenues in $ millions except per share data
15. (2011) L’Oreal Revlon Industry
Debt-to-Equity Ratio % 0.1185 (1.7518) 0.5980
Return on SH Equity % 0.1384 (0.0771) 0.3180
Price/Earnings Ratio % 0.1268 0.1800 0.5934
Earnings per share $ 9.64 81.26 14.40
Inventory Turnover % 9.900 12.4 1.19
Total Asset Turnover % 0.800 1.2 0.28
Accounts Receivable
Turnover
% 6.7896 6.5160 3.16
Average Collection Period days 53.8 56.0 -
Financial Ratio Analysis:
Revenues in $ millions except per share data
16. Current Organizational Chart:
Chairman of
the Board &
CEO
EVP, Admin
& Finance
Managing
Director
Operations
EVP
Research &
Innovation
Managing
Director
Strategic
Marketing
Department
Managing
Director of
Human
Resources
Managing
Director of
Corporate
Communications,
Sustainable
Development&
Public Affairs
President,
Consumer
Products
Division
Managing
Director of
Luxury
Products
Division
Managing
Director of
Active
Cosmetics
Division
General
Manager of
Professional
Products
Division
Managing
Director of
Asia –
Pacific Zone
Managing
Director of
Latin
America
Managing
Director of
North
America
Managing
Director
Africa, Middle
East Zone
17. Problems with Current
Organizational Chart
CEO and Chairperson titles assigned to
same person.
There is no Chief Operating Officer (COO)
instead has Managing Director of
Operations.
Executive Vice President of Administration &
Finance titles assigned to same person.
Managing Director of Corporate
Communications, sustainable Development
and Public Affairs title is ambiguous.
18. Recommended Organizational Chart
Chief
Finance
Officer
Chief
Marketing
Officer
Chief
Human
Resources
Chief Info
Officer
Chief R&D
Officer
Chief
Technology
Officer
President
Africa &
Middle
East
President
Europe
Chief
Operating
Officer
CEO
President
Latin
America
President
Asia-
Pacific
President
North
America
By Geographic Regions
VP of Consumer
Products
VP of L’Oreal
Luxury
VP of Active
Cosmetics
VP of
Professional
Products
President
Body Shop
President
Derma
Branch
Chairman of the Board
Chief
Legal
Officer
19. Organizational Chart
Improvements
Added Chief Legal Officer, Chief
Information Officer, Chief Technology
Officer.
Presidents report to COO.
Gave officers only one title.
Divisional Vice Presidents report to their
respecting Geographic Zone President.
Assign Presidents to The Body Shop and
The Dermatology Branch.
23. CURRENT MARKETING STRATEGIES
L’Oreal has nearly 1 billion consumers
globally (representing around 15% of
population), and plans to conquer a billion
new consumers over next 10 to 15 years.
L’Oreal has 41 production plants across
current market and invested to add new
sites in Mexico, Indonesia, and Egypt.
L’Oreal has presence in 130 countries and
plans to expand in other developing
markets.
28. WEB SITE AND eCOMMERCE
STRENGTHS
Uses attractive colors such as black where beauty glows
in dark
Easy to maneuver through the site and straight forward
about their product offerings and company overview.
WEAKNESSES
Fonts are too small to read and goes out of allotted area
(page).
Navigation doesn’t work properly - when selecting Country
didn’t take directly to the country instead shows page error
or didn’t load up at all
Needs to add Face book Logo on main page of website
29. WEB SITE AND eCOMMERCE
Have to find L’Oreal on Facebook.
L’Oreal already had registered for Facebook application and is paying
for service.
L’Oreal must put Facebook logo on its website which directly
navigates customers to facebook to share their thoughts for L’Oreal.
31. WEB SITE AND eCOMMERCE
STRENGTHS
Enclose Face book and Twitter Logo on its main page
Big screen grabs one’s attention and encourage to
have a look at their product offerings
Good navigation as it directly takes you to where you
want to in couple seconds
Logo is big
WEAKNESSES
None
32. Shareholder’s Equity
Net Income x 5 years
(Stock Price/EPS) x Net Income
# of Shares Outstanding x Stock Price
Four Method Average:
11,549
15,744
39,938
73,727
$35,239.5 million
$ Goodwill/$ Total Assets 0.23
In millions of $US except for per share data
(using a 1.29 dollar/euro exchange rate)
VALUE OF THE FIRM ANALYSIS
34. Strengths
Wei
ght
Rating Wtd
Score
1 27 international brands distributed in over 130 countries. L’Oreal has 5 regional hubs
worldwide.
0.04 3 0.12
2 The Body Shops total sales were $990.204 million (4% total sales). The Body Shop has
over 70 brands in 60 countries (presence in global travel retail outlets across 44
markets).
0.05 3 0.15
3 L’Oreal has $930 million invested in R&D. 3,676 researchers throughout 19 research and
16 evaluation centers filed 613 patents in 2011.
0.06 4 0.24
4 L’Oreal achieved 9.5% sales growth in New Markets ($9,311.3 million in sales; 35% total
sales; $1,713.12 million ops profit); added 4 subsidiaries in Africa and Middle East.
0.14 4 0.56
5 L’Oreal achieved 0.6% sales growth in Western Europe ($9,348.1 million; 36% total sales;
$1,951.8 million ops profits); acquired Sanaflore in France.
0.06 3 0.18
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.
0.08 4 0.32
7 L’Oreal’s achieved 5.5% sales growth in North America (ops profit = $1,044.9 million).
L’Oreal acquired Maybelline and Essie.
0.07 3 0.21
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.
0.03 4 0.12
9 The Dermatology Branch (Galderma) total sales were $909.13 million (Western Europe;
$242.8 million; North America: $450.8 million; New Markets: $215.55 million).
0.04 3 0.12
10 L’Oreal conducts in-house packaging of products at their plants through the Wall-to-
wall program; reduces transportation costs and waste generation.
0.02 3 0.06
Sub-Total for Strengths 0.59 2.08
INTERNAL FACTOR EVALUATION (IFE) MATRIX
35. Weaknesses
Weight Rating Wtd
Score
1 L’Oreal suffered -2.8% sales loss in its Eastern European Market in 2011,
despite a 3.9% market growth (Ops profit: -$734.79 million)
0.08 2 0.16
2 L’Oreal lacks a Beauty Tools division which its chief competitor, Revlon,
does have.
0.05 2 0.10
3 L'Oreal's organizational structure limits its ability to create integrated
brand promotion strategies for its distinctive SBU’s.
0.03 1 0.03
4 L’Oreal has a limited number of perfume, bath, and baby products in
its portfolio compared to competitors.
0.02 1 0.02
5 L’Oreal lacks energy efficient production facilities in North America
similar to ones in Belgium, Spain, India and France.
0.02 1 0.02
6 L’Oreal does not practice direct selling strategies in their marketing
initiatives as compared to competitors (Avon and Mary Kay).
0.06 2 0.12
7 L’Oreal has consolidated key market segments under “New Markets”;
limits managerial response to changes in major geographic SBU’s.
0.06 2 0.12
8 L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief
competitor, Revlon’s (1.2).
0.02 1 0.02
9 L’Oreal’s cost of operations (55.05%) is higher than its chief competitor,
Revlon’s (49.42%).
0.03 1 0.03
10 When selecting different country options, L’Oreal’s website has
defective or nonexistent navigation and translation capabilities.
0.04 2 0.08
Sub-Total for Weaknesses 0.41 0.70
Total IFE Score 1.00 2.78
INTERNAL FACTOR EVALUATION (IFE) MATRIX
40. EXTERNAL FACTOR EVALUATION (EFE) MATRIX
Opportunities Weight Rating Wtd
Score
1 The worldwide cosmetics market grew 4.4% in 2011 representing $197.4 billion with
no devaluation, bannalization, or massificaation.
0.02 2 0.04
2 Major BRIMC and minor growth countries have several million middle class
inhabitants and are projected to account for 5 of the 10 largest economies by GDP
by 2020.
0.08 2 0.16
3 BCG reports the Chinese middle class is expected to increase from 150 million to
+400 million over the next decade. 340+ urban locations projected to increase to
550 million in 10 years.
0.06 2 0.12
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.
0.06 1 0.06
5 Google Offers, Living Social, and Groupon have launched apps for Android phones
to alert consumers to deals through mobile devices.
0.04 4 0.16
6 91% of new products pacesetters were brand extensions that either expanded
effectiveness, new technologies, improved processes, new or unique formulas,
varieties, designs or patterns.
0.05 4 0.20
7 Federal Aviation Safety requirements restrict passengers from carrying more than 4
oz. of personal products aboard aircraft.
0.06 4 0.24
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.
0.08 4 0.32
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.
0.05 2 0.10
10 To reduce currency volatility, companies can hedge their exposure with futures
contracts (an 8.8% annual increase of dollar index).
0.07 3 0.21
Sub-Total for Opportunities 0.57 1.61
41. EXTERNAL FACTOR EVALUATION (EFE) MATRIX
Threats Weight Rating Wtd
Score
1 Federal Aviation Safety requirements restrict passengers from carrying more
than 4 oz. of personal products aboard aircraft.
0.03 4 0.12
2 Consumption of cosmetic products per inhabitant is 10 to 20 times lower in
immature countries than in mature BRIMC countries.
0.05 2 0.10
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 1st Qtr 2012.
0.05 2 0.10
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.
0.04 3 0.12
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.
0.06 2 0.12
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)
0.03 2 0.06
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).
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 products.
0.04 2 0.08
10 Avon and Revlon both offer perfume products in their portfolio. 0.02 1 0.02
Sub-Total for Threats 0.43 0.91
Total EFE Score 1.00 2.52
44. SO Strategies WO Strategies
SWOT MATRIX
SO Strategies WO Strategies
1 Establish JV with Parlain Co Ltd or Sa Sa Intl Holdings
Ltd (China); BK Corporation (Mumbai); Natura
and/or O Boticario (Brazil).
(S4, O2, O3)
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)
2 Increase North American Sales by 15% over 3 years
through IBP, direct selling, and e/mMarketing by
targeting the growing population of Hispanic and
Asians .
(S7, O4, O8)
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 Increase sale of Body Shop, Dermatology Branch
products 12% over 3 years through m/eMarketing
and global travel retail outlets.
(S2, S9, S10, O5, O7, O9)
Improve Web site design and e/mCommerce as part
of IPB marketing campaign to increase online sales
25% over 3 years.
(W10, O5, O9)
45. ST Strategies WT Strategies
SWOT MATRIX
ST Strategies WT Strategies
1 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)
Develop 5 perfume, increase portfolio of affordable
bath and body products to introduce into all markets.
(W4, T10)
2 Achieve 20% sales growth in New Markets by
increasing production to 100% in 16 existing and 3
new plants and incorporating direct sales methods
and acquiring/JV’s with three distributors.
(S4, S6, T2, T3, T8)
Invest $20 million to improve its Website design and
eCommerce capabilities to increase online sales 25%
over 3 years. (W10, T 8)
3 Increase sales of current products in North America
15% over 3 years by increasing production and
distribution to 100% at 9 existing facilities and a new
one in Mexico. (S6, S7, T4, T6, T7, T9)
4 Increase sales 15% over three years of more
affordable green and specialty products in all
markets using its efficiencies in R&D, production,
packaging to control costs. (S3, S6, S8, S10, T6, T9)
5 Increase sales 6% over 3 years in Western Europe
through sales of current products (Sanaflore).
(S5, S6, T5, T6)
46. SPACE MATRIX
Financial Position (FP)
Return on Investment 7
Leverage 4
Liquidity 3
Working Capital 6
Net Profit Margin 4
Inventory Turnover 5
Return on Assets 6
Price-Earnings Ratio 4
4.875
Stability Position (SP)
Technological Changes -5
Rate of Inflation -3
Demand Variability -4
Price Range of Competing Products -5
Barriers to Entry in Market -2
Competitive Pressure -6
Ease of Exit from Market -6
Price Elasticity of Demand -2
-4.125
Competitive Position (CP)
Market Share -3
Product Quality -4
Product Life Cycle -3
Customer Loyalty -4
Capacity Utilization -2
Technological Know-how -1
Control Over Suppliers & Distributors -3
-2.857
Industry Position (IP)
Growth Potential 5
Profit Potential 4
Financial Stability 3
Extent Leveraged 3
Resource Utilization 4
Ease of Entry into Market 1
Productivity, Capacity Utilization 4
3.428
48. BOSTON CONSULTING GROUP MATRIX
Geographic
Division
Sales ($)
mil
Sales
%
Profits
($) mil
Profits
%
RMSP ISGR
%
1 North America 5,683.74 23.3 1,044.90 21.09 0.4002 + 2.7%
2 New Markets 9,311.22 38.3 1,713.12 34.59 0.6556 + 8.3%
3 Western Europe 9,348.63 38.4 1,951.77 39.42 0.6583 + 0.9%
4 The Body Shop 990.2 4.0 87.72 1.77 0.0697 + 1.7%
5 Dermatology
Branch
909.1 3.0 154.80 3.13 0.0640 + 17%
Total 26,242.6 100.0 4,952.31 100.0
49. STARS
II
BOSTON CONSULTING GROUP MATRIX
CASH COWS
III
DOGS
IV
QUESTION
MARKS
I
Relative Market Share Position
IndustrySalesGrowthRate(%)
.50 0.01.0
+20
0
-20
HighMediumLow
High Medium Low
2
3 4
5
1
50. INTERNAL-EXTERNAL (IE) MATRIX
Geographic
Division
Sales ($)
mil
Sales
%
Profits
($) mil
Profits
%
IFE
Score
EFE
Score
1 North America 5,683.74 23.3 1,044.90 21.09 3.04 3.47
2 New Markets 9,311.22 38.3 1,713.12 34.59 2.76 3.29
3 Western Europe 9,348.63 38.4 1,951.77 39.42 3.19 3.24
4 The Body Shop 990.2 4.0 87.72 1.77 3.29 3.09
5 Dermatology
Branch
909.1 3.0 154.80 3.13 3.35 3.05
Total 26,242.6 100.0 4,952.31 100.0
51. INTERNAL-EXTERNAL (IE) MATRIX
II
V VI
III
2.0 1.04.0
4.0
2.0
1.0
High
3.0 to 4.0
Medium
2.0 to 2.99
Low
1.0 to 1.99 VIII XI
I
IV
VII
3.0
3.0
Strong
3.0 to 4.0
Average
2.0 to 2.99
Weak
1.0 to 1.99
EFETOTALWEIGHTEDSCORES
IFE TOTAL WEIGHTED SCORES
2
345
1
52. GRAND STRATEGY MATRIX (GSM)
Quadrant
II
Quadrant
III
Quadrant
IV
Quadrant
I
Rapid Market Growth
Weak
Competitive
Position
Slow Market Growth
Strong
Competitive
Position
L’Oreal
53. QUANTITATIVE STRATEGIC PLANNING MATRIX
(QPSM)
KEY EXTERNAL FACTORS Increase North
America Sales by
15% over 3 years
Increase New
Markets Sales by
20% over 3 years
Opportunities Wgt AS TAS AS TAS
The worldwide cosmetics market grew 4.4% in 2011 0.02 3 0.06 4 0.08
Major BRIMC and minor growth countries are projected to
account for 5 of the 10 largest economies by GDP by 2020.
0.08 2 0.16 4 0.32
BCG reports the Chinese middle class is expected to
increase from 150 million to +400 million over the next
decade.
0.06 2 0.12 4 0.24
Direct retail sales in the US increased 4.6% in 2011 0.06 - - - -
Google Offers, Living Social, and Groupon have launched
apps for Android phones to alert consumers to deals
through mobile devices.
0.04 4 0.16 2 0.08
91% of new products pacesetters were brand extensions 0.05 4 0.20 3 0.15
Federal Aviation Safety requirements restrict passengers
from carrying more than 4 oz. of personal products aboard
aircraft.
0.06 3 0.18 4 0.24
US Latino and Asian population is expected to nearly triple 0.08 - - - -
29% of consumers made at least one consumer packaged
good purchase online in 12 months.
0.05 4 0.20 2 0.10
To reduce currency volatility, companies can hedge their
exposure with futures contracts (an 8.8% annual increase of
dollar index).
0.07 2 0.14 4 0.28
54. QUANTITATIVE STRATEGIC PLANNING MATRIX
(QPSM)
KEY EXTERNAL FACTORS Increase North
America Sales
Increase New
Markets Sales
Threats Wgt AS TAS AS TAS
Federal Aviation Safety requirements restrict passengers from
carrying more than 4 oz. of personal products aboard aircraft.
0.03 3 0.09 4 0.12
Consumption of cosmetic products per inhabitant is 10 to 20
times lower in immature BRIMC countries
0.05 2 0.10 4 0.20
China’s GDP growth target is 7.5%, which is well below the
range of 9.2% to 14.2% recorded in the past five years.
0.05 1 0.05 4 0.20
Shiseido Co (Japanese) acquired Bare Essentials (US) Coty
agreed to acquire OPI Products (nail salon products).
0.04 3 0.12 1 0.04
P&G is a global leader in personal and beauty care products
20% in Western Europe; $14 billion net in cost, restructuring, &
marketing reduction over next 5 years.
0.06 4 0.24 2 0.12
Avon markets Regenerist and Anew skin products to baby
boomers; Johnson & Johnson launched a line of E-Pulse, Skin-
Electro-Stimulation technology
0.03 - - - -
54% of female respondents (2008) said they would “buy brand
they want the most”’ (down to 45% (2010) & 43% in 2011).
0.04 4 0.16 3 0.12
Avon sales in India increased 57.4 (in direct sales in 2011). 0.07 - - - -
Due to weak US economic environment and higher pricing of
green products, consumers may be deterred from buying
green products.
0.04 3 0.12 1 0.04
Avon and Revlon both offer perfume products 0.02 3 0.06 4 0.08
1.00
55. QUANTITATIVE STRATEGIC PLANNING MATRIX
(QPSM)
KEY INTERNAL FACTORS Increase North
America Sales
Increase New
Markets Sales
Strengths Wgt AS TAS AS TAS
27 international brands distributed in over 130 countries. 0.04 3 0.12 4 0.16
The Body Shops total sales were $990.204 million (4% total sales).
The Body Shop has over 70 brands in 60 countries
0.05 2 0.10 3 0.15
L’Oreal has invested $930 million in R&D in 2011. 3,676 researchers
throughout 35 research and evaluation centers filed 613 patents
0.06 2 0.12 3 0.18
L’Oreal achieved 9.5% sales growth in New Markets ($9,311.3 mil. in
sales (35% total sales)); added 4 subsidiaries in Africa & Middle East.
0.14 - - - -
L’Oreal achieved 0.6% sales growth in Western Europe ($9,348.1
million; 36% total sales); acquired Sanaflore in France.
0.06 - - - -
Positioned 41 plants across current markets including a new one in
Russia; opening new sites in Mexico, Indonesia and Egypt.
0.08 2 0.16 4 0.32
L’Oreal’s achieved 5.5% sales growth; 4.3% market growth in North
America . L’Oreal acquired Maybelline and Essie.
0.07 - - - -
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.
0.03 3 0.09 2 0.06
The Dermatology Branch (Galderma) total sales were $909.13
million (Western Europe; $242.8 million; North America: $450.8
million; New Markets: $215.55 million).
0.04 3 0.12 2 0.08
L’Oreal conducts in-house packaging of products at their plants
through the “Wall-to-Wall” program reduces transportation costs &
waste generation.
0.02 3 0.06 4 0.08
56. QUANTITATIVE STRATEGIC PLANNING MATRIX
(QPSM)
KEY INTERNAL FACTORS Increase North
America Sales
Increase New
Markets Sales
Weaknesses Wgt AS TAS AS TAS
L’Oreal suffered -2.8% sales loss in its Eastern European Market in
2011, despite a 3.9% market growth.
0.08 - - - -
L’Oreal lacks a Beauty Tools division which its chief competitor,
Revlon, does have.
0.05 3 0.15 4 0.20
L'Oreal's organizational structure limits its ability to create
integrated brand promotion strategies for its distinctive SBU’s.
0.03 3 0.09 4 0.12
L’Oreal has a limited number of perfume, bath, and baby
products in its portfolio compared to competitors.
0.02 4 0.08 3 0.06
L’Oreal lacks energy efficient production facilities in North
America similar to ones in Belgium, Spain, India and France.
0.02 - - - -
L’Oreal does not practice direct selling strategies in their
marketing initiatives as compared to competitors .
0.06 2 0.12 4 0.24
L’Oreal has consolidated key market segments under “New
Markets”; limits managerial response to changes in major
geographic SBU’s.
0.06 - - - -
L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief
competitor, Revlon’s (1.2).
0.02 2 0.04 4 0.08
L’Oreal’s cost of operations (55.05%) is higher than its chief
competitor, Revlon’s (49.42%).
0.03 2 0.06 4 0.12
When selecting different country options, L’Oreal’s website has
defective or nonexistent navigation and translation capabilities.
0.04 2 0.08 4 0.16
1.00 3.55 4.42
57.
58. 1 billion new customers over next 10-15
years.
Sustainability initiatives (2005-2015):
(1) reducing greenhouse gas emission by
50%.
(2) reducing waste generated per finished
goods by 50%.
(3) reducing water consumption per
finished goods by 50%.
EXISTING STRATEGIES TO BE CONTINUED
59. NEW STRATEGIES TO BE IMPLEMENTED
Establish Joint Ventures with: ($2 Billion)
› Parlain Co. Ltd or Sa. Sa. Intl. Holdings Ltd (China);
› BK Corporation (India);
› Natura or O Boticario (Brazil).
Hire key executives (CIO, CLO, CTO, Presidents) ($24 Million)
Establish 10,000 direct sales force in BRIMC. ($225 Million)
Improve website design & e/m Commerce. ($20 million)
Initiate an Integrated Brand Promotion marketing campaign
to increase global sales over next 3 years. ($231 million)
Total Cost of New Strategies to be Implemented: ($2.5 Billion)
73. BALANCED SCORECARD
# Area of Objective Measure / Target
Time
Expectation
Primary
Responsibility
1 Hire key executives (CIO, CLO,
CTO, Presidents, Vice Presidents).
Identify, recruit, and orient new
executives into their respective
positions.
By end of
1st Qtr, 2012
CEO, CHR
2 Establish Joint Ventures with:
Parlain Co. Ltd or Sa. Sa. Intl.
Holdings Ltd(China);
BK Corp. (India);
Natura or O Boticario (Brazil).
Achieve annual sales growth of
20% :
9% in China, 6% in Brazil, and 5%
in India.
2012 - 2014 CEO,
Divisional
Presidents
3a Initiate an IBP marketing
campaign to improve global
sales in conjunction with direct
sales in #3b.
Achieve Annual Customer
increases of 7%-5%-3% in U.S.;
Achieve 10%-6%-4% annual
customer increase in BRIMCs.
2012 - 2014 CEO and
CMO
3b Establish direct sales force of
10,000 in BRIMC.
B = 600; R = 500; I = 3,700;
M = 400; C = 4,800.
Recruit, train and orient 25%
direct sales representatives each
quarter per country. Continue
to recruit over 2 yrs.
2012 - 2014 CMO, CHR,
Divisional
Presidents.
4a Increase e/m Commerce Sales
Performance through coupon
apps and CRM.
Develop and add two coupon
apps; increase annual online
sales 10%-8%-7%.
2012 - 2014 CMO, CIO,
CTO
4b Improve website design by:
Enhance fonts, ease of
navigation; translate site into
Spanish, Chinese, & Hindi; link to
Facebook, Twitter, and YouTube.
Employ the latest software and
hardware to enhance web site.
2012 - 2014 CMO, CIO,
CTO
74. CONCLUSION
The strategies presented helps L’Oreal to achieve its long-term goal
of acquiring 1 billion new customers over the next 10-15 years.
L’Oreal is in an optimal position to build its reputation and brand
image by reaching new and diverse populations of beautiful people
in growing markets targeted in these strategies.
Utilizing only 7% of L’Oreal’s assets, the supporting objectives are
clearly specified, obtainable, verifiable, measureable, timely and in
keeping with L’Oreal’s core vision and mission to provide…
These strategies align L’Oreal’s distinctive competencies in R & D
and Sustainability, as well as demonstrates L’Oreal’s sense of Social
Responsibility by bringing economic growth opportunities into
developing economies.
BEAUTY FOR ALL!!!
Missing #5 – Concern for Survival, Growth, and Profitability
Revlon is missing #6 – Philosophy and #9 – Employees. And Revlon’s mission statement is not readily accessible from their website (www.revlon.com).
Source: Ratios of Industry from www.reuters.com on 09/15/12
Ratios of LO’real and Revlon based on 2011 annual reports
Industry revenues is based on weighted average of all companies in the personal product industry
Source:
Earnings Per Share Ratio for Industry is based upon MRQ vs. QTR 1 year ago (www.reuters.com from 09/15/12)
Average Collection Period for Industry is not analyzed
Price / Earnings Ratio for LO’real = $122.27 market price per share / 9.64 EPS (MRQ) vs. QTR 1 year ago
Price / Earnings Ratio for Revlon = $14.72 market price per share / 81.26 EPS (MRQ) vs. QTR 1 year ago
See page 6, 2011 Annual Report for description of Branches and Division. Strategic Business Units (SBUs), also called Profit Centers.
Professional Products Division
Consumer Products Division
Loreal luxury
Active Cosmetics Division
The Body Shop
The Dermatology Branch
Organization Charts based upon Geographic Regions
L’Oreal Sales: $26,242.6 million
Revlon Sales: $1,381.4 million
Product Price Promotion Place Packaging
Product:
Price:
Promotion:
Place (distribution):
Packaging:
Total Sales ending December 31, 2012:
L’Oreal:
Western Europe: 38.4% $9,348.6 +0.6%
North America: 23.3% $5,683.7 +5.5%
New Markets
-Asia Pacific: 19.2% $4,668.5 +13.0%
-Latin America: 8.9% $2,168.5 +13.2%
-Eastern Europe: 7.1% $1,724.7 -2.8%
-Africa-Middle East: 3.1% $ 749.5 +10.5%
(Also see page 8, Annual Report)
(page 73) – The Body Shop now has a robust presence in global travel retail outlets across 44 markets. At the end of 2011, the Body Shop has a total of 2,748 stores and additional 143 since December 31, 2010.
Total Sales ending December 31, 2012:
L’Oreal:
Western Europe: 38.4% $9,348.6 +0.6%
North America: 23.3% $5,683.7 +5.5%
New Markets
-Asia Pacific: 19.2% $4,668.5 +13.0%
-Latin America: 8.9% $2,168.5 +13.2%
-Eastern Europe: 7.1% $1,724.7 -2.8%
-Africa-Middle East: 3.1% $ 749.5 +10.5%
Revlon:
United States: $757.4
Asia Pacific: $233.4
Europe, Middle East & Africa: $208.7
Latin America: $107.2
Canada: $ 74.7
Consolidated Sales: $1,381.4
L’Oreal’s eCommerce effectiveness:
- Good
- Needs Improvement: Consistency – Fonts are too small to read and goes out of allotted area (page).
Navigation – When selecting Country didn’t take directly to the country instead shows page error or didn’t load up at all
Website Effectiveness:
- Good
- Needs Improvement
Advantages for shoppers who shop online: 24-hour availability, ease-to-compare-prices, and home delivery. According to a SymphonyIRI Group’s April/May (2011) Omnibus survey, 29% of consumers made at least one consumer packaged goods purchase through the online channel in the previous 12 months.
L’Oreal Annual Report 2011, page 73 – The Body Shop, the brand has 16 online stores and is continuing to grow at an accelerated rate in eCommerce.
A major mode of non-traditional marketing in which companies are investing a larger percentage of their marketing budgets is Internet and Social Media Campaigns (which reflects a new direction in marketing towards teenage consumers).
Web design Criteria:
Appearance – easy to read, navigate and understand. Trust.
Availability – uninterrupted service 24/7.
Accuracy
Viewability/resolution
Consistency – fonts and styles
Scalability
Security
Performance – load-up time
Navigation
Interactivity
Use of Social Network Properties – Use of Facebook, Twitter, Myspace
L’Oreal’s eCommerce effectiveness:
- Good
- Needs Improvement: Consistency – Fonts are too small to read and goes out of allotted area (page).
Navigation – When selecting Country didn’t take directly to the country instead shows page error or didn’t load up at all
Website Effectiveness:
- Good
- Needs Improvement
Advantages for shoppers who shop online: 24-hour availability, ease-to-compare-prices, and home delivery. According to a SymphonyIRI Group’s April/May (2011) Omnibus survey, 29% of consumers made at least one consumer packaged goods purchase through the online channel in the previous 12 months.
L’Oreal Annual Report 2011, page 73 – The Body Shop, the brand has 16 online stores and is continuing to grow at an accelerated rate in eCommerce.
A major mode of non-traditional marketing in which companies are investing a larger percentage of their marketing budgets is Internet and Social Media Campaigns (which reflects a new direction in marketing towards teenage consumers).
Web design Criteria:
Appearance – easy to read, navigate and understand. Trust.
Availability – uninterrupted service 24/7.
Accuracy
Viewability/resolution
Consistency – fonts and styles
Scalability
Security
Performance – load-up time
Navigation
Interactivity
Use of Social Network Properties – Use of Facebook, Twitter, Myspace
Revlon’s eCommerce effectiveness:
- Good
- Needs Improvement
Website Effectiveness:
- Good
- Needs Improvement
Avon’s eCommerce effectiveness:
- Good
- Needs Improvement
Website Effectiveness:
- Good
- Needs Improvement
According to an article in the NY Times (Jan 2010), there are more than 40,000 Avon ‘Mark’ girls in North America 18-24 year old women who are changing the nature of direct sales by using the brands personalized e-boutiques, iPhone app, and new Facebook e-shop, one of the beauty industry’s first forays into Facebook eCommerce.
Revlon’s eCommerce effectiveness:
- Good
- Needs Improvement
Website Effectiveness:
- Good
- Needs Improvement
Avon’s eCommerce effectiveness:
- Good
- Needs Improvement
Website Effectiveness:
- Good
- Needs Improvement
According to an article in the NY Times (Jan 2010), there are more than 40,000 Avon ‘Mark’ girls in North America 18-24 year old women who are changing the nature of direct sales by using the brands personalized e-boutiques, iPhone app, and new Facebook e-shop, one of the beauty industry’s first forays into Facebook eCommerce.
L’Oreal’s eCommerce effectiveness:
- Good
- Needs Improvement: Consistency – Fonts are too small to read and goes out of allotted area (page).
Navigation – When selecting Country didn’t take directly to the country instead shows page error or didn’t load up at all
Website Effectiveness:
- Good
- Needs Improvement
Advantages for shoppers who shop online: 24-hour availability, ease-to-compare-prices, and home delivery. According to a SymphonyIRI Group’s April/May (2011) Omnibus survey, 29% of consumers made at least one consumer packaged goods purchase through the online channel in the previous 12 months.
L’Oreal Annual Report 2011, page 73 – The Body Shop, the brand has 16 online stores and is continuing to grow at an accelerated rate in eCommerce.
A major mode of non-traditional marketing in which companies are investing a larger percentage of their marketing budgets is Internet and Social Media Campaigns (which reflects a new direction in marketing towards teenage consumers).
Web design Criteria:
Appearance – easy to read, navigate and understand. Trust.
Availability – uninterrupted service 24/7.
Accuracy
Viewability/resolution
Consistency – fonts and styles
Scalability
Security
Performance – load-up time
Navigation
Interactivity
Use of Social Network Properties – Use of Facebook, Twitter, Myspace
Shareholders Equity (22,748.376 - 8,003.934 – 3,195.717) = $11,548.7 million (SE-Goodwill-IA)
Net Income x five years (3,148.761 x 5) = $15,743.8 million
(Stock Price/EPS) x Net Income ((122.27/9.64) x 3,148.761) = $39,937.7 million
# of Shares Outstanding x Stock Price (602,984,082 x 122.27) = $73,726.8 million
Four Method Average = $35,239.5 million
$ Goodwill / $ Total Assets (8,003.934 /34,646.304) = 0.23101841 (which translates to $9,393.03 million in Goodwill)
Source: L’Oreal Annual Report 2011 (pages 88-90) and # shares outstanding: 602,984,082 shares as of Dec 31, 2011 (page 219)
STRENGTHS:
L’Oreal has presence in over 130 countries. The group has shown its ability over 100 years of existence to attract nearly 1 billion consumers representing around 15% of the world population.
In 2011, L’Oreal made key investments in production and physical distribution (37.6%), marketing (41% in moulds, POS and stores), IT (12%), and research (9.4%).
L’Oreal has invested $1,117 million dollars in marketing (4.3% of sales). The percentage of cosmetic sales in L’Oreal’s new markets (Latin America, Africa & Middle East, Eastern Europe, and Asia Pacific) was 38.3% in 2011. (15.5% in 1995, 27.1% in 2006, and 38.3% in 2011)
L’Oreal has invested $930 million in R&D in 2011 (increase of 8.4% from 2010). With 19 research and 16 evaluation centers in all continents, L’Oreal has developed over 130 molecules during the last 40 years. L’Oreal’s 3,676 researchers have developed new formulae and filed 613 patents in 2011.
L’Oreal’s achieved 13.2% sales growth (10.9% market growth) in Latin American markets in 2011 (Total sales: $2,075.48 million; ops profit: $2,099.41 million).
With 27 international brands with diverse cultural backgrounds present in all distribution channels, L’Oreal is able to meet the aspirations of all consumers, whatever their origins, beauty habits or revenue levels. Cite Lonene G (Hair Color - 1978), Mexaryl SX (Sun Filter – 1982), Proxylane (deep wrinkles – 2006) which became a part of Lancome Absolue BX, and LR 2412 in Lancome Visionnaire (wrinkle reduction & skin tone – 2011) are star products that give L’Oreal a sustainable competitive advantage.
L’Oreal’s achieved 5.5% sales growth; 4.3% market growth in North America (ops profit 18.9% = $1,044.9 million).
L’Oreal acquired Maybelline (1996) and Essie (2010) which anchored the group in North America, wherein sales for 2011 increased 5.5% representing 23.3% of its global sales. L’Oreal acquired Sanaflore, a closely held maker of organic cosmetics based in France. The number of subsidiaries in Africa and the Middle East has increased from 5 to 9 over the last three years.
L’Oreal has 41 plants positioned in every market they are present including a new plant in Russia (2011), and plans to open three new sites in Mexico, Indonesia and Egypt. L’Oreal launched new plants in Russia (2011), and three additional sites in Mexico, Indonesia, and Egypt (2012) to support the conquest of the next billion consumers in new emerging markets. L’Oreal plants produced 87% of cosmetic units sold all over the world. This choice of in-house production offers a guarantee of quality and traceability and reduced risk.
L’Oreal’s 100% green energy plant in Libramont (Belgium) produces more energy than it uses through biomethanisation process, while its plant in Pune (India) and Burgos (Spain) generate energy through photovoltaic panels, and in Chevilly-Larue (France) uses geothermal energy to heat its premises.
L’Oreal’s global predictive evaluation center in Gerland (Lyon) dedicated to the predictive evaluation of the safety and the efficacy of the ingredients and products. This center is the first cosmetics industry site to produce reconstructed biological tissues (130,000 units per years). In three decades, L’Oreal has created genuine expertise in the field of reconstructive tissues. Up to now, nine reconstructive skin and cornea models have been developed. (These models are fabulous tools to predict the safety and efficacy of products and make it possible to reduce time to market). L’Oreal put an end to animal testing for finished products in 1989 (14 years before it was required by law in Europe).
L’Oreal meets the environmental and industrial challenge for their Operations Division in 2010 by creating a packaging fair called “Cherry Pack” which resulted in a 2-day presentation that reinforced its links with suppliers by counting on collaborative intelligence. L’Oreal’s “Wall-to-Wall” program sets up production units for packaging items operated by a supply within L’Oreal’s plant itself. This developed responsiveness and industrial flexibility while reducing the transportation of packaging items and generation of waste related to packaging (aimed at plant with highly specialized technologies that produce very large volumes and have ongoing needs for external resources).
L’Oreals “Buy and Care” (supply chain auditing and safety improvement) and “Solidarity Sourcing” (favors minorities, disabled workers, or workers from deprived communities) are part of their social responsibility and safety initiatives.
Source: L’Oreal 2011 Annual Report
WEAKNESSES:
L’Oreal suffered -2.8% sales loss in its Eastern European Market in 2011, despite a 3.9% market growth (Ops profit: -$734.79 million)
L’Oreal lacks a Beauty Tools division which its chief competitor, Revlon, does have.
Perhaps one of the weaknesses that a big company faces is the decentralized organizational structure. Due to the many subdivisions of the Company, there is also the difficulty in the control of L’Oreal. This slows down the production of the Company because of the need of giving reference to the other Board members and directors of the Company. L’Oreal will also have a difficulty in finding out what division is accountable for the possible pitfalls of the Company. The coordination and the control of the activities and image in the worldwide market are also viewed as a weakness in the part of L’Oreal. Due to its worldwide marketing strategy, there are also dissimilarities brought about in the campaign of L’Oreal products as to what image they are to project.
L’Oreal has a limited number of perfume, bath, and baby products in its portfolio compared to competitors.
L’Oreal has no 100% green energy, biomethanization, photovoltaic, or geothermal production facilities in North 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 Mary Kay)
L’Oreal has consolidated key market segments under “New Markets”; limits managerial response to changes in major geographic SBU’s.
L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief competitor, Revlon’s (1.2).
L’Oreal’s cost of operations (55.05%) is higher than its chief competitor, Revlon’s (49.42%).
When selecting different country options, L’Oreal’s website has defective or nonexistent navigation and translation capabilities.
L’Oreal’s Quick Ratio (0.7953) is lower than their chief competitor, Revlon’s (1.2161).
L’Oreal’s Price-to-Earnings Ratio (0.1268) is lower than its chief competitor, Revlon’s (0.1800) and far lower than the industry average (0.5934) in 2011.
L’Oreal’s Inventory Turnover Ratio (9.9) is lower than its chief competitor, Revlon’s (12.4).
L’Oreal’s tax costs (5.04% of sales in 2011) is higher than its chief competitor, Revlon’s (2.66% of sales); their tax expenses have increased on average 4.53% over the past three years.
The Body Shop offers 2 brands of perfume products in L’Oreal’s limited portfolio.
Source: L’Oreal 2011 Annual Report
“At first I thought it was a mistake, but then I realised that L’Oréal wasn’t looking for models but for people with strong personalities, who are worth it…and who aren’t afraid to proclaim that using cosmetics can be a very masculine decision after all,” said 51-year old Laurie.
The men’s grooming business has grown significantly over the past two years, with British men now spending more on skincare than ever before, says Isty Osty.
So Laurie with his masculine unshaven face is an ideal model to target men who fear their masculinity will be threatened by using cosmetics.
The financial part of the deal is not released but Laurie stays the most paid US TV series actor with around £250,000 estimated to be paid for an episode of House, M.D. (Source: http://popsop.com/47331)
Source: S&P Industry Survey, July 2012, HH Nondurables: Industry Profile, Leading HH Products Personal Care Companies
Critical Success Factors (CSF) for the Cosmetics and Personal Products Industries
Distribution Capability
Marketing Capability
Product Packaging
Product Quality
Brand Recognition and Awareness
Innovation
OPPORTUNITIES:
The worldwide cosmetics market represents 197.37 billion Dollars and in 2011 it grew by an estimated +4.4%. There has been no devaluation, bannalization, or massification of the market. On the contrary, consumers aspirations for quality are higher than ever, and they are always eager for technology and new ideas.
Major (BRIMC) and minor (Pol, Ukr, Argen, Colo, Indo, Thai, Viet, Phill, Turk, Egypt, Saudi, Paki, Kazak, S. Africa, Nigeria) growth countries have several dozen million inhabitants can be considered the middle class and allows them to consume modern cosmetics products. The Asian Development Bank (ADB) stated that the emerging middle class consumers of Asia, especially in the Peoples Republic of China and India, can become the next leading global consumers and assume the role Americans and European classes have traditionally played. By 2020, emerging markets are projected to account for five of the ten largest economies by GDP, up from four in July 2010 (BRIMC).
According to the Boston Consulting Group (BCG, November 2010), the Chinese middle class population and affluent consumers will increase from 150 million to more than 400 million over the next decade. Two-thirds of China’s emerging population will reside in small cities, in order to reach 80% of this population, a company has to be in more than 340 urban locations (projected to increase to nearly 550 in 10 years (placing even more importance on distribution capability).
According to the Direct Selling Association (DSA), the estimate of direct retail sales in the US totaled $29.9 billion in 2011, with the top three categories being home and family care/home durables (24%), wellness (24%) and personal care (18%). According to the Direct Selling Assoc., direct retail sales were up 4.6% increase from 2010; there was estimated 15.6 million direct sales in the US in 2010 of which 78% were women and 89% worked part time. In India, the direct-selling model has helped boost revenues for many companies (Avon sales grew 57% in 2010).
According to SymphonyIRI Group’s April/May 2011 Omnibus survey, 29% of consumers made at least one consumer packaged good purchase through the online channel in the previous 12 months. ComScore, a digital business analytics firm, surveyed that of the categories respondents said they would “buy the brand that they want the most”, over-the-counter drugs and health & beauty aids was the highest.
Goggle Offers, LivingSocial, and Groupon (coupon web sites) have launched apps for Android phones that alert consumers to deals and redeem them on their mobile device.
To reduce the impact of currency volatility, companies can hedge their exposure with futures contracts (the dollar index rose from 94.69 in July 2011 to 102.99 in June 2012; an 8.8% annual increase).
In 2011, 91% of new products pacesetters were brand extensions, slightly below the 92 to 94% level of the past ten years (expanded effectiveness, new technologies, improved processes, new or unique formula, new or unique varieties, new design or pattern).
With an expected 20% proportion of the US population by 2025 representing at least 65-year-olds, skin care is the fastest growing segment in beauty care, and anti-aging products are proliferating (hope in a jar). The number of female teenagers in the US ages 15 to 19 was an estimated 10.7 million in 2010, a 9.2% increase from 9.8 million in 2000.
Smithsonian magazine reports that the Latino and Asian population are expected to nearly triple, with the Hispanic population growing from 16.7% of 2012 to 21.2% in 2025; and although Hispanics have a lower-than-average HH income level, they indexed higher than non-Hispanics in the consumption of personal care products in 2009 (specifically hair care and bath products).
Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft.
Source: S&P Industry Survey for HH Nondurables, July 2012
THREATS:
The consumption of cosmetic products per inhabitant is 10 to 20 times lower than in mature countries (Mature: Brazil, Russia, India, Mexico, China; Immature: Poland, Ukraine, Argentina, Columbia, Indonesia, Thailand, Vietnam, Philippines, Turkey, Egypt, Saudi Arabia, Pakistan, Kazakhstan, South Africa, and Nigeria).
In a survey by ComScore, a digital business analytics firm, 54% of the female respondents in 2008 said they would “buy the brand they want the most”. This figure dropped to 45% in 2010 and 43% in 2011.
The Chinese government announced in March 2012 that the nation’s GDP growth target for 2012 would be just 7.5%, well below the growth range of 9.2% to 14.2% that the country has recorded in the past five years.
India has experienced slowed economy growing only 5.3% in the first quarter 2012, the lowest quarterly growth since 2008 (Organization for Economic Cooperation and Develop projects 7.1% versus 8.2% forecasted in November 2011.
In 2010, Shiseido Co, a Japanese cosmetics company, acquired US-based Bare Essentials Inc. for $1.7 billion; and Coty Inc., a beauty company with $4 billion in revenues, agreed to acquire OPI Products, a leader in professional nail salon product for $1 billion.
P&G is a global leader in personal and beauty care products with 59% of its sales outside North America (20% in Western Europe, 16% in Asia, 9% in Latin America, and 14% in Central and Eastern Europe and Africa); developing markets represented about 20% of sales in 2000, but increased to 35% in 2011.
Over the last six to seven years, P&G has invested more than $3 billion net in restructuring plans. In 2012, P&G also initiated a $10 billion cost reduction program to reduce cost of goods sold, overhead cost, and marketing budget without affecting the business. P&G initiated a $10 billion cost saving discussed earlier, which decreases marketing costs by $1 billion over the next five years versus letting cost grow in line with sales.
Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft.
Avon is also actively pursuing the baby boomer market with products such as Regenerist and Anew, its successful line of skin products which promise eternal youth to the generation that once urged “Never trust anyone over 30” (Anew Solar Advance with RepairShield Technology). Johnson and Johnson have also launched a line called E-Pulse, Skin Electro-Stimulation Technology (skin rejuvenation process and anti-aging technology).
In 2010, Aspire Brands Inc began selling Hello Kitty Cosmetics, priced from $2 to $10, and in 2011, expanding the distribution of the e.l.f. makeup line with items retailing from $1 to $3, but with kits and sets as high as $40.
Because of a weak US economic environment and the typically higher pricing of green products, consumers may be deterred from purchasing green products.
Avon sales in India increased 57.4% due to direct sales in 2011.
Mintel’s Global New Product Database (GNPD), new products with an organic or natural claim accounted for only 5% of all beauty and personal product launches in 2006, a share that increased to nearly 10% in 2008 and held steady through 2009.
Avon and Revlon both offer perfume products in their portfolio.
Source: S&P Industry Survey for HH Nondurables, July 2012
Strategies
(S,O)
1. Establish Joint Ventures with Parlain Co Ltd (China) and/or Sa Sa Intl Holdings Ltd (China); BK Corporation (Mumbai); Natura and/or O Boticario (Brazil) to pursue 20% sales growth in China, India, Latin America, Russia.
(S4, O2, O3)
2. Increase North American Sales by 15% over 3 years through IBP, direct selling, and eMarketing / mMarketing by targeting the growing population of Hispanic and Asians .
( S7, O4, O8)
3. Increase sale of Body Shop, Dermatology Branch products 12% over 3 years through mMarketing, eMarketing and global travel retail outlets.
(S2, S9, S10, O5, O7, O9)
4. Increase production to 100% at its current facilities (41 plants) and also at the three new facilities being established in Russia, Egypt, and Indonesia to pursue 20% sales growth over three years through intensive/integrative strategies in China (8%), India (5%), Latin America (3%), Russia (3%).
(S4, S6, O2, O3, O4, O8)
Strategies
(W,O)
1. 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, O10)
2. 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 Web site design and e/mCommerce as part of IPB marketing campaign to increase online sales 25% over 3 years.
(W10, O5, O9)
Strategies
(S,T)
1. 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. Body shop’s 70 brand in 60 countries can protect against FSA’s 4 oz restriction on personal products and can extend use of its perfume products.
(S2, T1, T10)
2. Achieve 20% sales growth in New Markets by increasing production to 100% in 16 existing and 3 new plants and incorporating direct sales methods and establishing Joint Ventures with three distributors. New Markets and new subsidiaries and increase production at its 41 plants can target lower sales in immature countries, China and India’s lower GDP, and pursue more share of market from Avon via direct sales initiatives.
(S4, S6, T2, T3, T8)
3. 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. North America will use its 41 plants (new one in Mexico), and Maybelline and Essie to pursue more of the market from Bare Essentials (Shiseido Co), OPI Products (Coty), Regenerist and Anew (Avon), Johnson & Johnson.
(S6, S7, T4, T6, T7, T9)
4. Increase sales 15% over three years of more affordable green and specialty products in all markets using its efficiencies in R&D, production, packaging to control costs. R&D (Global Predictive Centers) and Production; increase production at current and new plants to package and market current and new (green) products to pursue share of markets from its main competitors in North America
(S3, S6, S8, S10, T6, T9)
5. Increase sales 6% over 3 years in Western Europe through sales of current products (Sanaflore). Western Europe; use its 41 production plants and subsidiary Sanaflore to pursue share of markets in Europe from P&G, J&J, Avon, and other competitors
(S5, S6, T5, T6)
Strategies
(W,T)
1. Develop 5 perfume, increase portfolio of affordable bath and body products to introduce into all markets.
(W4, T10)
2. Invest $20 million to improve its Website design and eCommerce capabilities to increase online sales 25% over 3 years.
(W10, T8)
Geographic Division $ Sales (mil) % Sales $ Profits (mil) % Profits RMSP ISGR (%) Based on page 79 of Annual Report
1. North America 5,683.74 23.3 1,044.90 21.09 0.4002 + 2.7%
2. New Markets 9,311.22 38.3 1,713.12 34.59 0.6556 + 8.3%
3. Western Europe 9,348.63 38.4 1,951.77 39.42 0.6583 + 0.9%
The Body Shop 990.2 4.0 87.72 1.77 0.0697 + 1.7%
5. Dermatology Branch 909.1 3.0 154.80 3.13 0.0640 + 17%
TOTAL 26,242.6 100.0 4,952.31 100.0
Industry Market Share Leader: C’Bon Cosmetics Co Ltd. $14,201.6 Kao Corp, $6416.3
Revlon $1384.8
Avon $10,973.2
Estee Lauder $9,713.6
Source: reuters.com (dated 9/15/12)
Geographic Division $ Sales (mil) % Sales $ Profits (mil) % Profits RMSP ISGR (%) Based on page 79 of Annual Report
1. North America 5,683.74 23.3 1,044.90 21.09 0.4002 + 2.7%
2. New Markets 9,311.22 38.3 1,713.12 34.59 0.6556 + 8.3%
3. Western Europe 9,348.63 38.4 1,951.77 39.42 0.6583 + 0.9%
The Body Shop 990.2 4.0 87.72 1.77 0.0697 + 1.7%
5. Dermatology Branch 909.1 3.0 154.80 3.13 0.0640 + 17%
TOTAL 26,242.6 100.0 4,952.31 100.0
Industry Market Share Leader: C’Bon Cosmetics Co Ltd. $14,201.6 Kao Corp, $6416.3
Revlon $1384.8
Avon $10,973.2
Estee Lauder $9,713.6
Source: reuters.com (dated 9/15/12)
Division $ Sales (mil) % Sales $ Profits (mil) % Profits IFE Scores EFE Scores
N. America 5,683.74 23.3 1,044.90 21.09 3.04 3.47
New Markets 9,311.22 38.3 1,713.12 34.59 2.76 3.29
3. Western Europe 9,348.63 38.4 1,951.77 39.42 3.19 3.24
The Body Shop 990.2 4.0 87.72 1.77 3.29 3.09
5. Dermatology Branch 909.1 3.0 154.80 3.13 3.35 3.05
TOTAL 26,242.6 100.0 4,952.31 100.0
Industry Market Share Leader: C’Bon Cosmetics Co Ltd. $14,201.6
Kao Corp, $6416.3
Revlon $1384.8
Avon $10,973.2
Estee Lauder $9,713.6
Source: reuters.com (dated 9/15/12)
Division $ Sales (mil) % Sales $ Profits (mil) % Profits IFE Scores EFE Scores
N. America 5,683.74 23.3 1,044.90 21.09 3.04 3.47
New Markets 9,311.22 38.3 1,713.12 34.59 2.76 3.29
3. Western Europe 9,348.63 38.4 1,951.77 39.42 3.19 3.24
The Body Shop 990.2 4.0 87.72 1.77 3.29 3.09
5. Dermatology Branch 909.1 3.0 154.80 3.13 3.35 3.05
TOTAL 26,242.6 100.0 4,952.31 100.0
Industry Market Share Leader: C’Bon Cosmetics Co Ltd. $14,201.6
Kao Corp, $6416.3
Revlon $1384.8
Avon $10,973.2
Estee Lauder $9,713.6
Source: reuters.com (dated 9/15/12)
Geographic Division $ Sales (mil) % Sales $ Profits (mil) % Profits
North America 5,683.9 22 % 1,044.90 21.09
New Markets 9,311.3 35 % 1,713.12 34.59
Western Europe 9,348.1 36 % 1,951.77 39.42
The Body Shop 990.2 4 % 87.72 1.77
Dermatology Branch 909.1 3 % 154.80 3.13
TOTAL 26,242.6 100.0 100.0
OPPORTUNITIES:
The worldwide cosmetics market represents 153 billion Euros and in 2011 it grew by an estimated +4.4%. There has been no devaluation, bannalization, or massification of the market. On the contrary, consumers aspirations for quality are higher than ever, and they are always eager for technology and new ideas.
Major (BRIMC) and minor (Pol, Ukr, Argen, Colo, Indo, Thai, Viet, Phill, Turk, Egypt, Saudi, Paki, Kazak, S. Africa, Nigeria) growth countries have several dozen million inhabitants can be considered the middle class and allows them to consume modern cosmetics products. The Asian Development Bank (ADB) stated that the emerging middle class consumers of Asia, especially in the Peoples Republic of China and India, can become the next leading global consumers and assume the role Americans and European classes have traditionally played. By 2020, emerging markets are projected to account for five of the ten largest economies by GDP, up from four in July 2010 (BRIMC).
According to the Boston Consulting Group (BCG, November 2010), the Chinese middle class population and affluent consumers will increase from 150 million to more than 400 million over the next decade. Two-thirds of China’s emerging population will reside in small cities, in order to reach 80% of this population, a company has to be in more than 340 urban locations (projected to increase to nearly 550 in 10 years (placing even more importance on distribution capability).
According to the Direct Selling Association (DSA), the estimate of direct retail sales in the US totaled $29.9 billion in 2011, with the top three categories being home and family care/home durables (24%), wellness (24%) and personal care (18%). According to the Direct Selling Assoc., direct retail sales were up 4.6% increase from 2010; there was estimated 15.6 million direct sales in the US in 2010 of which 78% were women and 89% worked part time. In India, the direct-selling model has helped boost revenues for many companies (Avon sales grew 57% in 2010).
According to SymphonyIRI Group’s April/May 2011 Omnibus survey, 29% of consumers made at least one consumer packaged good purchase through the online channel in the previous 12 months. ComScore, a digital business analytics firm, surveyed that of the categories respondents said they would “buy the brand that they want the most”, over-the-counter drugs and health & beauty aids was the highest.
Goggle Offers, LivingSocial, and Groupon (coupon web sites) have launched apps for Android phones that alert consumers to deals and redeem them on their mobile device.
To reduce the impact of currency volatility, companies can hedge their exposure with futures contracts (the dollar index rose from 94.69 in July 2011 to 102.99 in June 2012; an 8.8% annual increase).
In 2011, 91% of new products pacesetters were brand extensions, slightly below the 92 to 94% level of the past ten years (expanded effectiveness, new technologies, improved processes, new or unique formula, new or unique varieties, new design or pattern).
With an expected 20% proportion of the US population by 2025 representing at least 65-year-olds, skin care is the fastest growing segment in beauty care, and anti-aging products are proliferating (hope in a jar). The number of female teenagers in the US ages 15 to 19 was an estimated 10.7 million in 2010, a 9.2% increase from 9.8 million in 2000.
Smithsonian magazine reports that the Latino and Asian population are expected to nearly triple, with the Hispanic population growing from 16.7% of 2012 to 21.2% in 2025; and although Hispanics have a lower-than-average HH income level, they indexed higher than non-Hispanics in the consumption of personal care products in 2009 (specifically hair care and bath products).
Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft.
Source: S&P Industry Survey for HH Nondurables, July 2012
THREATS:
The consumption of cosmetic products per inhabitant is 10 to 20 times lower than in mature countries (Mature: Brazil, Russia, India, Mexico, China; Immature: Poland, Ukraine, Argentina, Columbia, Indonesia, Thailand, Vietnam, Philippines, Turkey, Egypt, Saudi Arabia, Pakistan, Kazakhstan, South Africa, and Nigeria).
In a survey by ComScore, a digital business analytics firm, 54% of the female respondents in 2008 said they would “buy the brand they want the most”. This figure dropped to 45% in 2010 and 43% in 2011.
The Chinese government announced in March 2012 that the nation’s GDP growth target for 2012 would be just 7.5%, well below the growth range of 9.2% to 14.2% that the country has recorded in the past five years.
India has experienced slowed economy growing only 5.3% in the first quarter 2012, the lowest quarterly growth since 2008 (Organization for Economic Cooperation and Develop projects 7.1% versus 8.2% forecasted in November 2011.
In 2010, Shiseido Co, a Japanese cosmetics company, acquired US-based Bare Essentials Inc. for $1.7 billion; and Coty Inc., a beauty company with $4 billion in revenues, agreed to acquire OPI Products, a leader in professional nail salon product for $1 billion.
P&G is a global leader in personal and beauty care products with 59% of its sales outside North America (20% in Western Europe, 16% in Asia, 9% in Latin America, and 14% in Central and Eastern Europe and Africa); developing markets represented about 20% of sales in 2000, but increased to 35% in 2011.
Over the last six to seven years, P&G has invested more than $3 billion net in restructuring plans. In 2012, P&G also initiated a $10 billion cost reduction program to reduce cost of goods sold, overhead cost, and marketing budget without affecting the business. P&G initiated a $10 billion cost saving discussed earlier, which decreases marketing costs by $1 billion over the next five years versus letting cost grow in line with sales.
Federal Aviation Safety requirements restrict passengers from carrying more than 4 oz. of personal products aboard aircraft.
Avon is also actively pursuing the baby boomer market with products such as Regenerist and Anew, its successful line of skin products which promise eternal youth to the generation that once urged “Never trust anyone over 30” (Anew Solar Advance with RepairShield Technology). Johnson and Johnson have also launched a line called E-Pulse, Skin Electro-Stimulation Technology (skin rejuvenation process and anti-aging technology).
In 2010, Aspire Brands Inc began selling Hello Kitty Cosmetics, priced from $2 to $10, and in 2011, expanding the distribution of the e.l.f. makeup line with items retailing from $1 to $3, but with kits and sets as high as $40.
Because of a weak US economic environment and the typically higher pricing of green products, consumers may be deterred from purchasing green products.
Avon sales in India increased 57.4% due to direct sales in 2011.
Mintel’s Global New Product Database (GNPD), new products with an organic or natural claim accounted for only 5% of all beauty and personal product launches in 2006, a share that increased to nearly 10% in 2008 and held steady through 2009.
Avon and Revlon both offer perfume products in their portfolio.
Source: S&P Industry Survey for HH Nondurables, July 2012
STRENGTHS:
L’Oreal has presence in over 130 countries. The group has shown its ability over 100 years of existence to attract nearly 1 billion consumers representing around 15% of the world population.
In 2011, L’Oreal made key investments in production and physical distribution (37.6%), marketing (41% in moulds, POS and stores), IT (12%), and research (9.4%).
L’Oreal has invested $1,117 million dollars in marketing (4.3% of sales). The percentage of cosmetic sales in L’Oreal’s new markets (Latin America, Africa & Middle East, Eastern Europe, and Asia Pacific) was 38.3% in 2011. (15.5% in 1995, 27.1% in 2006, and 38.3% in 2011)
L’Oreal has invested $930 million in R&D in 2011 (increase of 8.4% from 2010). With 19 research and 16 evaluation centers in all continents, L’Oreal has developed over 130 molecules during the last 40 years. L’Oreal’s 3,676 researchers have developed new formulae and filed 613 patents in 2011.
L’Oreal’s achieved 13.2% sales growth (10.9% market growth) in Latin American markets in 2011 (Total sales: $2,075.48 million; ops profit: $2,099.41 million).
With 27 international brands with diverse cultural backgrounds present in all distribution channels, L’Oreal is able to meet the aspirations of all consumers, whatever their origins, beauty habits or revenue levels. Cite Lonene G (Hair Color - 1978), Mexaryl SX (Sun Filter – 1982), Proxylane (deep wrinkles – 2006) which became a part of Lancome Absolue BX, and LR 2412 in Lancome Visionnaire (wrinkle reduction & skin tone – 2011) are star products that give L’Oreal a sustainable competitive advantage.
L’Oreal’s achieved 5.5% sales growth; 4.3% market growth in North America (ops profit 18.9% = $1,044.9 million).
L’Oreal acquired Maybelline (1996) and Essie (2010) which anchored the group in North America, wherein sales for 2011 increased 5.5% representing 23.3% of its global sales. L’Oreal acquired Sanaflore, a closely held maker of organic cosmetics based in France. The number of subsidiaries in Africa and the Middle East has increased from 5 to 9 over the last three years.
L’Oreal has 41 plants positioned in every market they are present including a new plant in Russia (2011), and plans to open three new sites in Mexico, Indonesia and Egypt. L’Oreal launched new plants in Russia (2011), and three additional sites in Mexico, Indonesia, and Egypt (2012) to support the conquest of the next billion consumers in new emerging markets. L’Oreal plants produced 87% of cosmetic units sold all over the world. This choice of in-house production offers a guarantee of quality and traceability and reduced risk.
L’Oreal’s 100% green energy plant in Libramont (Belgium) produces more energy than it uses through biomethanisation process, while its plant in Pune (India) and Burgos (Spain) generate energy through photovoltaic panels, and in Chevilly-Larue (France) uses geothermal energy to heat its premises.
L’Oreal’s global predictive evaluation center in Gerland (Lyon) dedicated to the predictive evaluation of the safety and the efficacy of the ingredients and products. This center is the first cosmetics industry site to produce reconstructed biological tissues (130,000 units per years). In three decades, L’Oreal has created genuine expertise in the field of reconstructive tissues. Up to now, nine reconstructive skin and cornea models have been developed. (These models are fabulous tools to predict the safety and efficacy of products and make it possible to reduce time to market). L’Oreal put an end to animal testing for finished products in 1989 (14 years before it was required by law in Europe).
L’Oreal meets the environmental and industrial challenge for their Operations Division in 2010 by creating a packaging fair called “Cherry Pack” which resulted in a 2-day presentation that reinforced its links with suppliers by counting on collaborative intelligence. L’Oreal’s “Wall-to-Wall” program sets up production units for packaging items operated by a supply within L’Oreal’s plant itself. This developed responsiveness and industrial flexibility while reducing the transportation of packaging items and generation of waste related to packaging (aimed at plant with highly specialized technologies that produce very large volumes and have ongoing needs for external resources).
L'Oreal's “Buy and Care” (supply chain auditing and safety improvement) and “Solidarity Sourcing” (favors minorities, disabled workers, or workers from deprived communities) are part of their social responsibility and safety initiatives.
Source: L’Oreal 2011 Annual Report
WEAKNESSES:
L’Oreal suffered -2.8% sales loss in its Eastern European Market in 2011, despite a 3.9% market growth (Ops profit: -$734.79 million)
L’Oreal lacks a Beauty Tools division which its chief competitor, Revlon, does have.
Perhaps one of the weaknesses that a big company faces is the decentralized organizational structure. Due to the many subdivisions of the Company, there is also the difficulty in the control of L’Oreal. This slows down the production of the Company because of the need of giving reference to the other Board members and directors of the Company. L’Oreal will also have a difficulty in finding out what division is accountable for the possible pitfalls of the Company. The coordination and the control of the activities and image in the worldwide market are also viewed as a weakness in the part of L’Oreal. Due to its worldwide marketing strategy, there are also dissimilarities brought about in the campaign of L’Oreal products as to what image they are to project.
L’Oreal has a limited number of perfume, bath, and baby products in its portfolio compared to competitors.
L’Oreal has no 100% green energy, biomethanization, photovoltaic, or geothermal production facilities in North 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 Mary Kay)
L’Oreal has consolidated key market segments under “New Markets”; limits managerial response to changes in major geographic SBU’s.
L’Oreal’s Total Asset Turnover ratio (0.8) is lower than its chief competitor, Revlon’s (1.2).
L’Oreal’s cost of operations (55.05%) is higher than its chief competitor, Revlon’s (49.42%).
When selecting different country options, L’Oreal’s website has defective or nonexistent navigation and translation capabilities.
L’Oreal’s Quick Ratio (0.7953) is lower than their chief competitor, Revlon’s (1.2161).
L’Oreal’s Price-to-Earnings Ratio (0.1268) is lower than its chief competitor, Revlon’s (0.1800) and far lower than the industry average (0.5934) in 2011.
L’Oreal’s Inventory Turnover Ratio (9.9) is lower than its chief competitor, Revlon’s (12.4).
L’Oreal’s tax costs (5.04% of sales in 2011) is higher than its chief competitor, Revlon’s (2.66% of sales); their tax expenses have increased on average 4.53% over the past three years.
The Body Shop offers 2 brands of perfume products in L’Oreal’s limited portfolio.
Source: L’Oreal 2011 Annual Report
L’Oreal’s ambition is to conquer 1 billion new consumers over the next 10 to 15 years based on its international positions and its power of innovation (Page 6, 2011 Annual Report).
What does L’Oreal state in definite terms of profitability, growth of assets, targeting of specific markets as part of their ongoing (existing) strategies (….in terms of $, . , %, and :)
Sustainability initiatives to protect the natural environment.
Establish joint ventures with the following companies in China, India and Brazil:
-Parlain (China)
-Sa Sa Cosmetics (China)
-BK Corporation (India)
-Natura (Brazil)
-O Boticario (Brazil)
Sub-Total $2,000,000,000
Notes: The nature of these JV’s are to achieve competitive advantages solely in distribution (not production and no new product development) of L'Oreal's current products in new markets. Partner companies will have rights to sale L’Oreal products in their current portfolios and will result in profit sharing with these partners.
2. Salaries for additional executive officers & SBU sales directors:
-Chief Information Officer (CIO) and 4 person team $630,000
-Chief Legal Officer (CLO) $270,000
-Chief Technology Officer (CTO) $200,000
-Sales Directors of each geographic SBU’s ($1,000,000 each) $5,000,000
Sub-Total: $6,100,000 x 3 years (plus recruitment, training, & incidentals) ≈$24,000,000
3. Direct sales force of 10,000 for BRIMC countries to achieve 20% increase in sales [population age structure = 15 - 64 years (male and female)]:
-Calculated as SGA Expense (2011): $5,401.1 million
divided by 130 countries /130
equals $41.55 million (per country) ≈ $45 million
times 5 BRIMC countries x 5
Sub-Total $225,000,000
Note: Total Sales Representatives = 10,000, i.e., B=600; R=500; I=3700; M=400; C=4800
:. $ 225 million / 10,000 sales representatives = $ 22,500 per sales person per year.
Hence, B = $13.5 million; R = $11.25 million; I = $83.25 million; M = $9 million; C = $108 million.
Website improvements and e/mCommerce initiatives:
-Website design (+35 pages) and maintenance for 3 years
assuming the website converts to major languages: $400,000
-Develop a mobile promotional app assuming an app
will have to be developed for each country L’Oreal
operates in ($100,000/app) 130 countries $13,000,000
Sub-Total: (+incidental costs) ≈$20,000,000
Establish an Integrated Brand Promotion (IBP) program for 3 years $231,000,000
Note: $231million/3 = $77 million per year.
Total Cost of Proposed Strategies: $2,500,000,000
Amount Needed: $2,500,000,000
Interest Rate: 3.25% (From Note 20, Effective interest rand and average interest rate on borrowings and debt, page 164, 2011 Annual Report)
Tax Rate: 29.59% (from income statement, page 88. Income tax payment ($1,323.3)/Profits before tax and noncontrolling interests ($4,472.0) = 29.59%
Stock Price: $122.27 (from Reuters.com, as of 31 Aug 2012, in USD)
# of Shares Outstanding: 602,984,082 shares of CS (2011 Annual Report, page 219)
Source: L’Oreal CheckMATE excel sheet
Amount Needed: $2,500,000,000
Interest Rate: 3.25% (From Note 20, Effective interest rand and average interest rate on borrowings and debt, page 164, 2011 Annual Report)
Tax Rate: 29.59% (from income statement, page 88. Income tax payment ($1,323.3)/Profits before tax and noncontrolling interests ($4,472.0) = 29.59%
Stock Price: $122.27 (from Reuters.com, as of 31 Aug 2012, in USD)
# of Shares Outstanding: 602,984,082 shares of CS (2011 Annual Report, page 219)
Source: L’Oreal CheckMATE excel sheet
The strategic implications of obtaining sources of capital for L’Oreal are:
Source of Capital Stock Only Debt Only Combination 30-Debt/70-Stock
Recession $2.82 $2.82 $2.82
Normal $5.08 $5.16 $5.10
Boom $7.34 $7.50 $7.39
From this EPS/EBIT analysis, we have determined that debt is the best source of capital for L’Oreal.
All options give $2.82 EPS in a recession period, but debt gives an EPS of $7.50 in a boom period.
L’Oreal’s current capital structure is: 0.34 (34% debt).
The method that best maintains this structure is a combination of 30 debt/70 stock.
The all-stock option does not cause concern about dilution of ownership for L’Oreal, as the addition of 20.4 million new shares of stock only represents 3.28% increase in total shares (not enough for any current owner to gain a 51% majority of shares).
Source: L’Oreal CheckMATE excel sheet
Calculated Interest Payments Per Year: (Source: Amortization for L’Oreal excel spreadsheet)
2012 -> $38.7 million ($38,668,935.30) + 92.7 mil = $131.4 mil
2013 -> $36.3 million ($36,286,147.57) + 98.0 mil = $134.3 mil
2014 -> $33.9 million ($33,865,196.20) + 103.8 mil = $137.7 mil
Notes to Financial Statements:
1) Net Sales is calculated using an 8.8% growth rate for new markets. It then includes an additional 6.6% growth rate for increased sales in India, China, and Brazil. It then also includes an account for 1.7% sales growth in Western Europe and 2.4% in North America. (Increase due to Joint Ventures, Direct Selling, and Website improvement).
2) Advertising and Promotion costs includes the $83.7 million per year increase (20+231=251 million/3) for web design and maintenance, direct sales force in BRIMC, and IBP marketing campaign.
3) SGA costs includes $249 million for executive salaries increase and direct sales force in BRIMC. (225 + 24 = 249/3 = $83 million).
4) Average rate of decrease in Other Income (Expenses) is 7% per year from 2009 to 2010, and applied through 2014.
5) Interest also includes cost of debt financing for $2.5 billion resulting in: $38.7 million (2012); $36.3 million (2013); and $33.9 million (2014) additional interest expense.
6) Average rate of increase in Capital Gain (Loss) is 36% per year from 2009 to 2010, and applied through 2014.
7) Average rate of decrease in Other Financial Income (Expenses) is 7% per year from 2009 to 2010, and applied through 2014.
Source: L’Oreal Graphs (Income Statement) excel sheet
Calculation of Dividend & Retained Earnings from previous year:
Dividend Payout Ratio: 0.4831
Retained Earnings Ratio: 0.5169
RE & DIV Ratio for 2011:
$ 1,627.59 million RE 0.5169 (RE – other reserves difference from 2010 to 2011)
$ 1,521.17 million Div 0.4831 (Difference between NI and RE)
$ 3,148.76 million NI 1.0000 (from 2011 income statement)
2010 2011 2012 2013 2014
Net Income 2892.18 3148.76 3859.95 4184.22 4520.19
Dividends: 1445.51 1521.17 1864.74 2021.40 2183.71
Retained Earnings 1446.67 1627.59 1995.21 2162.82 2336.48
Notes to Financial Statements:
1. Intangibles will increase each year due to joint ventures in India, Brazil, and China.
2. Inventory increased due to sales increase.
* Cash and Cash equivalents is a plug variable (which is remaining amount, i.e. to match up total assets with total liabilities).
Source: L’Oreal Graphs (Balance Sheet) excel sheet
Notes to Financial Statements:
* Other Reserves (retained earnings) each year is added from income statement.
1 Treasury stock amount went down due to increase in profit eventually stock price also goes up.
2 Noncurrent Borrowings and Debt = $74.175 + (2500/3)
Source: L’Oreal Graphs (Balance Sheet) excel sheet
Notes to Financial Statements:
* Other Reserves (retained earnings) each year is added from income statement.
1 Treasury stock amount went down due to increase in profit eventually stock price also goes up.
2 Noncurrent Borrowings and Debt = $74.175 + (2500/3)
3 Here Income tax in balance sheet is a gain (of 15% on income tax expense in income statement)
Source: L’Oreal Graphs (Balance Sheet) excel sheet
The previous year’s retained earnings from the balance sheet is combined with the retained earnings on the current year’s income statement to derive the retained earnings on the current year’s balance sheet.
Source: L’Oreal CheckMATE excel sheet
Source: L’Oreal CheckMATE excel sheet
These strategies are in keeping with L’Oreal’s existing strategies.
They build upon L’Oreal’s reputation and increases brand awareness in new markets.
They employ L’Oreal’s distinctive competencies and demonstrates their sense of social responsibility.
These well established goals definitely support L’Oreal’s self concept that “Beauty is for All”.
I thank you for considering these strategies and now open the floor for any comments or questions.
