L'Oreal in the Competitive Industry of Cosmetics

SWOT Analysis: L’Oréal Group
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I. Executive Summary
The report presents a SWOT analysis for L’Oréal Group. The analysis of industry trends and the company’s business model indicates that L’Oréal is successful to achieve high market share in the competitive industry of cosmetics.
Group’s revenue increased by 7.1% to €26.9 billion and earnings per share (EPS) has also improved on a continuous basis. The EPS increased from €6.46 in 2016 to €7.08 in 2018. Return of equity (ROE) of L’Oréal is 14% and it is high as compared to the industry average of 12%. Group is less dependent on debt to generate returns and it a good indication for the shareholders.
The SWOT analysis presented in the report has also helped to identify unique facts and figures. Company’s strengths are diversified product portfolio, high-quality products, a large investment in research and development, and continuous expansion in new markets. The greatest weakness is the high dependency on an increasing number of employees. The company requires technological methods and solutions to decrease dependency on human resources.
The opportunity exists for L’Oréal in new emerging markets through the development of new products as per the expectations of local customers. The biggest threat to the company is related to continuous change in trends of the cosmetic industry and it can be overcome through the development and introduction of new innovative products according to trends generated. Hence, SWOT analysis indicates that L’Oréal is successful to maintain competitive advantage through maximum utilization of its strengths.
Table of Content
TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc26887190 \h 4II. Industry Trends PAGEREF _Toc26887191 \h 4III. L’Oreal strategy and Business Model PAGEREF _Toc26887192 \h 5A. L’Oréal Main Mission Statement PAGEREF _Toc26887193 \h 5B. Prioritized Investment Vs Targeted Investment PAGEREF _Toc26887194 \h 6C. Strategic Outcomes PAGEREF _Toc26887195 \h 6D. Financial and Non-Financial Indicators PAGEREF _Toc26887196 \h 6III.1 Competitors PAGEREF _Toc26887197 \h 7III.2 Board Information PAGEREF _Toc26887198 \h 7III.3 Management Role PAGEREF _Toc26887199 \h 7IV. SWOT Analysis PAGEREF _Toc26887200 \h 8A. Strengths PAGEREF _Toc26887201 \h 8B. Weaknesses PAGEREF _Toc26887202 \h 9C. Opportunities PAGEREF _Toc26887203 \h 10D. Threats PAGEREF _Toc26887204 \h 11V. SWOT Financial Efficiencies PAGEREF _Toc26887205 \h 12A. Financial Performance PAGEREF _Toc26887206 \h 12B. Operating Performance PAGEREF _Toc26887207 \h 12C. Return on Equity (ROE) PAGEREF _Toc26887208 \h 13D. Liquidity PAGEREF _Toc26887209 \h 13VI. Cultural and Human Capital PAGEREF _Toc26887210 \h 14A. Future Market Goals PAGEREF _Toc26887211 \h 14B. Culture Awareness PAGEREF _Toc26887212 \h 14C. Human Resource Practice PAGEREF _Toc26887213 \h 14V1. Conclusion PAGEREF _Toc26887214 \h 15References PAGEREF _Toc26887215 \h 16Appendix: 2X2 SWOT Matrix PAGEREF _Toc26887216 \h 18
SWOT Analysis L’Oreal Group
Introduction
L’Oreal is a market leader in the beauty and cosmetics world. The extensive portfolio of the company includes hair, skin and makeup products. L’Oreal tends to be the only brand that provides many inexpensive and luxurious beauty options. The organization is available in the whole world through different agents. The company has over 500 brands and over 2,000 items in the beauty sector. The products include hair colors, styling aids, skin and body care, fragrances and cleansers. In the 1980s, the company was able to achieve great distribution globally which was not even in the sight of the managers (Shabanova, Ismagilova, Salimov & Akhmadeev, 2015). The financial performance indicates that the L’Oréal group is successful to utilize its strength to achieve sustainable competitive advantage.
II. Industry Trends
For the previous two eras, the cosmetics industry has undergone tremendous changes. The companies have changed the strategies to remain competitive in the market. There are changes in the packaging, marketing and even employment in the industry. Traditionally, these trends were driven by celebrities through choices or professional endorsements. The days of celebrities endorsing products are long gone, currently, most people believe that social media is the major cause of these trends. The social media keeps a constant flow of information not only from celebrities but also opinions from friends, their friends and the entire world.
However, the cosmetic industry is ready to accept new changes and trend. The companies have invested to differentiate themselves from the competitors through market niche, prices, packaging, and even through production processes. Companies have competed to produce new innovative products that are natural to attract and maintain customer loyalty. From financial forecast perspective, there are new mergers and acquisitions in the whole industry. Several companies have developed new ventures and partnerships to compete in the competitive cosmetic industry. The slow growth rate in the Latin American market due to the economic recession is another trend and it created a negative impact on the cosmetic industry. Therefore, companies should expect that consumer spending on cosmetic products will reduce in future. The desire for the aging population to remain to look younger is another trend that is affecting all companies. The industries are driven into the production of products that will make the skin and hair remain young to keep up with this shift (Pitman, 2015).
III. L’Oreal Strategy and Business Model
In the cosmetics industry, L’Oreal is considered a market leader due to its professional expertise. The group is divided into different divisions which include consumer products, Active Cosmetics and professional products. To meet the consumers need related to beauty products, the group has developed a diversified product portfolio. Moreover, group brands have invested to create new products to meet local consumers demand. L’Oreal depends on a single strategy i.e. Universalization. The main aim of this strategy is to offer beauty products to all the consumers around the globe according to the needs and expectations. It actually provides products to the consumers according to the requirements and cultural expectations. L’Oreal’s goal is to increase the customer base by one billion in the next few years (L’Oreal, 2018).
A. L’Oréal Main Mission Statement
L‘Oreal’s mission is to satisfy all beauty related needs of men and women by providing the best quality products. Company support local communities through their innovative strength. L’Oreal made universalization of beauty its mission for the upcoming years (Mission, 2018).
B. Prioritized Investment Vs Targeted Investment
L’Oreal decided to invest in Fireside Ventures where they already invested back in 2017. It is basically an investment fund focused on consumer’s brand in India. Through this strategy, L’Oreal would help startups in India and it would look on new consumer needs as well. L’Oreal has already invested in the venture capital ecosystem, so it is an addition to that current policy (L’Oreal finance, 2019).
C. Strategic Outcomes
L’Oreal group is successful to accelerate growth in the last 10 years and it further contributed to achieving the highest operating margin of 18.3% (L'Oreal, 2018). Group is successful to achieve high growth in strategic areas and market position is improved a lot in the Asia Pacific region to achieve the highest growth rate followed by the North America region. Competitive advantage is achieved through the development of new products in the luxury and dermo-cosmetics sectors (L'Oreal, 2018). Financial resources are invested to strengthen leadership in two networks, travel retail and e-commerce. L’Oreal group has shown exceptional performance in the skincare sector and innovation is achieved through improvement in research and development.
D. Financial and Non-Financial Indicators
Group’s revenue increased by 7.1% to €26.9 billion in 2018. Consumer products constitute 44.7% of total revenues and L’Oreal Luxe constitutes 34.8%, professional products constitute 12.1% and active cosmetics 8.4% of total revenues (L'Oreal, 2018a). The operating profit improved by 5.3% from €4676 million in 2017 to €4922 million in 2018. The operating margin was 17.6% in 2016, 18% in 2017 and 18.3% in 2018 (L'Oreal, 2018a). There is also an increase in earnings per share (EPS) of the company on a continuous basis, such as; EPS increased from €5.34 in 2014 to €6.46 in 2016 and further to €7.08 in 2018 (L'Oreal, 2018a). Consumers from Millennial generation have increased for the L’Oreal group and it indicates that new innovative products are successful to achieve desirable results (Ellyatt, 2019).
III.1 Competitors
In 2018, L’Oréal was ranked 1st in the cosmetic group worldwide. L’Oréal had $29.8 billion in revenues worldwide in 2018, more than other the competitors like Unilever and Proctor & Gamble. The company has a significant global presence, especially in its three main geographic zones and Western Europe & North America region (total 56.8%) has the highest presence (Key Figures, 2018).
III.2 Board Information
The board of directors of the group shows a unique structure of shareholding and also provide assurances on interests of all its shareholders. In the year 2018, the board represents individuals from 7 nationalities and women constitutes 46% of total members (L'Oreal, 2018b). Important directors of L’Oréal board are Chairman and Chief Executive Officer, Jean-Paul Agon and Vice Chairman of Board, Paul Bulcke (L'Oreal, 2018b).
III.3 Management Role
The members of the executive committee are responsible for the activities associated with the divisions and functional departments in different geographical zones (L'Oreal, 2018c). The executive committee of management has the responsibility to develop and implement strategic procedures and also control the activities of the group all over the globe. Management is responsible to develop future leaders in the organization through the implementation of different projects.
IV. SWOT Analysis
The SWOT analysis tool involves the evaluation of internal and external aspects that affect the company. Through the analysis, the strength and weaknesses tend to correspond to the threats and opportunities in the business environment in order to develop effective strategies. Following the analysis, an organization can be able to deliver a good strategy by taking advantage of the opportunities and applying the strengths that help in neutralizing the threats by reducing the effects of the weaknesses.
A. Strengths
a. Variety of products
L’Oreal has the biggest market share in the cosmetic industry. Many organizations have tried to branch to the company with similar products but L’Oreal tends to be fully taken over in that space since it was established. The L’Oreal product portfolio is astounding and thus it dominates the industry since they have been able to acclaim high profile.
b. Quality and safety
Apart from offering an inexpensive product the company has also shifted to the luxury brand that offers good quality products to individuals that shop on a richer budget. The cosmetic industry is always required to comply with safety regulations and law (Pluchevskaya, 2017). The company thus monitors any impacts that can arise when the p...