I’m happy to share Jean Paul Agon’s thoughts on the big questions facing L’Oréal, including the rise of Digitally Native Vertical Brands, growth through acquisitions, his views on e-commerce, digital disruption, the Chinese market, and the future of beauty.
Since Jean Paul Agon became CEO of L’Oréal in 2006, revenues have grown by more than 3x and the stock price by more than 4x. According to Agon, the 112-year-old French beauty conglomerate has strengthened its position as the undisputed leader in the global beauty market due to a healthy appetite for acquisitions, as well as a robust and well balanced business model that covers all circuits, all categories, all price points and all consumers.
The below Q&A is taken from a collection of interviews conducted in 2019.
I – On M&A – growth through acquisitions:
“Our model is, and has been for 50 years, to buy a brand at an early stage because we think it can become a globally successful player. For example, we bought Kiehl’s in 2000, when the business was generating $20 million annually. It was a single store in New York City and had a few counters at Saks (department store). Then, for 20 years, we built the business and now it is a $1.37 billion business. The way we grow is exactly this combination of buy-and-grow – not buy or grow. And that’s what we do every year. Once the brands have been acquired, they are brands that we build.”
“We are looking every year at all opportunities, and we continue to do this. Make-up, skin care, hair care, hair colour – everything.”
“We currently have 35 international brands. L’Oréal is just one of them, but it’s obviously the one that we started with, and it represents around 25% of our sales. And, in fact, it’s the only brand that we didn’t buy.”
II – On e-commerce:
“There is a clear and very powerful movement towards e-commerce, which is very good, because it allows us to reach more consumers and it’s also pretty profitable.”
“E-commerce is currently about 10% of our total [global] sales, already almost three billion euros, so it’s not irrelevant. And it’s growing at 35% a year. We don’t see any slowdown in e-commerce beauty sales across the globe.”
“In China, where e-commerce is the most advanced, it’s huge – it’s more than 30% of sales.”
“With the new digital augmented services (which look at skin colour, hair colour and skin diagnosis) there is another tool to support online sales in the future.”
III – On digital disruption – in 2018, L’Oréal acquired Modiface, an ‘augmented reality’ company that digitally shows consumers the make-up they can wear. This is the first time that L’Oréal has acquired a pure tech company.
“We really believe that the future of beauty will be digital, and in this we are well ahead of the game. For us it is priority number one. In all aspects – social media, e-commerce, data, artificial intelligence. In terms of services, facilitating greater choice for consumers, helping them use products, individualizing products, etc. With digital, the possibilities become limitless. We are only scratching the surface of what will be possible.”
“Since we accelerated our digital initiatives we have seen profit margins increase, so there is a clear correlation between margin improvement and digital.”
“In the case of Modiface, the business case was obvious because this company is the best at what they do in terms of augmented reality, virtual simulation and obviously when you sell make-up, hair colour and skin care this capacity to simulate virtual reality is absolutely critical. It gives us a competitive advantage that is immense. Modiface helps all our brands to create new [augmented] services for consumers on their own sites or e-commerce sites. It is more an ROI thing, rather than a business itself.”
IV – On the future of beauty:
“The future is still about brands, more than ever. In a world of hyper choice and hyper segmentation, what consumers have on their minds in the end is brands. For example, when we acquire technology companies it’s not for business per se, it’s to serve the business.”