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Agon grows L'Oreal passion for beauty.

PARIS -- Even as staffers around the world celebrated the 100th anniversary of the founding of L'Oreal, the dominant beauty supplier on this planet, Jean-Paul Agon, the company's thoughtful and perspicacious chief executive, was busily engaged in planning for the next century, and taking steps to ensure L'Oreal's place in the global world of beauty care of the next 100 years.

Typical of both the company and its 52-year-old CEO, Agon's vision for the future is necessarily a global one, established by the company's unprecedented success around the world and reinforced by his personal experience over a 31-year career at L'Oreal, a journey that has afforded him assignments in no fewer than four countries, with direct responsibility over more than 15, and today has him spending some 30% of his time outside his native France. "Even as a young man I wanted to travel," he said recently at his Paris office. "Growing up, my room was plastered with travel posters."

A Global Vision

It is not surprising, then, that Agon's view of L'Oreal going forward is global, and his center of interest is on his company's presence, opportunities and impact around the world. He speaks first about the United States, a country whose business he led for four years immediately before being named global CEO in 2006. He is understandably enthusiastic about L'Oreal's business in the U.S., which currently accounts for an estimated 25% of the company's worldwide sales.

"In terms of our mass business in the U.S., we're particularly dependent on four retailers--Wal-Mart, Target, Walgreens and CVS; these have been four good partners for us," he says. "Our partnership with Wal-Mart has been one of my best experiences in America, simply because the Wal-Mart people ask only one question: How can we build the business together?

"CVS has aggressively worked with us to build a new beauty category--dermo-cosmetics. And Walgreens and Target have consistently supported our people and our programs. So the fact that four U.S. retailers account for an inordinate share of our mass beauty sales in the U.S. doesn't overly concern me."

What about the sluggish department store sector in America, a situation that has negatively influenced L'Oreal's prestige beauty business in that country? "For one thing, I believe there are too many department stores in America," he answers. "For another, the difficulty is the business model: Department stores have put their emphasis in terms of products and services on the top-income Americans, a group particularly affected by the current recession. I believe the department stores' current troubles are linked to the economy, and that the business will rebound once the economy recovers."

To support his position, Agon points out that department stores in China and Korea are booming--and that the supplier's prestige beauty business in both countries remains strong.

Growth Markets

L'Oreal's CEO doesn't anticipate any dramatic changes in the retail landscape in Europe, particularly as it effects the company's mass business. "There has long been talk of the coming of the promotional drug store on the U.S. model to Europe. I don't think that's going to happen."

But Agon's global view of retailing takes him far beyond Europe. "France accounts for 10% of our total business today," he says. "Soon that figure will drop to 5%. So we must look elsewhere if we're to continue to grow the way we have been growing."

Where? "First, China. The growth in China is beyond imagining, combining as it does modernity, speed and a government commitment to a degree never seen before. And we're finding that our brands are relevant to the Chinese consumer. In fact, Lancome is the leading cosmetics brand in China, though all our brands are doing well."

Beyond China, Agon sees opportunities in Korea, India and Brazil, markets in which the company is performing well, and such areas as the Middle East, Africa and parts of Central Asia, markets in which L'Oreal has virtually no presence. "We're particularly interested in the Gulf states, where we're largely unknown, and in South Africa, a country whose progress will, we believe, foretell the development of the entire African continent," he says.

Additionally, the company is establishing subsidiaries in Egypt, Pakistan and Kazakhstan.

Agon's vision, global as it is, encompasses far more than geography. Indeed, at the core of L'Oreal's success over its first century has been its dedication to research. And that will not change in the second. "R&D is more than ever a priority," says Agon. "We believe in quality, we believe in innovation, and the only way to have an advantage in terms of innovation and quality is to have better R&D. That's why we have the largest R&D expenditure in the world [among beauty care companies] and the highest ratio in terms of investment to sales. And that's why we employ 3,000 scientists."


Indeed, L'Oreal spent some 3.3% of total sales, over $850 million, on R&D last year, arguably the highest research-to-sales ratio in the consumer goods business. But Agon emphasizes that a dedication to research is not enough. "We want our R&D to be focused on inventing and discovering great innovations," he says, emphasizing that "it is often in the confrontation--positive confrontation--between scientists and marketers that you find great ideas."

People and Products

Still, at the core of Agon's vision of L'Oreal's future are the company's products and its people. The supplier is working to develop brands in categories beyond its core hair care, hair color, skin care, color cosmetics and fragrances competencies. The CEO has spoken of his interest in developing natural products, and the company is believed to be pursuing opportunities in such previously ignored categories as men's grooming, deodorants and styling products. To those ends, he speaks about financing the development of both major brands and niche products, citing Kiehl's, L'Oreal's fastest-growing brand at the moment, as an example of the latter.

Understandably, Agon believes L'Oreal's greatest strength is its people. "Our people are open-minded," he says simply, "always looking for new ideas and new opportunities."

He lauds the accomplishments of Laurent Attal, head of L'Oreal's business in the U.S., who was recently asked to return to France as executive vice president and managing director of research and innovation. He speaks as well of the effectiveness of L'Oreal's leadership group in the U.S., specifically citing Joe Campinell, Karen Fondu, David Greenberg and Carol Hamilton, the four senior executives, Americans all, at L'Oreal U.S.

Will one of them ultimately become the first American to run the company's U.S. business? "Maybe," says Agon. "But you know we always look first at the individual, not the country."

A Quest for Excellence

Finally, L'Oreal's chief executive officer stresses the fundamental business drivers that he believes will continue to set the company apart in the years ahead--its focus on beauty care, its relentless quest for innovation and quality, its roster of global brands, and its multichannel, multilayered worldwide distribution network.

"In the end, it's about innovation," he emphasizes, "but it's more about spirit--a passion for beauty, a quest for excellence in terms of science, innovation, quality and research."

That formula served L'Oreal very well throughout its first century. There is little doubt that it will serve as effectively in the next one.
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Title Annotation:SPOTLIGHT
Author:Pinto, David
Date:Aug 10, 2009
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