L’Oreal Holding Strong As ‘Most Valuable’ Cosmetic Brand – Brand Finance
This article was originally published in The Rose Sheet
Executive Summary
Brand Finance expects the biggest brands from a slimmed-down P&G to rise in coming years, but L’Oreal Paris topped the brand valuator’s Cosmetics 50 list in 2015, making L’Oreal a three-year winner. Avon dropped furthest in terms of estimated brand value, while Natura is noteworthy not only for being a non-Western brand on the list, but a 31% gainer climbing toward the top 10.
L’Oreal S.A. and Procter & Gamble Co. brands dominate the top 10 in Brand Finance’s 2015 list of “the world’s most valuable cosmetics brands.”
L’Oreal Paris gives the French beauty giant the No. 1 spot on Brand Finance’s roundup for the third year running, while the brand valuation firm projects that streamlining initiatives at Cincinnati-based P&G, enabling greater investment in core offerings, will boost its leading brands in the rankings going forward.
Currently, P&G enjoys the distinction of having the most brands on Brand Finance’s “Cosmetics 50” list, including Gillette (No. 2), Pantene (4) and Olay (9) in the top 10, as well as Head & Shoulders, Clairol, SK-II, Cover Girl, Max Factor, Old Spice and Wella.
Reportedly, the firm is soliciting bids on its Wella professional hair-care brand, as well as its fragrance business and other underperforming cosmetics offerings, under an initiative announced in August 2014 to reduce its portfolio by more than half in the interest of improved focus and efficiencies (see related brief, p. 14).
Analysts speculate that makeup brands Cover Girl and Max Factor, Clairol hair colorants and SK-II prestige skin care could also be divested in the initiative, expected to be largely negotiated and announced by this summer (Also see "Analysts Speculate On P&G Beauty Bundle Up For Possible Sale, IPO" - HBW Insight, 19 Mar, 2015.).
Meanwhile, the firm has been working to drive Pantene growth and rejuvenate Olay in markets around the globe (Also see "Slimmed-Down P&G To Consist Of 65 ‘Leading Brands’ By FY 2017" - HBW Insight, 23 Feb, 2015.). The brands lost value this year compared with last, down 13% and 2%, respectively, according to Brand Value.
“P&G’s pledge to shed up to 100 ‘outlying’ brands will allow the company to accelerate the growth of its core brands, so P&G’s biggest beauty brands seem likely to creep up the rankings in the coming years,” Brand Finance notes in an April 7 release.
L’Oreal Paris took first place with an estimated brand value of $11.2 billion, up 15% from the prior year (Also see "L’Oreal, Avon Are World’s Most Valuable Cosmetics Brands – Brand Finance" - HBW Insight, 7 Apr, 2014.).
Brand Finance bases its estimates on an array of factors – ranging from revenue performance, brand investment and sustainability to emotional connection and stakeholder opinion – and draws from its extensive database of license agreements in the sector to reckon royalty charges for use of a given brand. The methodology is consistent with ISO standards and favored by tax authorities and the courts, it says.
Speaking to L’Oreal Paris’s chart-topping status, Brand Finance Chief Executive David Haigh states: “L'Oreal has pulled off the trick of simultaneously capturing the mass market while maintaining an air of exclusivity.”
He dubs L’Oreal a “powerhouse of brand creation” with “unrivalled marketing focus and investment” that has benefited from prioritizing long-term value over short-term profits.
L’Oreal’s corporate brand also made the list at No. 30, estimated at $1.26 billion. It and L’Oreal Paris are the only cosmetics brands, and two of only around a dozen overall, that carry an AAA+ rating at Brand Finance. Google, Ferrari and Rolex also are scored as AAA+ brands, a testament to their “strength and future potential,” the firm says.
According to the release, total brand value for the Cosmetics 50 is up 13% over last year to $123 billion.
Estee Lauder stayed even at No. 7, with nearly $4.8 billion in brand value, up 4%. In addition to P&G offerings, Unilever PLC’s Dove and Beiersdorf AG’s Nivea, along with L’Oreal’s Garnier and Lancome brands, lost value this year. Of those, Nivea declined most, by 13%, but still came in at No. 5.
L’Oreal has been targeted with FDA warning letters in recent years for marketing claims promoting L’Oreal Paris and Lancome products, and most recently for La Roche-Posay products, but considering how its brands are faring, such regulatory compliance setbacks could be chalked up as part of the cost of doing business (Also see "Cosmetics That ‘Do Something’ A Regulatory Compliance Challenge" - HBW Insight, 31 Mar, 2015.).
Avon Products, Inc., which continues to struggle with turnaround efforts, saw the steepest decline in brand value (-39%), according to Brand Finance estimates, which placed it at No. 11 on the firm’s list. The drop may not reflect erosion in Avon’s namesake over the past year as much as an overly optimistic valuation on Brand Finance’s part last year, when it ranked Avon No. 2 in the world, up from No. 6 in 2013.
Brand Finance explains: “Last year the company appeared to stage a rally in brand terms … reclaiming its position as the world’s second most valuable cosmetics brand. However that appears to have been a false dawn; its current brand value sees it drop outside the top 10 for the first time.”
According to the brand valuator, “the company’s once pioneering approach of door-to-door selling and heavy emphasis on word-of-mouth marketing has come under strain as social structures and living patterns have changed. The association of the brand with a mid-century American model of house-bound homemakers has been hard to shift.”
Brand Finance’s Cosmetics 50 shows a preponderance of brands from the U.S., France, U.K. and Germany, the company notes. However, Brazil-based direct seller Natura is rising in the ranks, from No. 17 to No. 14, with $3.2 billion in brand value, up 31% from the prior year, and an AAA- rating.
“Natura is growing quickly, capitalizing on Brazil’s increasing affluence and insatiable demand for beauty products,” Brand Finance says. “Though Brazil’s economy is somewhat troubled at present, Natura looks set to build on the momentum it has built over the last few years, as in any country – but in particular in Brazil – cosmetics clearly benefit from the ‘lipstick effect.’”