In the 35 years that Nicolas Hieronimus has been at L’Oréal, he has seen only one beauty market downturn: in 2020. “And it wasn’t because people didn’t want to buy products, but because stores were closed and people were confined. Even so, we sold online”, explains the CEO of the largest group in the sector in the world, with 36 brands, such as Garnier, Kérastase, Lancôme, YSL and La Roche Posay, in an interview. That “infinite appetite for beauty”, as defined by the powerful demand for this type of product, is one of the strengths of the French company. A proof of this resilience can now be seen, with an inflationary spiral that threatens consumption, but in the case of L’Oréal it has not significantly affected sales, at least not yet.
The multinational, whose main markets are Europe (30% of turnover), China (20%) and the United States (20%), closed last year with record sales and profits (32,287.6 and 4,600 million euros, respectively), above pre-pandemic levels. A trend that continued in the first half of 2022 despite the turmoil in the world economy: between January and June, sales grew by 13.5% and profit by 25%. Its shares, which before the stock markets began to fall at the beginning of the year were trading at a maximum of 430 euros, have fallen 20% since then.
The French businessman (Paris, 58 years old) has been the sixth CEO in the history of the group since May 2021, replacing Jean-Paul Agon, who continues as Chairman of the Board of Directors. A graduate of one of France’s leading business schools (ESSEC), Hieronimus joined L’Oréal in 1987 and has since gone through several divisions. Thanks to the fact that between 2005 and 2008 he worked as CEO in Mexico, and that his grandmother was a Spanish teacher and taught him since he was a child, the executive speaks fluent Spanish and the interview, which took place a few days ago, took place in that language. at the group’s headquarters in Madrid.
Ask. How has the return to normalcy of this market been after the pandemic?
Response. It grows back as usual. It has already generally returned to pre-pandemic levels. In reality, it has never stopped growing and this is the element of the future that I think is important for our company. The endless appetite for beauty is inherent in human beings and drives L’Oréal, and I believe this market will continue to grow. L’Oréal also grows more than double the industry average: sales of the market as a whole rose at a rate of 6% while those of the company increased by 16.1% last year and 13.5% in the first half of 2022. For me, that appetite for beauty is one of the strengths of our model.
Q. Is the world heading into a recession?
R. The situation is complex and uncertain. There are several things happening simultaneously: the invasion of Ukraine with devastating human impacts, the energy crisis, the global rise in inflation, and multiple geopolitical tensions. It is impossible to predict the future, but from my position I look for what we have to do in order to adapt. In the past there have been other crises and strong companies like ours have overcome them. In our case, beauty is a market that continues to rise because it is a refuge for people in bad times. An example of this is the so-called lipstick index, which indicates that, paradoxically, more makeup is consumed during crises. We are confident in the future, even if we have to learn to navigate rough seas.
P. Despite this evolution, the stock on the stock market has fallen 20% since January. To what do you attribute it?
R. All the stock markets in the world have fallen, also in growth sectors such as luxury, technology… There is a lot of uncertainty and investors are waiting for things to calm down. But there is no distrust in the L’Oréal model, as seen in the forecasts of the analysts. We can control our ability to grow and outperform the rest of the market, but we cannot control external elements like a war or an energy crisis.
Q. What is the impact of inflation on sales?
R. At the moment we have not seen a change in the habits of our consumers due to inflation, changing brands for something cheaper. People are more careful about what they buy, but our customers are still looking for quality. When you have less to spend, you’re not going to spend it on something shoddy. Our market share is increasing.
Q. How has the pandemic changed this market?
R. It has accelerated trends that were already detected before, such as electronic commerce. Globally at the end of 28.9% of our sales were online. People who did not dare to buy online have done so because they had no other choice and have seen that it works well. Another element is the importance of health-related products, recommended by dermatologists, for example. The pandemic has heightened health concerns. Our La Roche Posay brand has had a phenomenal evolution. The active cosmetics division, which also includes Skinceuticals, Vichy and CeraVé, and which years ago was the smallest, is now one of the fastest growing in the group. In general, I think that in the pandemic, users have discovered the pleasure and the need to take care of themselves. And that is noticeable in hair products, which are also growing a lot. People are now spending more on hair products than they were before the pandemic. Also in facial care, both for acne and wrinkles. There has been an extraordinary acceleration in sales of fragrances and hair products. In Spain, the fragrance market is the fastest growing. In the world, more than 21%, and us 34.5%. Even in parts of the world where they weren’t used as much before, like China, and where people are now discovering them.
Q. And the makeup?
R. The use of masks has changed certain habits. For example, lipsticks were not selling as much during the pandemic as before, although sales are now growing again. But makeup has yet to fully recover the level of 2019.
P. To what do you attribute that fragrance sales have risen so much?
A. There has always been a large part of fragrance consumption that has to do with seduction and social life. When you’re at home, like during the pandemic, you clearly don’t need them as much. The return to normality explains part of this acceleration in sales. But I think that people have discovered the pleasure of taking care of themselves and putting on a fragrance to enjoy it for themselves, and it is part of this trend of taking care of themselves, and that explains why this market is growing more. It happens in the US, China and Spain.
Q. How has the rise in energy impacted your costs?
R. Inflation and the impact on supply chains have a great impact on us, of course. We handle it in various ways. Innovation is the first: in order not to increase the price of current products, we launch new highly innovative products at higher prices. We also resorted to promotions, to different formats, and in this way we were able to offset part of the increase in expenses. Gross margin was lower in the first half than last year. But it is at the level of 2019 and it is manageable. Our advantage is that we have a very varied offer, with many brands: from shampoos at three euros to creams at 400. The consumer has a wide range to choose from.
P. Have you considered starting a specific savings plan?
A. We are constantly looking for ways to be more efficient. We have just joined the markets of Spain and Portugal to generate synergies. Regarding energy consumption, we have been changing things for a long time. As an example, our Burgos plant, where Kérastase shampoo for the whole world is manufactured, has been carbon neutral since 2015 and uses a closed water circuit system that allows surplus water from manufacturing to be recycled for other tasks, such as cleaning the machinery. That is why the impact of the increase in the price of electricity is not very great in our factories, although it is for our suppliers, and that must be taken into account. For us, it is important to make progress on environmental issues. Between 2005 and 2021 we have reduced our CO2 emissions by 87% in our factories and distribution centers (although we have increased the volume of our production by 37%) and we are exiting petrochemicals. By 2030, 95% of our ingredients will be bio-sourced, which is a phenomenal effort. We are also making increasingly sustainable packaging.
Q. Does L’Oréal’s growth strategy go through mergers with other groups? Do you see that there is room for corporate operations in this market?
A. Our growth model is to develop our brands with innovation. Another strategy is through purchases: we identify successful brands, with a proposal that we do not have in house, we buy them and develop them worldwide. In 2007 we bought Kielh’s, which then had a turnover of 20 million dollars and now exceeds 1,500 million. Meanwhile, the turnover of CeraVé, which we acquired five years ago, has gone from 120 million to more than 1,000 million thanks to our global network. This is a more flexible model, because integrating small brands is easier than a merger between groups, and we have our global power to develop it. I don’t know if one day there will be mergers between large groups, but in our case there is no plan in this regard.
