L'Oréal History

Company History:

L'Oréal, one of the largest companies in France, is the world's largest manufacturer of high-quality cosmetics and perfumes, producing such well-known brands as Lancôme, Ambre Solaire, and Cacharel. Its total sales are &Dollar;2.4 billion ahead of those of its closest competitor, Unilerver, an more than double those of Revlon and Shiseido. It boasts a world-wide distribution network as well as the industry's highest research-and-development budget and the largest cosmetological laboratories in the world.

L'Oréal's story begins in turn-of-the-century Paris, at a time when women of the demi-monde dyed their hair, their choice restricted to fiery red or coal black. In 1907, Eugène Schueller, a young chemist, began to concoct the first synthetic hair dyes by night in his kitchen and sell them to hair salons in the morning under the brand name Auréole. His strategy was successful; within two years he established the Société Francaise des Teintures Inoffensives pour Cheveux, which soon afterward became L'Oréal.

In 1912, the company extended its sales to Austria, Holland and Italy and by 1920 its products were available in a total of 17 countries, including the United States, Brazil, Chile, Peru, Equador, Bolivia, and the Soviet Union, and in the Far East. At this stage, L'Oréal consisted of three research chemists and ten sales representatives.

Schueller's timing had been singularly fortunate. The end of World War I was celebrated by the Jazz Age, when short hairstyles became fashionable, with a new emphasis on shape and color. By the end of the 1920s, there were 40,000 hair salons in France alone and L'Oréal's new products O'Cap, Imédia Liquide, and Coloral captured the growing market. In 1928 the company made its first move toward diversification, purchasing the soap company Monsavon.

In the 1930s and 1940s, platinum-haired screen idols such as Jean Harlow and Mae West made blond hair especially popular and bleaches such as L'Oréal Blanc sold well. L'Oréal was quick to make use of both old and new media to promote its products. In 1933, Schueller commissioned famous artists of the time to design posters and also launched his own women's magazine, Votre Beauté. Dop, the first mass-market shampoo, was promoted through children's hair-lathering competitions at the highly popular French circuses and by 1938 L'Oréal was advertising its hair products with radio jingles.

During this period L'Oréal demonstrated its ability to meet new consumer demands. When the Front Populaire won the 1936 elections and introduced the first paid holidays for French workers, L'Oréal's Ambre Solaire was ready to capture the new market for suntan lotions. Meanwhile the company's sales network was expanding on both a national and an international scale. Products began to be sold through pharmacies and perfumers and new Italian, Belgian, and Danish subsidiaries were established between 1936 and 1937.

Even the outbreak of World War II in 1939 failed to curb the company's growth. At a time of strict rationing, women permed their hair and bought cosmetics to boost their morale. L'Oréal launched the first cold permanent wave product, Oréol, in 1945. At the same time the company continued to expand; by the end of the war there were 25 research chemists and distribution had been extended to the United Kingdom, Argentina, and Algeria.

During this period, Francois Dalle and Charles Zviak joined the group, both recruited by Monsavon at a time when the cosmetics industry held far less attraction for graduate chemical engineers than the atomic-energy or oil industries. Both men would play an important role in the company's future; by 1948, Dalle had already been appointed joint general manager of L'Oréal.

The consumer boom of the 1950s and the arrival of new blond screen idols Marilyn Monroe and Brigitte Bardot (originally a brunette) meant further expansion for L'Oréal. By 1950, a research-and-development team of 100 chemists had created further innovative products, including the first lightening tint, Imédia D, introduced in 1951, and the first coloring shampoo, Colorelle, introduced in 1955, which answered an increasing demand for subtlety. The company advanced further into the field of skin care, entering into technological agreements with the company Vichy, in 1954. Vichy was to become part of the L'Oréal group in 1980.

Eugène Schueller's promotional talents were recognized in 1953 when he was awarded an advertising Oscar. Schueller died in 1957 and Francois Dalle took over as chairman and CEO at 39 years of age.

The 1960s were years of revolution, both cultural and commercial. As music and fashion became increasingly teen-oriented, there was a growing interest in conserving--or simulating--youthful looks. At the same time hundreds of new boutiques, supermarkets, and chain stores sprang up to supply this rapidly growing market. L'Oréal made a growing commitment to capital investment. In 1960 a new research-and-production center was established in Aulnay-sous-Bois, bringing the number of research staff up to 300. In 1963 and 1964 the company opened new cosmetological and bacteriological facilities, evidence of a highly scientific approach to skin care. Another production unit, Soprocos, opened in St. Quentin in 1965, and over the decade new distribution outlets were established in Uruguay, Algeria, Canada, Mexico, and Peru. L'Oréal was listed on the French stock exchange in 1963, during a period of restructuring within the group. In 1962, owing to the boom in hair-product sales, L'Oréal sold Monsavon in order to concentrate on its core business. At the same time it bought the hair-hygiene specialist Cadoricin. In 1964 L'Oréal bought Jacques Fath perfumes and a year later Lancôme, thereby gaining a significant entry into the high-quality skin-care, make-up, and perfume market and gaining increased access to perfumery outlets. Garnier, a hair-product company, and Laboratoires d'Anglas were also added to the group. In 1968 the company took major stakes in Golden in the United Kingdom and in Ruby, a personal hygiene and household products manufacturer. In the same year, L'Oréal bought the fashion and perfumes house, André Courrèges.

With increased resources and expertise, L'Oréal launched a number of successful products, many of which are market leaders to this day. These included the hair spray Elnett, Récital hair dyes, and the perfume Fidji. Fidji was launched under the Guy Laroche brand name.

In 1969, L'Oréal recruited a young Welshman, Lindsay Owen-Jones, from the prestigious Fontainebleau business school INSEAD. An Oxford languages graduate, he would go on to become the fourth chairman and managing director of L'Oréal. At the age of 25 he became general manager of L'Oréal's public-products division in Belgium and turned around unprofitable subsidiaries in France and Italy, before going to the United States to take charge of L'Oréal's distributor, Cosmair Inc., in 1980.

L'Oréal benefited from the emphasis on health and fitness in the 1970s. From this time onwards, L'Oréal's earnings outstripped those of any other French blue chip and grew twice as fast as the cosmetics-industry average. L'Oréal's success permitted further commitment to research and development; the number of research staff rose from 500 in 1970 to 750 in 1974. New production facilities were opened in France and in 1979 the International Centre for Dermatological Research was established at Sofia-Antipolis, in the South of France, for the treatment of skin disorders and aging.

Over the decade, structural and tactical changes were made within the group, based on the findings of the 1969 management study done by McKinsey & Co. The year 1970 saw the establishment of new operational divisions and management structure. A few years later, the company began to speed up the process of internationalization, with particular emphasis on New Zealand, Australia, Japan, and Hong Kong. In 1976 L'Oréal signed a technical-assistance contract with the Soviet Union.

Expansion into overseas markets--particularly Japan--was aided greatly by the company's new alliance with the Swiss foods giant Nestlé, to whom Eugène Schueller's daughter, Madame Liliane Bettencourt, sold nearly half of her L'Oréal stock in 1974. The two allies established a French holding company, Gesparal, which is 51 percent-owned by Bettencourt and 49 percent-owned by Nestlé. Gesparal controls 72 percent of L'Oréal's voting rights. Bettencourt is the largest individual shareholder of Nestlé, holding roughly five percent.

Throughout the 1970s, L'Oréal continued to make purchases within the cosmetics and hair-care industry: Biotherm in 1970; Gemey, Ricils, and Jeanne Piaubert in 1973; and Roja in 1975. The latter merged with Garnier in 1978. This was also a time for diversification for L'Oréal. In 1973 it took a controlling stake of 53.4 percent in the pharmaceutical company Synthélabo, a specialist in the production of cardiovascular drugs and hospital materials, followed in 1979 by the purchase of Metabio-Joullie, manufacturer of aspirins, over-the-counter drugs, veterinary, cosmetic, and dietary items. Metabio-Joullie and Synthélabo were merged in 1980 under the latter's name. In 1977 L'Oréal ventured into another complementary field, magazine publishing, taking stakes in Marie-Claire Album and Interedi-Cosmopolitan.

Meanwhile in the new division Parfums et Beauté International, several of L'Oréal's most successful products were launched--Vichy's moisturizer Equalia and the Cacharel perfume Anaïs Anaïs, now reckoned to be the world's best-selling perfume. In addition, the well-known Kérastase hair products were redesigned.

The 1980s were particularly favorable for L'Oréal. Francois Dalle won the post of first vice president on Nestlé's administrative council, the title of Man of the Year in the chemicals and cosmetics sector from the Fragrance Foundation of the United States, and title of Manager of the Year from the Nouvel Economiste. In 1984, he gave up the leadership of L'Oréal, although he continued to act as chairman of the group's strategic committee. The position of chairman and CEO went to Charles Zviak. Lindsay Owen-Jones became vice president and Marc Ladreit de Lacharrière, joint vice president, soon to take control of the company's financial policy.

This event was followed by some restructuring within the group; in 1985 the Parfums et Beauté division was split into three departments--Lancôme/Piaubert, perfumes, and active cosmetics--and five geographical areas. At the same time the new management clearly felt it necessary to centralize control of the company's finances, and in 1987 a financial bulletin was issued announcing the creation of L'Oréal Finances, which would implement the financial strategy established approximately ten years before.

In 1986, L'Oréal's shares were distributed to investors outside France for the first time when the company raised FFr 1.4 billion through a one-for-ten rights issue, offering new shares to stockholders. This was followed, in 1987, by a one-for-five stock split.

At this time L'Oréal began to play an increasingly active role in the management of Synthélabo, which, after merging with Metabio-Joullie, had become France's third-largest pharmaceutical company. Synthélabo's research-and-development budget was increased considerably, allowing the company in 1982 to become the first private laboratory to participate in the World Health Organization's project for research and education in neuroscience. During the 1980s Synthélabo enhanced its international status, setting up joint marketing affiliates in the United States and Britain with the U.S. company G. D. Searle, and establishing joint ventures in Japan with Fujisawa and Mitsubishi Kasei. The company also took controlling stakes in Kramer of Switzerland, in 1982, and LIRCA of Italy in 1983. Nevertheless Synthélabo continued to report poor sales figures, owing to difficulty in updating its product line and unfavorable market conditions in France. L'Oréal subsequently reiterated its commitment to Synthelabo, keeping restructuring to a minimum and increasing its holding from 63 percent to 65 percent after October 1987's Black Monday when the shares fell considerably. L'Oréal saw that the solution to Synthélabo's problems lay in extending its overseas sales, thereby offsetting unfavorable domestic pricing and reimbursement policies. By the end of the decade, profitability had improved and some promising new drugs were ready to be approved for marketing in the 1990s.

Meanwhile, L'Oréal's research-and-development facilities continued their steady growth, with research staff reaching 1,000 by 1984. L'Oréal's enormous commitment to research resulted in the success of products such as Lancôme's Niosôme, launched in 1986, one of the few anti-aging creams found to be effective by independent dermatologists.

If this was the age of high-tech skin care, it was also the era of designer brands; in 1980 a new distribution company, Prestige et Collections, was created for Cacharel, whose perfume Loulou, launched in 1987, wet on to become a best seller. In 1984, Nestlé took over Warner Cosmetics of the United States on behalf of L'Oréal's U.S. agent Cosmair, thereby acquiring for the group the prestigious names of Ralph Lauren, Paloma Picasso, and Gloria Vanderbilt. At this stage, however, L'Oréal was interested only in the perfumes and cosmetics divisions of the designer brands. In 1983, the company sold its 49.9 percent stake in the couture house Courrèges to Itokin of Japan, although it retained 100 percent of Courrèges Parfums.

A further addition to the L'Oréal group was the Helena Rubenstein skin-care and cosmetics range. In 1983, L'Oréal began by taking major stakes in Helena Rubenstein's Japanese and South American subsidiaries, the former integrated with Lancôme in the new Japanese affiliate, Parfums et Beauté, in 1984. In 1988, L'Oréal bought Helena Rubenstein Inc., a U.S. company that was in financial difficulties as a result of the sharp drop in sales following the founder's death. It would not be an easy matter to bring the company back into profit. Bought in the same year, Laboratoires Goupil, a dental-care-products manufacturer whose toothpastes held over 90 percent of the French market, was also unprofitable, but it was felt that L'Oréal's skillful marketing could remedy the situation. L'Oréal's last acquisition of the 1980s was the skin-care specialist Laboratoires Roche Posay.

While making acquisitions, L'Oréal also took the opportunity to sell off unwanted components of the group. These included the personal hygiene and comfort products of Laboratoires Ruby d'Anglas and Chiminter, which were felt to be too far outside the group's main area of interest and not in accord with L'Oréal's policy of internationalization.

L'Oréal was keen to diversify into communications. In 1984 the company took a 10 percent stake in the French pay-TV company, Canal Plus, with the stake raised to 10.4 percent in 1986. In 1988, L'Oréal took a 75 percent stake in Paravision International, an organization charged with the creation, production, and distribution of audiovisual products for an international audience. The following year, L'Oréal entered by way of Paravision into a joint venture with the U.S. company Carolco Pictures Inc., to handle foreign television-distribution and programming rights.

In 1988, Lindsay Owen-Jones became the new chairman and chief executive of L'Oréal at the age of 42. Marc Ladreit de Lacharrière became director and executive vice president while Charles Zviak moved on to the chairmanship of Synthélabo. Zviak died the following year, having been one of the few chemists to attain leadership of a major French company. The end of the decade was marked further by rumors of L'Oréal's involvement in a proposed joint takeover bid for the French luxury-goods company Louis Vuitton Mo¨t Hennessy, together with Vuitton's head, Monsieur Racamier, and Paribas/Parfinance. Although the existence of such a plan was denied by L'Oréal, the company joined with Orcofi, a Vuitton-controlled holding company, to buy 95 percent of the perfume and couture house Lanvin.

L'Oréal explained that although Vuitton owned Dior and Givenchy, competitors in the perfume and cosmetics market, L'Oréal had no Vuitton shares and no intention of attacking the company. On the contrary, the Vuitton alliance would give L'Oréal an entrée into the field of luxury goods. Although Lanvin lost money since L'Oréal's acquisition, company officials remained optimistic, declaring that the experience gained from running a luxury boutique is valuable in itself.

In 1991 L'Oréal found itself embroiled in a bitter dispute with Jean Frydman, a former director of Paravision. Frydman--who holds dual Israeli-French citizenship--had filed suit against the company, charging it with "fraudulent behavior and racial discrimination," stemming from the 1989 sale of the Frydman family's 25 percent share of Paravision--L'Oréal's film distribution division--after being pressured by Francois Dalle. Frydman alleged that L'Oréal violated a 1977 French law prohibiting companies from participating in an Arab boycott against Israel when the company forced his resignation and the sale of the family's stake at an unfair price because of his business ties to Israel. The ensuing investigation created a minor scandal in France by digging up unsavory facts about founder Eugène Schueller's anti-Semitic, fascist politics during World War II. Later that year, however, Frydman dropped the suit in exchange for a letter of apology from Dalle.

The cosmetics industry is still growing, but there is increasing rivalry. While L'Oréal's alliance with Nestlé should protect it from corporate marauders, it is still vulnerable to competition in Western markets from Japanese competitors. Shiseido and Kao--although 90 percent of the turnover of both companies come from their home market--and from Unilever, following the latter's takeover of Elizabeth Arden and Fabergé.

In the years following his appointment as chairman and CEO, Owen-Jones set about making L'Oréal a genuinely international company. He began cultivating an integrated international team of top managers, enabling the company to quickly respond to and capitalize on consumer trends worldwide. Owens-Jones also supported greater cooperation between L'Oréal's numerous brand names and divisions. After Lancôme Niosôme was developed in 1986, L'Oréal then translated the new technology into a mass market L'Oréal skin care line sold under the name Plentitude. Plentitude was launched in Europe and Australia in the late 1980s, and within two years of its U.S. launch in 1989, it had captured a 10 percent share of the market.

It was precisely this kind of synergy between subsidiaries, analysts say, that led to L'Oréal's 15 percent overall profit growth in the 1980s. In the boom years of the 1980s, high-end lines such as Lancôme, and Helena Rubenstein performed extremely well. When the prestige market slumped in the early 1990s, such mass market lines as L'Oréal were poised to pick up the slack.

L'Oréal has said that it sees opportunities for further profit growth in the United States, which represents one-third of the world market. Currently, despite having full control of strategy, management, and marketing in this region, L'Oréal reaps only 5.5 percent from the profits of its sole U.S. agent Cosmair Inc. One advantage of this system for L'Oréal has been protection from the weakness of the U.S. dollar and from high marketing costs--Cosmair handles a sales volume of over &Dollar;1 billion that provides the company with the flexibility to launch new products which can ten be transferred to L'Oréal affiliates worldwide. Other markets targeted for expansion include Japan.

L'Oréal was one of the first western companies to set up shop in the former Soviet Union, forming Soreal, a joint-venture with the Russian chemical company Mosbytchim. L'Oréal invested &Dollar;50 million in the venture to produce approximately 40 million units of deodorant, perfume, shampoos, and hair sprays annually. Soreal products were sold in 1992 at a mere 100 outlets in Moscow and at an additional 10 throughout Russia. Hard currency was difficult to come by as banks either collapsed or were unaccustomed to dealing with Western businesses. In order to obtain the equipment necessary to upgrade production, Soreal created Maroussia, a women's fragrance that was imported to Western Europe in exchange for machinery and materials.

L'Oréal's structure remains unchanged, with the group consisting of a federation of competitive companies, including 147 production and distribution facilities worldwide, divided into five divisions. Only research and development facilities and overall management control are centralized.

There has been speculation as to the fate of L'Oréal when Bettencourt, in her mid-60s in 1990, relinquishes her corporate involvement. The French government is taking a strong interest in the issue. French government agreements restrict foreigners from taking over French companies before 1994. Should she decide to sell, Nestlé will have first option to purchase.

As consumers became more environmentally aware, L'Oréal fell under increasing pressur4e to conform to new standards of product safety. The company has been forced to phase out the use of chlorofluorocarbons which are said to be harmful to the ozone layer. L'Oréal has also come under attack from the animal-rights lobby, which accuses the company of subjecting laboratory animals to inhumane tests, although L'Oréal claims that animal testing of new products is down to 5 percent from 50 percent in 1985.

As L'Oréal entered the mid-1990s, the company found itself engaged in a battle with rivals Proctor & Gamble and Unilever for worldwide domination of the mass cosmetic and fragrance markets. L'Oréal seemed determined to remain the leader, hiking its advertising budget by as much as 50 percent for some products, and creating a whole new image for most of its color cosmetics. The company was also reaching out to customers by repackaging its merchandise and making display cases more accessible and user-friendly. L'Oréal also planned to expand into the mass-market fragrance business, introducing at least two new fragrances by 1995. Owen-Jones seemed to have laid the groundwork necessary to support such an expansion , and L'Oréal appeared well prepared to defend its number one position, fortified by a strong research and development base, sharpened marketing skills and a sound balance sheet.

Principal Subsidiaries: Lancôme Parfums et Beauté; Helena Rubenstein Inc.; Parfums et Beauté International et Cie; Cie et Artoisienne de Gestion; Diparco; H.U.P. (Germany, 98.6&percent;); Laboratoire Garnier Paris; L'Oréal UK; Soreal (Russia).

Further Reading:

• Benjamin, Patricia, "Sitting Pretty," Business, January 1987.
• Deeny, Godfrey, "L'Oréal Execs Probed by Magistrate for Joining Arab Boycott of Israel," Women's Wear Daily, May 15, 1991, p. 27.
• Dorn, Pete, "Lindsay Owen-Jones: A World Vision for L'Oréal," Women's Wear Daily, October 12, 1990, pp. 10-11.
• Echikson, William, "L'Oréal: Aiming at High and Low Markets," Fortune, March 22, 1993, p.89.
• Fearnley, Helen, "L'Oréal--Not Just A Pretty Face," Financial Weekly, May 5, 1988.
  L'Oréal, Paris, France: L'Oréal.
• "L'Oréal's Dark Roots," Time, July 1, 1991, p. 56..
• Raper, Sarah, "Ex-L'Oréal Head Settles Race Bias Case," Women's Wear Daily, December 23, 1991, p. 3.
• --, "Taking Russia: Tough Times at the Factory," Women's Wear Daily, August 7, 1992, p. 4.
• Tosh, Mark, "L'Oréal's 1990 Net Rises 15.2&percent.
• .
• Sales Gain 1.7&percent.
• ," Women's Wear Daily, April 17, 1991, p. 21.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.