How Is the Beauty Market Evolving Worldwide?
PARIS — The beauty market showed its mettle once again in the first half of 2022, despite a highly difficult socio-economic and geo-political context.
Nicolas Hieronimus, chief executive officer of L’Oréal, lauded the beauty market’s resilience during a conference call with financial analysts and journalists Friday morning, a day after the company released its second-quarter and half-yearly results for 2022.
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L’Oréal estimates that the beauty market’s sales worldwide increased by more than 6 percent in the six months ended June 30, versus the same prior-year period.
“The pace of the market recovery remains, however, contrasted,” said Hieronimus.
Europe’s beauty market registered estimated growth of 14 percent, and had a favorable first half compared to 2019, before the coronavirus pandemic struck. “The market has fully recovered, at plus 8 percent,” said Hieronimus. “North America is keeping its great pace with the bounce-back of brick-and-mortar.”
Beauty sales’ gain on that continent was approximately 8 percent in the six months.
“China has experienced a complicated first half, due to lockdowns,” he said. “In some cities, such as Shanghai, the market was negative in April and May, but bounced back in June compared to 2019. The growth remains high, at plus 9 percent, in the half.”
Hieronimus called emerging markets “quite dynamic,” with their reopenings and the acceleration of e-commerce.
According to L’Oréal estimates, the beauty market in first-half 2022 grew by about 11 percent in the South Asia-Pacific, Middle East, North Africa and Sub-Saharan Africa [or SAPMENA-SSA] zone, while sales declined by approximately 2 percent in North Asia.
“Each category is growing,” continued Hieronimus. “But let me highlight the strong recovery of makeup at plus 8 percent, with lipstick at double-digit [growth], and the continuous acceleration of fragrance, at plus 21 percent.”
Skin care sales grew by approximately 3 percent, while sale for hair care rose about 5 percent.
“Within this context, L’Oréal is showing another [half] of spectacular over-performance, growing more than twice the pace of the market,” he continued, referring to company sales that rose 13.5 percent on a like-for-like basis and 20.9 percent in reported terms, to 18.37 billion euros. “Compared to 2019, L’Oréal is growing at a consistent pace of 20 percent.”
Hieronimus said: “L’Oréal is flying at cruising speed over a very uneven landscape, with heavily varying comparatives,” explaining that’s why using 2019 as a benchmark to monitor pace is important.
In first-half 2022, L’Oréal’s e-commerce sales increased 10.6 percent, at a slower rhythm than during the last couple of years of rapid growth.
“Distribution is rebalanced by the acceleration of brick-and-mortar, at plus 14.6 percent,” he explained.
In the same time frame, four geographic regions — Europe, China, North America and emerging markets — contributed almost equally to L’Oréal’s gains.
“This is the ultimate proof of the success of our rebalancing or ‘de-risking’ strategy,” said Hieronimus. “Europe is number-one in growth contribution at plus 14.3 percent [like-for-like], and plus 8 percent versus 2019.”
He noted share increases in all of the company’s divisions in Europe outside of Russia, where L’Oréal suspended almost all of its business.
Despite lingering supply chain disruptions, North America delivered a strong first half, with an 11.6 percent sales increase. “L’Oréal U.S.A. continues to pace ahead of the market,” said Hieronimus.
L’Oréal sales in emerging countries rose by about 24 percent, including 23 percent in SAPMENA-SSA and 22.3 percent in Latin America, driven by the Consumer Products division. In the Gulf countries sales advanced 68.7 percent, 4.5 percent in India, 42.5 percent in Malaysia and 32.2 percent in Mexico.
“Travel retail is showing strong growth [of 30.1 percent] with the major rebound of air traffic at triple digits in Europe, where we benefit from our fragrance strength,” said Hieronimus, referring to a 425 percent flight spike.
Business in the duty-free Chinese island of Hainan accelerated again in June, after a pause in April and May.
Hieronimus noted “the spectacular over-performance” of L’Oréal’s business in North Asia, where there were sales gains of 10.5 percent versus first-half 2021, and 40.5 percent against 2019.
“Korea and Japan have both been dynamic, and L’Oréal is gaining share, particularly in luxury,” he said. “But as China was everyone’s preoccupation, and even a source of worry, I want to underline the capacity of our local teams to overdeliver.
“In continental China, which has been impacted by COVID[-19] restrictions, and notably the Shanghai lockdown leading to a negative market in Q2, at minus 7 [percent], L’Oréal China has delivered net sales at plus 6 percent in [the second quarter]. In sellout, if you take China plus Hainan, we delivered a growth of plus 13 percent in the first half.”
Concurrently, for the first time L’Oréal lassoed more than 30 percent share of the luxury beauty market in China.
“Now looking at the second half, we are both prepared and bullish,” said Hieronimus, of L’Oréal’s business overall. “Prepared, because we are conscious of the high level of uncertainty and volatility of the economic current outlook, of the fears of recession, of the potential impact of inflation on consumption and on the continuation of tensions on the supply chain.
“We have shown during COVID[-19] that in the case of a downturn, we know how to outperform the market and maintain our profitability,” he added. “We remain confident for the second half and, of course, in the future of the beauty industry and L’Oréal’s prospects.”
For one, there’s constant growth. “Over the past decade, the global beauty market has grown by 4.5 percent per year,” said Hieronimus. “The beauty market also has a long track record of withstanding periods of economic difficulties.”
L’Oréal targets the upper-middle and upper-class consumers, who are generally less impacted by economic turmoil and continue to expand in number, especially in the emerging markets and China.
“By 2030, experts estimate that the middle and upper classes will grow by an additional billion in the world, including 250 million in China and 200 million in India,” said Hieronimus.
Still, L’Oréal remains focused, as well, on accelerating in all emerging markets, growing its strength in the U.S. and the solidity in Europe.
“Finally, we are confident in our ability to overcome the inflationary context,” he said. “We will be taking further price increases in the second half.”
Hieronimus continued: “In the current context, we are prepared for the worst, but we are planning for the best — as we very well know that playing offense is what drives consumption, market share gains and growth.”
He characterized L’Oréal as being stronger today than before the health crisis, and said the group’s balanced business model is “the best vaccine in a VUCA world.”
“L’Oréal has all it takes to weather the short-term difficulties related to the micro-economic context, and even though the second half will not look as handsome as the first one, due to comparatives and one-offs, we are very confident in our ability to beat the market and deliver another year of growth in sales and profits mid- and long-term,” said Hieronimus.
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