Case Study:

L’Oreal Building A Global Cosmetic Brand

"It is a strategy based on buying local cosmetics brands, giving them a facelift and exporting
them around the world."

- One Brand at a Time: The Secret of L'Oréal's Global Makeover, www.fortune.com, August
12, 2002.

L'oréal Makes Waves

In November 2002, L'Oréal, the France-based leading global cosmetics major, received the
'Global Corporate Achievement Award 2002,' for Europe by 'The Economist Group.'

Awarded by the publisher of the world's leading weekly business and current affairs journal
'The Economist,' the honor was given in appreciation and recognition of the 'depth, breadth,
and diversity of L'Oréal's management team.'

In the same month, L'Oréal's Chairman and CEO, Lindsey Owen Jones (Jones) was honored
with the 'Best Manager of the Last 20 Years' title by the French Minister of Finance and
Economy, Francis Mer.

This award instituted by the leading French business publication, Challenges, was in
recognition of Jones' outstanding achievements in transforming L'Oréal from a French
company into a global powerhouse.

Jones also received the prestigious 'Manager of the Year 2002' award from the French Prime
Minister, Jean-Pierre Raffarin. Jones was the first foreign head of any French company to
receive this award, which was sponsored by the leading French business publication, Le
Nouvel Economiste.

These honors were not just a 'cosmetic' eulogy; L'Oréal deserved them, for it was the only
company in its industry to post a double-digit profit for 18 consecutive years.

L'Oréal, which had operations in 130 countries in the world, posted a turnover of € 13.7
billion1 in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002
(half-yearly results), respectively.

Commenting on L'Oréal's performance, Jones said, "At L'Oréal, we are 50,000 people who
share the same desire; because it is not just about business but about a dream we have to
realize, perfection." Known for its diverse mix of brands (from Europe, America and Asia),
like L'Oréal Paris, Maybelline, Garnier, Soft Sheen Carson, Matrix, Redken, L'Oréal
Professionnel, Vichy, La Roche-Posay, Lancôme, Helena Rubinstein, Biotherm, Kiehl's, Shu
Uemura, Armani, Cacharel and Ralph Lauren, L'Oréal was the only cosmetics company in
the world to own more than one brand franchise and have a presence in all the distribution
channels of the industry (Refer Exhibit II for a note on the global cosmetics industry).

Background Note

In 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair color
formula. The uniqueness of this formula, named Aureole, was that it did not damage hair
while coloring it, unlike other hair color products that used relatively harsh chemicals.
Schueller formulated and manufactured his products on his own and sold them to Parisian
hairdressers.

Two years later, in 1909, Schueller set up a company and named it 'Societe Francaise de
Teintures inoffensives pour Cheveux.' From the very beginning, Schueller gave a lot of
importance to research and innovation to develop new and better beauty care products.

On The Road to Fame

By the 1970s, L'Oréal's products had become quite popular in many countries outside France.
Jones' entry in the late-1970s marked the beginning of a new era of growth for the company.

During 1978-1981, Jones functioned as the head of L'Oréal's Italian business. Due to his
exceptional performance, Jones was given the responsibility of looking after US operations
(the company's most important overseas operation) during 1981-1984. Managing the
company's US operations was not an easy task...

May Be? No, It 'Is' Maybelline

One of the first brands that L'Oréal bought in line with the above strategy was the Memphis
(US) based Maybelline. The company acquired Maybelline in 1996 for $ 758 million.

Buying Maybelline was a risky decision because the brand was well known for bringing out
ordinary, staid color lipsticks and nail polishes.

In 1996, Maybelline had a 3% share in the US nail enamel market. Maybelline was not a
well-known brand outside the US.

In 1995-96, only 7% of its revenues ($350 million) came from outside the US.

L'Oréal decided to overcome this problem by giving Maybelline a complete makeover and
turning it into a global mass-market brand while retaining its American image.

Cashing in on The Maybelline Formula

Maybelline's success proved Jones' philosophy of creating successful cosmetic brands by

embracing two different yet prominent beauty cultures (French and American). Commenting
on this, Guy Peyrelongue, head of Maybelline, Cosmair Inc., US Division, said, "It is a cross-
fertilization." L'Oréal followed this strategy for the other brands it acquired over the years,
such as Redken (hair care), Ralph Lauren (fragrances), Caron (skin care and cosmetics),
SoftSheen (skin care and cosmetics), Helena Rubenstein (luxury cosmetics) and Kheil (skin
care)

L'Oréal acquired the above relatively unknown brands, gave them a facelift, and repackaged
and marketed them aggressively...

Future Prospects

L'Oréal's efforts paid off handsomely. The company posted a profit of € 1464 million for the
financial year 2002, as against € 1236 million for the financial year 2001.

Its overall sales grew by 10% in 2002, and much of this increase was attributed to impressive
growth rates achieved in emerging markets like Asia (of the 21% increase in sales volume,
China contributed 61%), Latin America (sales grew by 22% with sales in Brazil increasing to
50%) and Eastern Europe (sales grew by 30% with sales in Russia increasing by 61%).

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