Uncertain post-pandemic consumer habits and new online competitors pose challenges to the French beauty industry giant, and to FMCG firms everywhere.
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On April 20, the shareholders of L’Oréal, the world’s leading cosmetics company, voted in Nicolas Hieronimus as Chief Executive, effective May 1. He succeeds Jean-Paul Agon, who has served as Chairman and CEO for the past 15 years. Agon is credited with bringing L’Oréal to China, its biggest market outside America, and with steering the company through COVID-19.
L’Oréal is known for stability in its senior leadership, which is a reflection of both the company’s consistently strong performance and the beauty industry’s steady growth. Prior to Hieronimus, L’Oréal has had only five top leaders since its founding in 1909. The group’s investors, notably the Bettencourt family, which currently holds a one-third stake worth $76 billion, have long placed a premium on continuity, favouring promotion from within.
The choice of Hieronimus upholds this tradition, as the incoming CEO has been with L’Oréal for 34 of his 57 years. For the past four years, he has served as Deputy Chief Executive. While Hieronimus is a conventional choice, it is thought that he is the right leader to bring the group up to date. Barbara Lavernos, his new deputy and also a company veteran, said he “gets the zeitgeist, he’s super knowledgeable and he knows L’Oréal from top to toe.”
The appointment comes at an interesting time, to say the least. The beauty industry has weathered many storms, but this time companies will need to adapt to consumer beauty habits changed by the pandemic. Key sales channels such as airport shops will likely be slow to recover. L’Oréal, like other fast-moving consumer goods (FMCG) purveyors, hopes that online habits developed during the pandemic will outlast it.
L’Oréal is sitting on a strong foundation. Its share price has quadrupled over the past 10 years, according to International Business Times, and revenues have nearly doubled, to more than $33 billion. UBS analysts noted in a recent research note that the pandemic “reinforced L’Oréal’s structural advantages, including its dominant online presence”. Online orders have surged by nearly two-thirds, accounting for 27% of total sales. Its sales and profits fell in 2020, but only by about 5%, and rebounded strongly in the first quarter.
In addition to adapting to a post-pandemic world in which consumers continue working from home and faces are half-hidden by masks, Hieronimus will need to boost L’Oréal’s performance in America and other markets outside of Asia. The company’s consumer products division, its biggest, was seeing slower growth even prior to the pandemic. This has made the group dependent on higher-end offerings, “often sold under the brands it has to license from luxury groups such as Prada”, The Economist reports.
Unrelated to changes wrought by COVID-19, e-commerce and social media continue to disrupt FMCG overall and the beauty industry specifically. Where big players like L’Oréal once dominated by leveraging their complex distribution networks and extravagant, star-studded advertising campaigns, they are now rivalled by social media influencers. They are enabling countless small beauty brands to find followings, posing new competitive threats. Hieronimus will need to define and highlight the 112-year-old cosmetics giant’s relevance in a new era.