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9-805-086REV:FEBRUARY2,2006________________________________________________________________________________________________________________ProfessorGeoffreyJones,SeniorResearcherDavidKiron,GlobalResearchGroup,ExecutiveDirectorVincentDessain,andResearchAssociateAndersSjomanoftheHBSEuropeanResearchOfficepreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2005PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.GEOFFREYJONESDAVIDKIRONVINCENTDESSAINANDERSSJOMANL’OréalandtheGlobalizationofAmericanBeautyOnamuggysummerdayin2004,PhilipClough,presidentandCEOofKiehl’sSince1851,asmallupscalecosmeticsmaker,wasdirectingtheplacementofmovingboxesaroundhisbusiness’snewofficeinarenovatedwarehouseonHudsonStreetinlowerManhattan’sGreenwichVillage.AsCloughgaveatourofthegroup’ssparefifth-floorofficespace,therewaslittleevidencethatKiehl’srepresentedoneofthemostradicalexperimentsinthe97-yearhistoryofitscorporateparent,Paris-basedL’Oréal,theworld’slargestbeautyfirm.L’OréalUSApurchasedKiehl’sin2000aspartofaseven-year,carefullyplannedacquisitionstrategy.TheU.S.buildupwascriticaltotheglobalizationofL’Oréal’sbusiness,whichhadgrownfrom25,000employeesand$4billioninrevenuesin1988to50,000employeesand$14.3billioninrevenuesin2002.ByaddingpopularAmericanbrandssuchasMaybelline,Redken,Matrix,SoftSheen-Carson,andRalphLaurenFragrancestoitsportfolioofFrenchbrands,L’Oréalhadcreatedaninternationalbrandportfolioforconsumerswithawiderangeofincomesandtastesin140countries.Intheearly1980s,achievingsuchahighlevelofglobaldistributionwasbarelyinthesightsofL’Oréalseniormanagers.L’OréalwasFrance’sleadingbeautycompany,butitsinternationalpresencewaslimited.ManybelievedthattheconceptionofParisianbeautyasbeingexpensiveandhighculture—theimageofallL’Oréalbrandsatthetime(e.g.,LancômeincosmeticsandL’OréalProfessionalinhaircare)—limitedthecompany’sabilitytoexpandintointernationalmarkets.Jean-PaulAgon,presidentandCEOofL’OréalUSA,explained:Wedidnothaveanaccessiblypriced,genuinelypopular[brand]withaglobalpotential.WehadacoupleinEurope,butwedidn’thaveanythingthatwethoughthadworldpotential.Thatwasamajorproblembecausetodevelopinmanyofthenewermarketsintheworld,ourL’Oréalbrandwassimplytoopremiumforthelevelofaffluenceofthosecountries.Wehadsomeoftheproductsweneeded,butthereweresomehugepartsofthebusinessmissing,mainlycosmetics.Wereallyneededinourportfolioamoreattractivelypricedproposition,notjusttofillaholeintheStatesandinEurope,buttogoaroundtheworldandinallthenewmarkets.FortheexclusiveuseofB.TuThisdocumentisauthorizedforuseonlybyBoyanTuin2014CareyMarketingtaughtbyH.ChristianKimJohnsHopkinsUniversityfromAugust2014toFebruary2015.805-086L’OréalandtheGlobalizationofAmericanBeauty2Moreover,fewseniormanagersatthetimebelievedthatevenLancôme,oneofL’Oréal’smostsuccessfulbrands,couldcompeteeffectivelyintheU.S.—oneoftheworld’slargestmarketsforbeautyproducts—againstAmericanfoessuchasEstéeLauderandRevlon.TheacquisitionofU.S.brandsnotonlybolsteredL’Oréal’sinternationalpresencebutalsoenabledtheevolutionofL’Oréal’sinternalorganization,whicheventuallysplitintothreemainproductdivisions:•TheConsumerProductsDivisionsoldhair-care,skin-care,makeup,andperfumeproductsthroughmass-marketretailingchannelsatcompetitiveprices(2003revenuesincreased7.7%onalike-for-likebasisto$9.4billion).•TheProfessionalProductsDivisionsoldcolorantsandhair-care,texture,andstylingproductstohairdressersandsalonprofessionalsworldwide(2003revenuesincreased8.6%onalike-for-likebasisto$2.4billion).•TheLuxuryProductsDivisionhousedL’Oréal’sprestigecosmeticsandperfumebrands.Productsweredistributedthroughselectiveretailoutlets,suchasdepartmentstores,perfumeries,travelretailoutlets,andthegroup’sownboutiques(2003revenuesincreased4.2%onalike-for-likebasisto$4.3billion).By2004,morethan94%ofL’Oréal’srevenueswerecomingfrom17corebrandsspreadacrossthesedivisions.(SeeExhibit1forabreakdownofbrandsbydivision.)Kiehl’swasconsideredakeyadditiontoL’Oréal’sluxurycollection:itsskin-care,body-care,fragrance,andhair-careproductswererenownedfortheirhighquality,effectiveness,andcultfollowingamongcelebrities.CustomersmadepilgrimagesfromaroundtheworldtotheoriginalKiehl’slocationinNewYork’sEastVillage,wheresampleswerehandedoutliberallytoanycustomer.Itscustomerbasewasloyalandyoungerthanthetraditionalluxurycosmeticsconsumer.ItsGenerationXemployeeselicitedgaspsof“OhmyGod!”whentheytoldfriendsthattheyworkedattheKiehl’sstoreinManhattan.Kiehl’srepresentedasignificantdeparturefromtheotherofferingsinL’Oréal’sproductmix.“Weboughtitpreciselybecausewethoughtitwasinterestingtosee