Interviewer/written by: Liu Feng, Modern Weekly
In the mind of every woman there is a fairy-tale magic mirror to which she secretly prays, “Magic mirror, magic mirror, please tell me who the most beautiful one is in the world.” Enthralled by the power of beauty, women sit tirelessly in front of real mirrors, gently applying facial creams, foundation, rouge and eye shadow, and then brushing eyelashes with mascara until they stand gracefully before the final step of applying lipstick. The process creates a magic that reaches into the soul and illuminates every woman’s spirit.
Jean-Paul Agon, CEO of L’Oreal Group—the world’s largest cosmetics company—obviously understands this underlying nature of beauty and beauty products. The 52-year-old Frenchman has spared no effort in serving L’Oreal for over 30 years, a lifetime of achievement that culminated in his promotion to the top management position three years ago. Women’s beautiful cheeks benefited from his business efforts and in return have increasingly rewarded Mr. Agon’s company. In the past 20 years, this cosmetics giant has witnessed a magical beauty in the cosmetics business: an annual growth of 7%-8% in sales and double-digit growth in earnings.
Yet at this time, as all economic data, financial indexes and even the feelings of the whole world are falling in the slowdown, Mr. Agon, a tall and gentle Frenchman with long arms, needs new magic more than anybody else.
Traditional viewpoints indicate that the current economic slowdown should be a good opportunity for Agon and his L’Oreal team to prove the extra worth of their beauty products; the creams and lotions they produce are generally regarded as the miracle drugs, comforting in a way that soothes sinking spirits. These products give the female public tremendous hope, confidence and pleasure during these downtimes with only a little money spent. The cosmetics sector has always been regarded as a defensive trade against economic decline.
However, each economic recession varies in the effect it has on business. When the 2008 economic decline rolled around the world, the UK’s Cinema Advertising Association witnessed five-year record high of ticket sales in over 5 years, while Mr. Agon found L’Oreal Group, which produces Lancome face cream , L’Oreal Paris haircare products, Garnier hair color and Maybelline makeup, facing its greatest challenges in 20 years.
In 2008, the company’s sales figures increased by a slight 2.8%. In the subsequent first quarter of 2009, with the continuously fatigued global economy, L’Oreal Group continued to reap positive sales growth though the pace slowed down to 0.3%.
Agon emphasized that the L’Oreal Group’s global market share had increased from 15.2% in 2007 to 15.8% in 2008, which, “compared to the whole market, is pretty significant.” Even at the same of the grand celebration of the company’s centennial, the fifth CEO in the history of L’Oreal was considering what magic he could summon to resurrect the international cosmetics giant which has defined beauty over the last century.
“At L’Oreal, each of my new tasks means new challenges. To me, it's a passionate adventure,” Mr. Agon told the Modern Weeklyl.
Mr. Agon recalled the several crises he faced before his promotion to CEO of L’Oreal: three months after becoming the President of L’Oreal Asia in 1997, the financial crisis swept across Asia; and two weeks shortly after taking office as the President of L’Oreal USA, the 911 terrorist attack slashed the American market. Mr. Agon says, "Crisis is not something unfamiliar to me, and I consequently learned that we must remain determined in the crisis without hesitancy, in order to direct our efforts righteously and to be united as a team."
The current economic decline is challenging the strong L’Oreal record of more than 20 successive years of growth. U.S. department stores are reducing their orders for high-end products as a result of consumers’ emptied pockets while personal vacationing and business travels are dropping sharply, directly affecting the sales of cosmetics in duty-free shops. Similarly, women are pinching pennies and professional hairdressers are experiencing a reduced flow of customers. All these factors directly impact the performance of L’Oreal in its beauty and hairdressing empire.
Now, Mr. Agon is planning to change this situation. He hopes to expand the target customer base through promotion of accessible innovations and related products, exposing L’Oreal products to more consumers while new product categories capture new markets. At this time, he gives the highest priority to research and development, telling Modern Weekly that "In the crisis, we will not cut down our investment; on the contrary, we will invest more in our research and development for developing and creating new formulas."
The L’Oreal R&D budget for 2008 was estimated at 580 million Euros (US$ 853 million). The R&D expenditure accounted for 3.3% of total sales, which was regarded as the highest proportion in the cosmetics sector. These budgets supported not only the central development laboratory located in France, but also more than 3000 scientists working in R&D Centers across the world, including the United States, Japan, China and Brazil.
In April last year, Mr. Agon set up an all-new Innovation Center in L’Oreal Group, which is exclusively engaged in the prediction of new development trends and initial product development at various R&D laboratories. He also transferred Laurent Attal, the former President of L’Oreal U.S. back to Paris to act as the Executive VP for the various R&D Centers and the Innovation Center.
These R&D Centers and the Innovation Center will be Mr. Agon’s “secret formulas” as he advocates that senior marketing personnel in each region be involved in product development and innovation in collaboration with scientists to jointly explore the most interesting information and capture opportunities. Meanwhile, under Mr. Agon’s plan, global L’Oreal R&D Centers all over the world are able to share information. For example, researchers in Asia found that an Asian woman may usually apply eyelashes 60 times in a row for one eye while European women would generally apply only 10 times. These differences will serve as the basis for new products for scientists at L’Oreal R&D Centers.
Actually, early in 2006, when Mr. Agon took over from the legendary L’Oreal CEO Sir Lindsay Owen-Jones and investors worried whether he could carry on the high growth rate accumulated by his predecessors, he had already been successfully tuning development innovations to focus on the elderly and men's cosmetics. The L’Oreal development team handed him a few powerful tools such as the ingredient under development for seven years and patented under the name Pro-Xylane, the active ingredient for improving skin firmness and elasticity and therefore preventing wrinkles and the effects of aging.
Not long after Mr. Agon took office, products with Pro-Xylane were launched in premium brands like Lancome and the medical skincare line Vichy, both making a big hit. L’Oreal Group is now supplying this anti-aging technology to more brands, even to general consumer brands like L’Oreal Paris.
The launching of a series of men's products resulted in a totally new market for men and even in emerging markets like China the men’s line performance is impressive. According to Paolo Gasparrini, President of L’Oreal China, the Biotherm Homme High Recharge Yeux Anti-Fatigue Cold Eye Serum was one of two Biotherm bestsellers in China in 2008, and overall men's products accounted for 30% of Biotherm’s sales.
L’Oreal has been Mr. Agon’s only employer over his entire professional career, and he has encountered various opportunities to demonstrate his gift of turning things around.
Mr. Agon was born in Paris, the only child of a pharmacist father and an architect mother. During his university years, Mr. Agon dreamed of becoming a film director. However, upon graduation from business school, he entered L’Oreal as a sales representative. During the first several years, he drove a Fiat 127 fully loaded with L’Oreal products and called on his customers everywhere in the hot south of France.
A turning point in Mr. Agon’s career came with an overseas appointment opportunity as the General Manager of the Greek Branch when he was just 25 years old. “I felt so honored and thought I was the best," he recalled to Modern Weekly. Actually, the position was no easy job at all. At that time L’Oreal only had 50 employees in its Greek Branch, which had been losing money for years. “Later, I learned that five candidates turned down the offer before I took it. It was really a great mess and no one wanted to be there," Agon smiled as he recalled.
However, on this post, the newly-appointed Mr. Agon learned how to turn losses into profits. Once he was in Greece, Mr. Agon found himself the only francophone in the branch office where everyone spoke Greek. Everything had to start anew. He began to learn Greek, sales, marketing, HR and total management. In four years, he sorted through all aspects of the branch and brought it gradually around to the right track, resulting in profits thereafter. Greece later became a very dynamic market for L’Oreal Group.
What makes him feel proud is that Greece continues to be one of the top-performing branches in the L’Oreal Group. “The solid foundation laid at that time is still clearly visible,” Agon says. "Currently, Greece is one of the European countries where L’Oreal Group maintains the largest local market shares.”
His achievements in Greece made Mr. Agon well appreciated by Sir Lindsay Owen-Jones, CEO of L’Oreal at that time. One day, he came to meet Sir Owen-Jones at a dining table in Paris, where they exchanged ideas in market development and management over lunch. Thereafter, Sir Owen-Jones became Mr. Agon’s tutor and provided the younger man with both opportunities and challenges.
Mr. Agon left Greece in 1989 to manage the Biotherm brand back in Paris. This brand was getting bogged down in the area of brand acceptance. After analysis, he found that the biggest concern for the brand was the sales network. In France, Biotherm was a medical makeup brand, but elsewhere, it was shelved in department stores together with perfumes and high-end cosmetics products. Mr. Agon thought the latter positioning was more appropriate for the product. Therefore, he decided to enhance the presence of Biotherm in department stores to differentiate it with a real lifestyle flavor distinct from Clinique, Clarins and other competitors.
From there, Mr. Agon worked in Germany and Asia before going to the United States. He arrived in the U.S. L’Oreal offices only weeks before the 911 terrorist attack. At that time, department stores as well as premium cosmetics businesses suffered severe setbacks. He spent three months visiting more than 500 shops from Florida to Chicago and from California to Washington. He categorized the brands of L'Oreal for the U.S. into two types: one being the penetrated brands with stable market shares (e.g., Lancome, Ralph Lauren, Maybelline) and the other being the brands needing market promotion such as HR, Kiehl's, Biotherm, and shu uemura.
Before Mr. Agon took over as president of the U.S. subsidiary, L’Oreal (U.S.A.) successively purchased two hair brands Soft Sheen and Carson for African Americans. After his inauguration there, Mr. Agon integrated the two brands for improved operational efficiency, and he also proposed stronger support towards the research and development of new brands. To meet these new goals, L’Oreal established a research center in Chicago and studied different ethnicities to deliver quality characteristics. In addition to penetrating the African American market, Mr. Agon’s efforts made it possible for the integrated brands Soft Sheen/Carson to explore the African market and he targeted the larger black communities in European cities such as London and Paris. Under his leadership, every L’Oreal Group brand gained substantial development.
Mr. Agon is applying the experiences gained in previous challenges to respond to the current crisis.
He is making efforts to improve capital efficiency by subcontracting L’Oreal global purchasing to four centers through valuation of all raw material sources and reprogramming the purchase process; he also requires the L’Oreal Group to renegotiate the indirect purchase prices on a global basis and hand over all indirect purchases to the uniformly organized Industrial Purchasing Division. During a meeting with analysts in May, Mr. Agon stressed that the opportunities in the raw materials buyer’s market under the current crisis should be well utilized to fully lower costs.
In addition, changes in the management structure of L’Oreal are also taking place. In order to improve profitability, Mr. Agon ordered a recruitment cessation in some developed countries and announced a cut of 500 employees in the U.S.. However, in developing countries, recruitment is still ongoing with the expectation of gaining momentum for growth. On top of that, he is making great efforts to simplify the corporate organizational structure.
In the United States, L'Oreal teams are creating diversified sales networks to reduce the dependency on department stores. According to the Financial Times, in the past up to 80% of L’Oreal businesses in the U.S. relied on outlets like department stores. Such measures are being launched in many operations of L’Oreal worldwide. L’Oreal products are entering professional cosmetics chain stores while also making a strong presence in discount retailers like Lidl. Similarly, Internet sales networks have been enhanced and television shopping like Home Shopping Network is being explored.
Mr. Agon does not want to overly address the changes he brought forth. “Since I took office, I have not made major changes to the previous arrangements, including the working teams,” he told Modern Weekly.
He emphasized that L’Oreal would continue the internationalization roadmap promoted by Sir Lindsay Owen-Jones, his tutor and predecessor. In addition to further exploration of market potential in emerging markets like China, great efforts have been made to enter new markets like Egypt, Pakistan, Kazakhstan, and others. In terms of brand image cultivation, L’Oreal will continue to make investments in advertising and promotion, keeping the total advertising and marketing budget at the same level as before the crisis.
However, it is difficult for people not to compare Mr. Agon with Sir Lindsay Owen-Jones because of their similar career development paths—yet these two men have different personalities and ways of doing business.
Sir Lindsay Owen-Jones graduated from INSEAD and during his professional career with L’Oreal for more than 40 years, this British-born welshman mastered French perfectly including details on French body language regarding shrugging, making eye contact and bursting into laughter. He became a legendary figure because of his great charisma, enthusiasm and strength—the kind of character that made it possible to grow L’Oreal into an international cosmetics powerhouse from a local French shampoo company.
Sir Owen-Jones demonstrated his strong personality in both work and private life. His favorite sport was race car driving, and when he was at his fifties, he turned to sailing contests, of course, rather than that kind of going boating on the wavy sea.
In contrast, the French-born Mr. Agon appears reserved and moderate. He is not too aggressive, yet careful and resolute and he prefers to establish good relations with people around him through simple smiles. Mr. Agon smiles when he speaks and he does try to dazzle or shine, but rather let his natural gifts speak for themselves. He is no social animal, and the Paris and New York fashion circles all know that at parties he would always keep himself away from the spotlight. However, if the music is really good, he can be the first to step onto the dance floor.
Mr. Agon is equally devoted to his work and he is even more open-minded. In 2006 when L’Oreal began negotiations to acquire TBS, Mr. Agon’s personality impressed Anita Roddick, founder of TBS. Roddick, an advocator of natural and unique positioning, criticized L’Oreal publicly many times as she hated the enormous structure of L’Oreal and its pushy, dominant position in many areas of the beauty sector. After the acquisition concluded, Roddick told the UK Times that the basis for her agreement to the transaction with L’Oreal valued at GBP 652.3 million was her trust in Mr. Agon. She said Agon was progressive and “charming, never dogmatic or monopolizing. He likes dialogue.”
Analysts closely following L’Oreal Group believe that in the long run, the personality differences between Mr. Agon and Sir Lindsay Owen-Jones mean at least some changes will come in the corporate culture of L’Oreal.
However, Mr. Agon doesn’t want to analyze his personality excessively. He calmly described what he is fond of for leisure to the Modern Weekly. “I like unruffled ventures and would go skiing in forests where I only have nature and quiet around me. I also like sailing on the sea; however, it's better to be on quiet seas where I only have wind and water with me. I do it not for the sake of the game, but for a quiet expedition,” he said.
At that moment, he spoke in a soft tone and his fist gently shook. Coincidentally, the glass bottle of the recently released DIESEL perfume by L’Oreal is styled in the shape of a fist. L’Oreal is launching more new products under the Garnier, L’Oreal Paris, Maybelline, and Vichy brands, with products that are easily affordable to consumers. The perfume bottled in the fist-shaped glass is labeled “Only the brave,” which is appropriately encouraging under the current situation.
Mr. Agon, the sailing aficionado with a clenched fist, is gazing at the horizon with full knowledge of his past experiences of conquering economic winds and storms; he is very cautious of any sign of abrupt changes in the economic weather while always seeking for new opportunities to deploy his marvelous magic.
The braver you are, the more beautiful you will be
Interviewers: Liu Feng, Chen Wei
Jean-Paul Agon, who, as CEO of L’Oreal Group, is bravely facing the economic downturn, told the Modern Weekly that one must keep firm in the crisis without hesitation and when the crisis is over, a brighter future will emerge. As for the cultivation of young employees, he suggested that young people should shoulder their responsibilities and be given the chance and room for development so that they can perform better.
- The global economic recession is affecting various trades and industries. Under the current economic situation, how are you planning to assure L’Oreal’s uninterrupted growth?
- In my career, I have encountered many crises. Three months after I assumed the position as the President of Asia, the Financial Crisis in Asia broke out. Two weeks after I took office as the President of L’Oreal USA, the United States was attacked by the 911 terrorists. Crisis is not something unfamiliar to me and I consequently realized that we must remain determined in the crisis without hesitancy, in order to direct our efforts correctly and be united as a team. Thus, I firmly believe that any kind of crisis can be dealt with.
We may need to apply an emergency brake, but we will not stop the vehicle. We know that the crisis has slowed down the development of the market, but the market is not completely washed up anyhow. The current condition with L’Oreal is just the same and we will continue to go forward. I feel that because we are headed in the right direction, a brighter future will be in front of us after the crisis is over. Even under the current conditions, I also notice that some countries are not so much affected. China is a good example. Last year, the development of L’Oreal in China was not bad at all. We will continue to make our investments in industry, research and development and human resources to continue moving forward.
- You once said that in difficulties, people need L’Oreal products more to make them look more beautiful. But in such difficult times, how can you keep the "beauty" of L’Oreal Group in the sense of gaining better performance and business growth over your rivals?
- We have been actively launching new products and perfecting our product mix. We released a new product which would make people look younger and the market response is very promising. In the meantime, we also released a series of special skin care products for men and the market response is highly positive. These new launches show that although everyone has a lot of pressure under this particular economic condition, people still want to keep their beauty. We conducted a study in the UK that surveyed many women. When asked if they would reduce expenditures on cosmetics, the majority said that they would like to use more cosmetics to make their appearance more attractive so that they would feel more confident under the current situation. At the time of crisis, we will not cut down our investment; on the contrary, we will invest more on our research and development for developing and creating new formulas. On top of that, we will enhance our communication and speed up our internationalization strategy. The crisis did not make us stop, but elicited more confidence for us to go forward with greater efforts.
- Apart from the economic crisis, taking over the business from Sir Lindsay Owen-Jones, your predecessor, has not been easy,because he led L’Oreal in the miracle of double-digit earnings growth during his tenure of nearly 20 years as CEO. Did you feel that extra pressure when you took office as the new CEO in 2006?
- Sir Lindsay Owen-Jones is the person whom I admire most in my life and I was lucky to work with him for some 20 years. During this period, I learned a lot and admired him ever so much. I felt greatly honored as he picked me as his successor to shoulder greater responsibilities and meet greater challenges. Sure, there was some pressure. But in L’Oreal it is never just one person who will be loaded with everything as L’Oreal has a very strong team. For example, in China, we have Paolo Gasparrini,a highly competent CEO of L’Oreal China and so the same story in the States. In each division, we have very capable and responsible people. We are working together just like one team.
- Under the leadership of Sir Lindsay Owen-Jones, your career developed rather smoothly. So that was a long process of cultivation and what did you learn in that process?
- I really couldn't learn too much and it's hard for me to renumerate everything here. I did market research with Sir Lindsay Owen-Jones in various countries more than 100 times, when I would always observe beside him and learn how he would analyze the market, how to look at the market with a forward-looking viewpoint and how he would appropriately seize market opportunities. These are all beyond words. I worked with him for so many days and nights. This is the team spirit of the entire L’Oreal Group. In team work, we can learn a lot from each other and these are imperceptible aspects in daily work where team members incorporate themselves in the corporate spirit and culture. My role is not as much about making individual decisions on certain matters because at L’Oreal any decision comes not from a single person, but from the agreement of the collective opinions and ideas of the entire team.
- As the CEO for three years, what changes have you brought to L’Oreal?
- Since I took office, I have not made major changes to the previous arrangements, including the working teams. L'Oreal has always been a company with consistency and persistence in its development history. I know a lot of colleagues working with me for 10 or 20 years already or even for a longer time. A lot of these employees started with L'Oreal upon graduation and will work until retirement, so L'Oreal embraces a very strong and stable team. After taking office as the CEO, my responsibilities and obligations are continuously encouraging the stable and solid team of L'Oreal to make use of more sophisticated research and development results to develop better products so that more people will like to use our premium quality products; and also I hope that our employees can be happier and serve the company over a long period of time to make contributions for a more beautiful world.
- You have been addressing team spirit. How do you elicit the enthusiasm of the team while retaining a stable and solid team in the actual work scenario?
- First of all, young employees are given their own responsibilities and roles so they have the feeling of ownership; secondly, they need to be trusted and granted with certain freedom so that they can make full use of their talents; thirdly, their achievements should be respected and accepted. Excellent performances shall be well-praised; last but not least, they should be endowed with opportunities for promotion. In L'Oreal, we promote new leaders not for what he/she accomplished in the past, but for the expectation that he/she could perform better after being promoted. We need to be forward-looking rather than looking back.
- In the past two decades, L’Oreal relied a lot on acquisition for development. So is there further space for acquisition nowadays?
- L’Oreal still has lots of things to do. Of course, further acquisition is still possible and available. Many of the existing brands can be better developed. In many countries, our market shares still need to be further extended. For instance, in China, our current market share is not the largest; in France and some other countries in Europe, our market shares have reached 30%-40% while in China, we only account for 9%, which means that there still exists a large space. L’Oreal just celebrated its centennial, which denotes that we have started a new round of development for the next 100 years.
- Just like the five fingers we have, as a group with diversified brands, how will L’Oreal deal with those comparatively sluggish brands?
- L’Oreal is a company with long-term goals and visions. All of our businesses are operated on a persistent basis. To do something, it is not necessary to have the results by next month. This has a lot in common with Chinese practices. For anything to grow, we need to take the whole picture into consideration. Some brands may not be performing as well for the time being. In the long run, these brands still demonstrate broad development capabilities. We need to know that the progression of any brand is not rising in a straight upward line as it is affected by investment, the team and other factors. Therefore, it must be a curved line. The rising may be slow after surging and before another round of rising. These ups and downs are all very normal.
-What is your expectation towards the future development of the Chinese market?
- I'm rather happy with the development of the Chinese market. I would especially like to thank Mr. Paolo Gasparrini, CEO of L’Oreal China and his China team for their contribution. I can tell you that we will maintain the level two -digit growth in China and I firmly believe that China will be the largest market for L’Oreal Group in the world. I also firmly believe that L’Oreal will be the largest cosmetics company in the China market. I think that we will give 10 years more to China and China will develop rapidly over the next 10 years. Currently, L’Oreal in China has already exceeded our traditional European markets like UK and Spain and has almost reached the level of Italy and Germany. The next target for L’Oreal China to surpass is France, which is the origin of L’Oreal and where our market position is pretty strong. Ultimately, China has to overtake the USA in order to be the largest subsidiary of the Group.