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Amid soaring demand, L’Oréal Group is pushing further into the ultra-premium beauty space. The French conglomerate is using the recent upmarket repositioning of 71-year-old skincare brand Carita as a blueprint for the premiumisation of some of the other prestige brands in its Luxe division. Expanding Aesop, once its deal to acquire the brand is complete, will also be top of the agenda over the coming months as L’Oréal looks to capitalise on post-lockdown growth in markets like China.
The ultra-premium category — which starts at the €150 price point for skincare — is growing at double the pace of the total luxury beauty market, says Cyril Chapuy, president of L’Oréal Luxe. “Super-premium luxury has developed strongly in the last five years, both in skincare and fragrances. It’s at the beginning of it in makeup also,” he explains.
Carita, which L’Oréal acquired from Shiseido in 2014 (alongside Decléor), was a “sleeping beauty”, says Chapuy. In early 2022, the group relaunched it at the higher end of the market, with prices ranging up to €599 for its Or Rejuvenic serum. It now sits at the top of L’Oréal Luxe’s pricing pyramid, along with premium skincare and makeup brand Helena Rubinstein and higher-end product lines from some of the Luxe division’s biggest brands, such as Absolue by Lancôme, Or Rouge by YSL Beauté and Crema Nera by Armani in skincare, and Armani Privé and Le Vestiaire by YSL Beauté in fragrance. (Among the other brands in the 23-strong Luxe portfolio are Kiehl’s, Urban Decay, Valentino and Prada.)
L’Oréal Group is the world’s largest beauty player, with €38.26 billion in sales in 2022. Still, in the ultra-premium space, it faces stiff competition: notably from Beiersdorf-owned La Prairie (€655 million in revenue in 2022, per Beiersdorf) and The Estée Lauder Companies-owned La Mer. L’Oréal’s confidence in the category’s opportunities has been bolstered by the growth of Helena Rubinstein, whose prices range up to €580 (for the 100ml Replasty Age Recovery Night Cream). Led by its success in China, Helena Rubinstein is this year set to join the billionaire brands club of the L’Oréal Luxe division (other brands with annual revenues above the €1 billion mark are Lancôme, YSL Beauté, Armani and Kiehl’s).
Chapuy, a L’Oréal Group veteran, joined the Luxe division in 2017 as deputy general manager and took over as president in January 2019. Prior to that, he was worldwide president of L’Oréal Paris for seven years, where he elevated the brand image thanks to a shrewd marketing and product strategy.
Carita initially sat in L’Oréal’s Professional Products division, next to salon haircare brands including L’Oréal Professionnel Paris, Kérastase and Redken. It was moved to the Luxe division — where it felt like a better fit — in 2019.
How do you know you can wake up a sleeping beauty? “The brands that have an incredible history, that had strong founders who really revolutionised the category back in their times, are brands that can be revived. I don’t believe in launching a new brand from scratch in the ultra-premium [segment],” says Chapuy. (Coty CEO Sue Y Nabi thinks differently: she co-founded high-end skincare brand Orveda in 2017.)
The Carita sisters, Rosy and Maria, founded their brand in 1945 and opened their salon on 11 rue du Faubourg Saint Honoré in 1952. They revolutionised the category in several ways, by pioneering holistic beauty, beauty tech and celebrity-driven marketing. After haircare, they launched skincare, favouring liquid products over the thick creams that were popular at the time. Actors Grace Kelly, Sophia Loren and Catherine Deneuve, and singer-songwriters Françoise Hardy and Madonna were all photographed going in and out of the salon.
To give Carita an edge, L’Oréal is using a playbook that is similar to LVMH’s with its heritage brands: highlighting the heritage, increasing prices, controlling the distribution, and, opening an experiential flagship.
La Maison de Beauté Carita on Rue du Faubourg Saint Honoré in Paris — which sits opposite Hermès — reopened in September 2022 after more than two years of major renovation. The space includes a restaurant called Rosy and Maria, named after the Carita sisters; treatment cabins where customers can access premium body and hair services such as the signature protocol, which includes a massage and facial (€345); a haircut and styling at the salon led by celebrity stylist John Nollet (€700); or eyebrow microblading (two sessions for €530). Carita has also opened spas at the Hôtel Martinez in Cannes, the Capella hotel in Shanghai and the Mandarin Oriental in Beijing and Shenzhen. Its distribution is very selective: in addition to the spas, there are four Instituts Carita in France and five corners in department stores in China (each boasting cabin treatments), plus e-commerce for Europe.
“It goes way beyond the product. It has to be the overall experience. Both the physical and the digital experience have to be one step ahead of what you do generally in luxury beauty,” Chapuy says.
The Aesop opportunity
Coming up next is the integration of Aesop, the Australian cosmetics brand L’Oréal agreed in April to acquire for $2.53 billion — its largest deal to date.
“The first step is to proceed with the closing. Until the antitrust authority gives the full green light, we are still operating as two independent companies; then we will welcome the 3,500 team Aesop members at L’Oréal Luxe,” says Chapuy. Aesop CEO Michael O’Keeffe and his managing team will be among those to move across. “Michael is going to be part of my executive committee and we are going to write the next chapter of Aesop together,” says Chapuy.
There is no plan to turn Aesop into an ultra-premium beauty brand, Chapuy says. The priority instead will be to expand its “equity, its unique mix of botanicals, signature design, stores and holistic approach to beauty” worldwide and notably in China. “Aesop has two beautiful stores in China — two only — so there’s great potential there,” adds the L’Oréal executive.
“L’Oréal seems very well placed to help [Aesop] with the China expansion,” says Bruno Monteyne, senior analyst of European food and home and personal care at consultancy Bernstein. “The challenges will be achieving major scale in China — a crowded market — and maintaining the brand values of the company, despite being acquired by a large corporation.”
Uncertainty in China, high expectations
The Luxe division is exposed to China, and, since taking over as president, Chapuy has had to navigate severe pandemic challenges. In 2022, the division generated €14.64 billion in sales, up 10.2 per cent year-on-year. However, its growth in the first quarter of 2023 was slower than other divisions — although still up 6.5 per cent year-on-year — due to flat sales in North Asia, which L’Oréal attributed to “a reduction of stock-in-trade in mainland China at the very beginning of the year”.
While luxury brands have been cautiously optimistic about China’s return as a growth engine since its borders reopened earlier this year, there is ongoing uncertainty. That’s a concern for L’Oréal Luxe, says Monteyne. “It is unclear how strong the China economy will be in the next few years. That could pose major challenges to the Luxe department.”
“The division is still gaining market share,” says Chapuy. “Consumption was pretty low in China at the end of 2022, but the beginning of the Q2 has been extremely dynamic.” What about the US, which has cooled for many luxury categories? “The beauty market is still growing in double digits. I don’t see any slowdown,” Chapuy notes.
Another challenge, Monteyne adds, is that the division’s higher pricing architecture will be reflected in customer expectations. “The Luxe department requires continuous innovations to remain relevant and to maintain the pricing power. It only takes one failed innovation, or one major missed opportunity to be behind,” he observes.
However, Chapuy is confident the opportunity is there to grow Aesop, overcome headwinds in China and take L’Oréal higher up the pricing pyramid, in line with consumer demand.
“The upper middle class worldwide is growing, and the upper middle loves indulging with luxury beauty. [This] is going to organically, macroeconomically increase the size of the market. We are the leader of this market. We have a great portfolio of brands, [and] the division’s portfolio is constantly evolving.”
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