Introduction by: Peter Marshall
I was in two minds about publishing this blog. But it is our mission to challenge where merited and this feature, with contributions from a few members of trunblocked.com’s editorial panel, simply asks questions that warrant answers. There are also issues here that embrace the larger P & C category, notably on sustainability (where L’Oréal have taken a lead) and I hope this blog engages the business community sufficiently to ask themselves one key question: is it doing enough to meet the changing consumer needs and expectations?
The Travel Retail industry’s engine of growth has been the P&C category with an approximate 37%+ market share. So it’s worth taking time to speculate over the strategic direction of market leader L’Oréal. There are some question marks. Indeed, many of the issues raised here – specifically on sustainability – do not just apply to the P & C category, but to other key categories in the TR business sector, too.
The group recently announced that the 2021 fiscal year was a fantastic year, growing 2 vs themarket https://www.loreal-finance.com/eng/news-release/2021-annual-result. Digital channel growth was unprecedented, which was accompanied with the statement that, in the next 5 years, “50% of group sales will come from e-commerce”.
L’Oréal group promoted the Travel Retail channel across all media, coining the industry words ‘’the 6th Continent”, with global shoppers consisting mainly of the Chinese, Russians & Brazilians.
Yet, with all the 2021 fiscal year report’s flying colours, we failed to see what actually happened in the beloved TR channel – besides the push from Hainan. And, perhaps more importantly, the company’s plans for its future.
We know that for the Chinese, for instance, the first post pandemic movements are still largely limited to the mainland, especially the newly-created “Belle” Hainan. But, one wonders, with groups like L’Oréal who are also true omni-channel operations, how are things going in the company’s own heartland? Paris, for example?
What learnings are there for TR from the domestic market?
Take the big luxury department stores like Galeries Lafayette, pictured above, where +40% of sales are made to foreign visitors. The question is: how are the L’Oréal brands actually performing, specifically the power house brands like Lancôme, Armani and YSL? What are the key findings and how do these operations’ learnings translate across to the Travel Retail channel?
As Bob Dylan wrote: ‘’if you are not busy growing, that means you are busy dying’’. Now this truly applies to any company, of course, where market share growth is the key to its future. As the leader in the global perfume and cosmetics category, we note that digital channels have taken a big focus for L’Oréal. Yet we still wonder as to what are the coming strategic growth channels. And where exactly does L’Oréal put Travel Retail into the mix? Is B2C direct via social media now more important, for example?
One can only speculate how full a role digital will play in its growth. As the category is sensorial-testing and purchase-driven, will digital growth be based on top sellers via competitive prices – simply cannibalizing existing market channels and driving the global prices down – or will it produce any incremental organic growth?
Many groups across a number of industries fuel their market share growth via acquisitions. Recently L’Oréal has purchased Youth to the People, a US-based skin care company, among many others over the past 10 years. So how will L’Oréal plan these brands’ DNA and future international market penetration? Will Travel Retail still be pivotal to introduce these brands to the global community of consumers?
Looking at the fiscal year report, La Vie may be Belle over at Chez L’Oréal. But, in truth, for which brands, channels and subsidiaries? Will we see divestments in the near future? Where does their TR channel fit in its future strategy? Will their product formulas for their cosmetic brands, for example, necessarily have to change because of their own sustainability practices?
Just how green is the TR valley?
This is an important issue. L’Oréal’s commitment to sustainability has been well covered and their moral compass is fundamentally good. But there are questions here that need to be addressed – for the entire P & C category. For instance, organic ingredients vs chemical. Anything truly organic will not last for more than a week in an opened jar, making the product life cycle unsustainable. Equally, there are points and counterpoints over packaging attempts to go to paper. Is this really sustainable, given one of the most threatening environmental issues is deforestation? And what about biodegradable plastics? Just how long do they take to biodegrade and what impact does this have on the shelf life of products?
Marketing within such a changing environment is never easy. It is always going to be a balancing act. There is much out there that are faux sustainability claims, or brands simply paying lip service to sustainability to look as if they are doing something meaningful to address consumer perceptions. Even consumer perceptions can be mixed – many do not seem to care. But the overwhelming groundswell of media coverage and major brands’ messaging, coupled with some retailers taking positive action that reflects their own commitment to sustainability issues, all make for a challenging P & C sector to change many of its component parts and timeline.
As the world’s largest cosmetics company and market maker, it would be great to hear from L’Oréal management on this and the other issues raised in this blog.