L'Oreal's clever foundations

WITH two "miracle" products keeping sales pumping along, L'Oreal is looking for further growth by taking better care of its luxury customers.

Armani

IN the fragrance world Giorgio Armani's Acqua di Gio Pour Homme is the men's equivalent of Chanel's iconic No 5 for women.

The two fragrances smell nothing like each other; the similarity is in their reputation. Acqua di Gio, which was launched in 1996 and is made under licence by L'Oreal, has been the top-selling men's fragrance worldwide for the past 10 years, according to the research company NPD Group. In Australia it has been No 1 for the past nine years. Chanel's No 5, created in 1921, has been the No 1 selling perfume for decades. And, as with No 5, Acqua di Gio's popularity doesn't look like fading anytime soon. Last year, according to L'Oreal, the fragrance experienced a 30 per cent year-on-year growth in sales, thanks largely to an extension of the line, Acqua di Gio Essenza. It's the kind of single, high-margin product that can drive a business for years and one that any beauty industry executive would kill to have in their arsenal and L'Oreal has at least two of them.

Johan Berg has been the managing director of L'Oreal Australia for the past three years and says all the research, development and market testing in the world can't predict whether a product such as Acqua di Gio will be a hit; there's quite a bit of luck that needs to be added to the equation. "Not everything can be scientifically tested to a situation where you know it's going to work," says Berg, who was the managing director of L'Oreal Finland and L'Oreal Norway before coming to Australia. "You can put it through market testing and focus groups and the feedback can come back positive. And then you launch it; it's a huge success for six months and then it just doesn't work any more. At the end of the day, the consumer is the only real test."

L'Oreal's other miracle product - in terms of sales, - is Yves Saint Laurent's Touche Eclat concealer pen. It's a foundation that comes in a pen-like packaging, is designed for masking dark circles under the eyes and is popular with men and women. "If you look at YSL, you have one product like Touche Eclat, which has already been on the market for approximately 20 years and it still grows," says Berg. According to information supplied by L'Oreal, the company sells one YSL Touche Eclat somewhere in the world every 10 seconds.

"These iconic products, it's difficult to create them - they're the result of years of R&D and a little bit of luck," Berg says. "If you could produce them with just research and development and without luck, then we would have many more of them. You really need both to hit gold. And YSL without Touche Eclat and Giorgio Armani without Acqua di Gio wouldn't be the businesses they are today. It's a little bit like a spinnaker in a sailing boat. It's driving it, but you need the rest also to keep it up." As well as a hit fragrance, Giorgio Armani has another spinnaker product - the brand's Luminous Silk foundation, which now alone accounts for 25 per cent of the brand's makeup business in Australia, according to Berg.

The Paris-based L'Oreal Group was founded in 1909 and is the world's largest beauty and cosmetics company. It owns brands such as Garnier, L'Oreal Paris, Maybelline New York and The Body Shop. The luxury division of L'Oreal, which as well as Giorgio Armani and YSL includes Lancome, Biotherm, Kiehl's, Ralph Lauren and Viktor & Rolf, is growing at a faster rate than the rest of the market. Last year the luxury division achieved like-for-like sales growth of 8.3 per cent, compared with 5 per cent for the consumer products division of the company (Garnier, Maybelline and so on). A comparison of the full sales figures of the two divisions, allowing for store expansions - 16 per cent for the luxury division and 8.9 per cent for consumer products - makes it even clearer that the main driver for growth is coming from the company's premium product offering.

To make sure that growth continues, L'Oreal is expanding the footprint of one of its most successful luxury beauty brands, Giorgio Armani. The company recently opened a 60sqm counter in Myer's Sydney CBD store, taking the space formerly occupied by three brand counters. It's part of a new strategy for the luxury division that Berg describes as "fewer, bigger, better". It means rationalising the number of retailers that sell the Giorgio Armani Cosmetics brand, having a bigger offering wherever they do sell it and improving the in-store experience for the consumer. "Wherever we locate our stores, we want to ensure we offer our customers the full luxury experience," Berg told WISH after the opening of the Giorgio Armani counter. "We are not keen on going into places where we can't offer the full experience. When you go into the new Myer store, your first point of contact is at the fragrance bar, where you can experience all the fragrances and you have a trained person who can tell you the story behind each one of them. And then after that you can go in and talk to the makeup artists, so it's really a flow-through.

"Compare that to just going up to a counter and asking for a product- it's completely different. To create each store universe, we collaborate with both our retailers and in this case with Giorgio Armani himself, whose creative direction plays an influential role in all components of the brand's counter designs. We feel that there is still a huge growth potential for Giorgio Armani and so moving into Myer means we can broaden the footprint for the brand in Australia."

The strategy is also about countering the effects of the growth in online retail on the beauty industry. Cosmetics and fragrance are, in many ways, ideal products for online retailing because of the ease with which they can be shipped and because there are no sizing issues to deal with. As a result the beauty industry has been hit hard as consumers shop online, often hunting for bargains or shopping through overseas-based online retailers, some of which are selling grey market and in some cases counterfeit goods.

"Counterfeit goods are something we will be cracking down on in order to protect our consumers and online shoppers need to be careful where they purchase from online," says Berg. "Building a luxury brand requires an understanding of the full luxury experience, which is far more than the product itself. And the new, more challenging market with all the alternatives, including online shopping, makes this even more relevant. In some cases it might be more convenient to shop online and there are many ways that the consumer can get their hands on the product these days, so you have to seduce the consumer when they come in store. If you ask consumers to leave their homes and get on a bus or drive and find a parking spot just to go into a store and buy your products, then you really have to make them feel that it's worth the effort. They can get it so much easier in some ways, so you need to offer them something unique; we call it counter-tainment. The customer needs to feel incredibly special in that moment in store and not pounced upon."

However, Berg stresses that it is not an either/or situation for beauty companies and that they have to be players in online as well as traditional retailing. (L'Oreal Australia operates its own Kiehl's online store and will launch one for Lancome later this year.) "The two drive each other," says Berg. "If you're not increasing the experience in stores, then more and more people are going to buy online. If you are increasing the online experience first of all with a reliable supply, but also by pampering the customer with nice wrapping and gifts, then it's going to force the retailers to do even more to get people into the stores. Online forces all of the retailers and suppliers to take better care of the consumer and make sure that they are getting the experience that they really want to have. It's quite easy in markets such as Australia where you have very few players, and that's whether you are talking about grocery stores or department stores, to just do what you've done before and not invest or try new things."

The American brand Kiehl's is a case in point. It has been one of the main reasons for L'Oreal's growth in the Australian market recently. Since launching its own e-commerce Kiehl's store in Australia last year, the brand, according to Berg, has experienced 40 per cent growth. "Kiehl's is expected to grow by 50 per cent in 2013 and is becoming a big player in the Australian market. It's a unique [product] that Australians appreciate," he says.

Some beauty retailers have the store experience down to an art form and, fortunately for Australian retailers, they don't have a presence here. Yet. In the course of speaking to Berg about the beauty business he questioned why retailers such as the LVMH-owned Sephora and Marionnaud, which is owned by the Hong Kong-based A.S. Watson, had not established a presence in Australia.

"I think it's inevitable that one day we will get one of the big beauty retailers arriving here. At the moment there is just Myer, David Jones and Mecca [Cosmetica], but Australia is not a small country and there is a lot of growth potential, especially in cosmetics. Consumers will definitely be excited if a retailer like Sephora opens here and offers them an even better shopping experience. And then it will challenge the brand owners and the existing retailers to become even better."