L’Oréal CEO Jean-Paul Agon: “We always want to be the best”

“We at L’Oréal are very optimistic regarding the future of travel retail. When we try to envisage the world in ten, 20, 30 years’ time, it is a world where travel is at the heart of everything“

Jean-Paul Agon CEO L’Oréal

INTERNATIONAL. Jean-Paul Agon is the quintessential L’Oréal man. He joined the group in 1978, rising steadily through the ranks via key roles across all divisions – and all key geographic zones – before being appointed Chief Executive Officer in 2006.

His more than three decades’ experience with the world’s largest fragrances and cosmetics company made him ideally placed to deliver an insightful address at last month’s TFWA World Exhibition Conference, on how the beauty and travel retail industries should reinvent themselves for future success.

After his presentation, he granted an exclusive interview to The Moodie Report.com, to discuss his viewpoints and values in greater detail.

“We at L’Oréal are very optimistic regarding the future of travel retail,” declares Agon, opening the interview with a welcome ringing endorsement of the industry’s potential. “When we try to envisage the world in ten, 20, 30 years’ time, it is a world where travel is at the heart of everything”¦therefore all retail organised around travel will certainly create development.”

Demographic and economic shifts, urbanisation and migration will be among the key drivers of this travel boom. Agon’s vision of the future depicts the planet as a global village, with mobility and travel at the very heart of society. Accordingly, tomorrow’s airport is no longer just a place of transit, but a space for living, entertainment, consumption, meetings and services.

It’s a world where L’Oréal sees itself playing a significant role. “We are very committed to travel retail,” Agon underlines. “We were among the first to support the channel 20-30 years ago, and have always been a pioneer within it. That said, we need to continue to work with the retailers in order to improve things. In particular there is a huge opportunity to increase the penetration.”

According to Agon, only 40% of travellers enter airport stores, and only one-fifth – a mere 8% – buy beauty products. “Which means that 92%, more than nine out of 10 travellers, don’t buy any fragrance or cosmetics products,” notes Agon, “so in theory the potential is huge.

“In addition, when you ask consumers who did buy whether or not their purchase was planned, 70% say yes. So there is also very little impulse purchasing, which means that there is much, much more we can do to attract, seduce and persuade consumers to buy things they hadn’t planned to purchase before.”

Low penetration levels have been an issue for the industry for many years. Looking ahead, how does Agon intend to help unlock this potential?

Helping travellers discover new products: the high-profile campaign for YSL’s Parisienne fragrance at Paris CDG

“I think it’s very simple – we need to concentrate more on the non-shoppers,” he replies. “Right now, I would say that both retailers and suppliers are focusing more on the people who already shop, by dedicating all their efforts towards creating nice stores and presenting the brands well. That’s fine, of course. But maybe it would be interesting to bring a little twist, and to dig harder to understand why people do not shop – and then address those reasons.”

Agon adds: “Perhaps we need special animations and promotions, special occasions to attract more people who today do not buy anything in travel retail. It’s an interesting element of the overall strategy and we are discussing it this week with our retail partners [at Cannes]. We all believe there is a goldmine of opportunity in this new approach.”

An approach which ultimately needs to make shopping in travel retail much more of an experience, as opposed to a simple transaction. “We definitely need to introduce an element of discovery, and deliver opportunities to encounter new products,” Agon agrees. “I get the impression that people plan to buy things when they travel because they think the price will be interesting, or they know that they need to replenish certain items. But there is also this huge opportunity to surprise them, to allow them to discover new things, to intrigue them and ultimately to incite them to buy.”

L’Oréal is delivering incremental business with its masstige portfolio, which complements the group’s core luxury brands

Which brings us neatly onto the subject of the product offer itself. A more tailored offer based on a better understanding of travellers’ needs will be key to unlocking the full potential of the travel retail channel. With L’Oréal – and others – determined to capitalise on certain demographic shifts, might we soon see a move away from the prestige products that have historically dominated the channel’s beauty offer?

“It has started already,” confirms Agon. “For example, we are here at Cannes not just with our luxury brands, but with our masstige portfolio, which includes L’Oréal Paris and The Body Shop. That diversification is underway; and what’s interesting is that it represents incremental business.”

He continues: “We have seen that if we introduce L’Oréal Paris into a travel retail environment, there is no cannibalisation of the existing prestige products, because we are addressing another passenger segment which would otherwise have bought nothing.

“Globalisation is a thing of the past, especially in beauty. It is clear that people on different continents have their own specific needs, habits, dreams and desires – so one product, or even one formula, does not fit all. Rather, you need a global brand, which is then adapted to the key markets on the key continents in order to offer consumers the right and relevant products, which is what universalisation is all about“

Jean-Paul Agon CEO L’Oréal

“As low-cost travel, and indeed low-cost tourism, continues to develop, we see a big opportunity to really increase our sales per door with lower-priced products from L’Oréal Paris, The Body Shop and Roger & Gallet [formerly part of YSL Beauté and now under the auspices of L’Oréal’s Active Cosmetics Division]. We are looking at other sectors too, such as hair care.”

Domestically, the hair care market is massive – and L’Oréal again is a key player worldwide – yet as a sector it is virtually non-existent in the travel retail channel.

“Hair care has potential, as do professional/dermatological skin care lines,” confirms Agon. “There are clearly many new opportunities to explore. Happily, L’Oréal has a very broad spectrum of brands covering all types of products, prices, segments and psychographics, and we are keen to harness all those advantages to help travel retailers broaden their offer.

“These are all new opportunities that will bring additional strength to the category, knowing that the core business of travel retail remains luxury and will continue to grow steadily.”

FIRST AND BEST
L’Oréal’s broad spectrum of brands is matched by Agon’s vast and varied global experience. What does he consider to be the most important lessons he’s learned during his illustrious career to date?

“The most important thing is that the beauty business is what I call a supply-driven, rather than a demand-driven, market,” he replies. “Which means there is no such thing as a mature market, because you can always imagine new products and new ideas.

“Unlike certain other categories that are sold in travel retail, such as alcohol or tobacco, beauty is a never-ending quest. And that’s why its consumers, both women and men, are always eager to try new products, which go further and deliver more.”

Agon continues: “It’s really up to us to be capable of bringing them these novelties, which is why innovation is so critical in this industry – and why we invest so much in R&D. We firmly believe that it is through research and development that we are going to create higher performance products and new services which will appeal to consumers and develop new markets.”

It is clearly crucial for L’Oréal to be seen as an innovator, a corporate creator with breakthrough ideas. But is being the best sometimes more important than being the first?

“It’s a good question,” muses Agon. “We always want to be the best. Because that’s very important; it’s very interesting to see that consumers all around the world know very well how to differentiate quality. It’s an instinct they have.

“It was a strategic choice of L’Oréal from day one to bring to every category we touch what we believe to be the best quality technology, for the best results, performance and safety,” he explains. “Which means that sometimes we are not the first to market, because we take our time to ensure the product we offer will be the best in all respects.”

Tailoring brands and products to suit different target audiences also takes time and effort. “Absolutely, which brings us nicely to my concept of universalisation,” notes Agon. “Globalisation is a thing of the past, especially in beauty. It is clear that people on different continents have their own specific needs, habits, dreams and desires – so one product, or even one formula, does not fit all.

“Rather, you need a global brand, which is then adapted to the key markets on the key continents in order to offer consumers the right and relevant products, which is what universalisation is all about.”

Another hot topic is sustainability which, along with Corporate Social Responsibility, is fast becoming a core industry value. But how much does a company’s involvement in such issues really matter to the end consumer?

“Firstly, I want to make it clear that we don’t participate in these affairs because it matters to consumers; we participate because it matters to us,” Agon responds. “I think it’s very important that the world’s number one beauty company should try to make the world a more beautiful place. Of course there are limits – we can’t change everything – but we need to make a contribution at least. We certainly want L’Oréal to be a great citizen of the world, in all respects.”

He continues: “More specifically, the leader in beauty must be exemplary in terms of the environment. We have already made a commitment to halve within the next ten years our CO2 emissions, consumption of water and production of waste. All our factories are certified at the highest environmental level. It’s fair to say we want to lead the industry in this direction.”

L’Oréal’s high investment in R&D has allowed it to deliver breakthrough beauty launches such as Génifique

Ethics, along with diversity, is another priority. “We want to be absolutely exemplary there too,” Agon underlines. “I was very proud to receive last year the Ethics Resource Center’s 2008 Pace Leadership in Ethics Award.” [The award recognised L’Oréal’s achievements in the area of business ethics, diversity, financial transparency and sustainable development. L’Oréal is ranked among the most ethical and sustainable companies in its sector by a variety of international rating agencies.]

Agon also highlights the work of the L’Oréal Corporate Foundation, which was created in 2007. The second largest Foundation in France, with a budget of €40 million, it endeavours to establish genuine partnerships going beyond mere financial support. Its objective is to “give strength, coherence and continuity to the corporate citizenship of the group”, and actively involves employees in its projects. The Foundation’s three key missions focus on facilitating scientific research, promoting solidarity and respect for others, and the transmission of knowledge.

CONNECTING WITH CONSUMERS
Forging strong connections with consumers, both philanthropically and commercially, has never been more important. In terms of customer communication, social media have transformed the marketing landscape; L’Oréal is working hard to harness these new opportunities.

“The big revolution is digital,” Agon acknowledges. “And I think it’s a great revolution, because it has changed completely the way we communicate about our brands, which I’m very happy about.

“Beauty is all about imagery, emotions, aspiration and education, and for many years we were really constrained by the communication tools available: billboards, print and TV which, if anything, reduced the content of the message.”

He continues: “With digital, everything has changed. Thanks to the internet you can really dive into the world of the brand, and experience all its aspects. It has changed completely the nature of the contact between us and our customers.

“Also, social networking sites such as Facebook are an important phenomenon in society today. We need to work together with them to enhance the presence of our brands, and to forge even better connections with consumers.”

Agon is dismissive of concerns that today’s Facebook generation is difficult to market to, given its short attention span and inherent tendency to “zap”.

“We are in transition,” he explains. “We have come from a world where the choices were limited, to one where the number of options is infinite. That transition is bound to be a little difficult, but I think in time people will become used to this new world and be more able to use the right tools of communication for the right purpose. So overall I think the changes are very positive.”

The Kiehl’s brand is helping L’Oréal to conquer new markets, particularly in Asia and the Middle East

Transition and evolution are recurring themes throughout the interview, and surface again when Agon discusses his key objectives. “I have one very clear aim, which is to facilitate the transition of the company in line with the next phase of the world’s evolution,” he declares. “I believe that we are in a very important period of transformation. The years 2008-2010 are important – not because of the economic crisis – but because they mark the turning point of the world.”

Agon continues: “We are moving from a world where western economies dominate, to a world where the economies of the emerging countries will dominate. In 2009, for the first time, more than 50% of industrial output worldwide was generated in the so-called emerging markets. In the next 10-20 years, new countries with huge demographics like China, India, Indonesia, Brazil and Russia will have a very strong presence.

“Two years ago, the amount of business we did in these new markets surpassed that of North America; and I think this year that business will surpass western Europe. By 2011 these “emerging” markets will probably constitute L’Oréal’s biggest zone”¦And I consider it my number one goal to prepare the company to keep its global leadership in this new era.”

So far, the group is right on track. While 2009 was a difficult year for many, L’Oréal weathered the economic storm well, and posted strong sales in first-half 2010. To what does Agon attribute this resilience?

“In 2009 we changed course on some strategic directions,” he replies. “Our “accessible innovation” strategy [designed to help broaden the consumer base] was an important move, because it allowed us to keep in mind the idea that innovation is right, as long as it benefits many.

“The second strategic decision involved accelerating the internationalisation of the business. And the third brave decision, which was supported by the Board, was to increase, rather than decrease, our investment in R&D, and other business drivers such as media and promotions. In short, in the middle of the crisis we took some bold directions, and I think they were the right ones. Our first-half results are proof that those decisions have paid off.”

The interview draws to a close and we are given the signal for one last question. What are the key things Agon wants L’Oréal to be known for?

“That’s a nice question to finish with,” he replies, “and there are three key things. First, as I have stated already, I want L’Oreal to be known for the top quality of its brands and products. That’s very important; our first stakeholders are our consumers. At the end of the day, we sell five and a half billion products to almost one billion consumers all over the world, so our number one responsibility is to fulfil their expectations. Our mission and our passion must be to give these global consumers the best beauty products in terms of quality, performance and safety.”

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Agon continues: “The second thing concerns the L’Oréal workforce. The employees of a company are a very important equity, and when I became CEO I said I wanted L’Oréal to be a great place to work – not only because I want people to be happy and have great professional lives – but because I’m pretty sure that to be successful, you need to have the best talent. And in order to attract, and keep, the best talent, you have to be able to deliver a great working environment.

“The third element, as we have just discussed, involves L’Oréal behaving like a great citizen of this world, and being a leader in the next world, which will be dominated by a very different set of consumers.”

Agon concludes with a smile: “I think if I can help the company manage all of this, then I will have done a pretty good job.”