DermStore Coupon

L'Oreal SA has lost its luster. Women are curtailing purchases of its expensive perfumes and anti-wrinkle creams. Its most glamorous brands are losing market share to utilitarian products such as Nivea.

First-half net profit at the world's largest cosmetics company fell 14% after decades of at least 10% annual increases.

Chief Executive Jean-Paul Agon is scrambling to fix L'Oreal. Over the past year, the life-long L'Oreal manager disclosed plans to close factories in Monaco, Spain and Wales. For the first time in more than a generation, the maker of Lancome and Garnier is laying off hundreds of U.S. employees and has ordered a hiring freeze.

In the first half, sales of L'Oreal's luxury products, including Lancome and Kiehl's, plunged 13%. While competitors such as Estee Lauder Cos. and Procter & Gamble Co. have also suffered sales declines, L'Oreal is taking a bigger hit because it has scrimped on promoting its brands, say experts.

In his office on the 10th floor of L'Oreal's headquarters on the outskirts of Paris, decorated with jugs of perfume and a Jean Cocteau print, Mr. Agon discussed its unprecedented cost-cutting, new, entry-level skincare lines, and why new low-priced products can succeed.

WSJ: What steps have you taken to restart sales growth?

Mr. Agon: At the end of last year, we discussed what the company's strategy should be to get through the crisis and to get out of the crisis stronger than we came in. We devised an anti-crisis plan between September and the end of [last] year. We're implementing it and are already seeing results.

The idea is to broaden consumer targets, in terms of price, categories and geography. We're strengthening our media and promotion. It's a brave strategy because when you face a crisis, most companies say I'm going to reduce my media budget. We decided to do just the opposite.

The cost-cutting measures are definitely working and that's very important because it allows us to invest. We closed three factories, which for L'Oreal is not something we do every year. We launched a reorganization plan in the US and at The Body Shop. We froze hires in Europe and North America...we cut our travel expenses by half.

WSJ: What changes are you currently putting in place?

Mr. Agon: Affordable innovation. The last thing to do would be to give up innovation because cosmetics is really about permanently inventing new products, new technologies, new benefits, new results.

For a while we've been very obsessed with premium-ization, more performance and higher prices. The strategy . . . resulted in a narrowing of the target.

We are coming back to the fundamentals we had 15, 20 years ago, when our brands were addressing a larger customer base. We want to create affordable ranges that allow consumers to buy L'Oreal or Garnier or Vichy at a reasonable price.

WSJ: Can you give us some examples?

Mr. Agon: We are creating a special line, Basics from Garnier, that's going to be sold below 5 euros ($7.13). There are probably tens of millions of consumers around the world who would like to buy a Garnier product, but the cheapest Garnier product today is 10 euros. By creating a special line at 5 euros, you broaden your audience by probably 30-35%. Even in luxury we are creating some special sizes for fragrances or for top premium skincare like Lancome's Genefique at 30 milliliters that is sold at a reasonable price, like 40 euros.

WSJ: Won't customers stop buying your more expensive product in favor of the new cheaper lines?

Mr. Agon: The product performance of the accessible line is not the same as the top-notch, top-price line. I think that we should gain much more than we risk losing in cannibalization.

WSJ: Luxury fashion companies are struggling to maintain their allure as they become more common. How do you protect your brands?

Mr. Agon: With a very simple idea: you keep advertising on the top products. You don't advertise the [accessible] products. This has another advantage: the [accessible products] are very profitable. Because you don't spend as much in advertising, the profitability is very good.

WSJ: With the benefit of hindsight, what would you have done differently during the crisis?

Mr. Agon: I should have seen the crisis coming earlier. I read again what I said [at the first-half results] at the end of August 2008, and it was maybe too optimistic. But it was three weeks before Lehman Brothers.

This year I'm very cautious. I learned my lesson.

WSJ: L'Oreal already has a wide presence in emerging markets. What is left for growth?

Mr. Agon: We are really pushing our acceleration of business in new markets. Even this year, if Western Europe, North America or Japan are tough, the rest of the world is doing very well. China is growing, Brazil is growing, India is growing. And we are also opening up new markets where we were not before. Since the beginning of the year we have opened three new subsidiaries -- in Egypt, Pakistan and Kazakhstan.

The internationalization is really doing well. For example, [first-half sales growth in] Brazil is 21%, India is 16%, South Africa is 19%, China is 14%. In a crisis year, when a big country like India or China or Brazil is growing double-digit like this, it's very encouraging.