L’Oréal has presented optimistic figures for the first quarter. Chief Executive Nicolas Hieronimus cites the so-called “lipstick effect” as the cause of rising demand across Europe, as households reach for small, affordable pick-me-ups amid geopolitical tensions and persistent inflation.
The Paris-listed group, whose brands include Garnier, Maybelline, Lancôme and La Roche-Posay, posted like-for-like sales growth of 7.6 percent in the three months to March, taking sales to 12.2 billion euros (£10.4 billion) and significantly beating City forecasts. Shares rose more than 8 percent on Thursday, providing welcome relief for investors rattled by the drumbeat of profit warnings across the luxury sector.
Europe has done the hard work. Like-for-like sales rose 10.3 percent across the region to 4.4 billion euros, a performance Mr Hieronimus described as “the absolute demonstration of what we call the ‘lipstick effect’ or the dopamine effect of beauty”. A consumer study conducted by the company found that even shoppers under pressure were willing to forego large purchases while continuing to spend money on cosmetics “as a compensation for a stressful climate and as a psychological buffer.”
The theory, first popularized in the wake of the dot-com bust more than two decades ago, suggests that lipsticks, fragrances and moisturizers offer a low-cost jolt of luxury when wallets are tight, and has long been used by beauty bosses as a defensive selling point to investors.
The figures stand in stark contrast to the atmospheric music from elsewhere in the luxury aisle. LVMH, Kering, owner of Gucci and Birkin maker Hermès have all raised concerns about the fallout from the Iran war on consumer confidence. Mr. Hieronimus said the direct damage to L’Oréal had been contained so far, with the Middle East accounting for less than 3 percent of group sales and the biggest drag being limited to travel retail.
There was further encouragement from China, where the group reported medium to high single-digit growth after a multi-year downturn. Mr Hieronimus pointed to a “significant acceleration” by 2025, with L’Oréal well ahead of the overall market. However, the North Asia region fell 4 percent on a like-for-like basis to €2.7 billion, a reminder that the recovery remains uneven.
Analysts at Barclays called the underlying performance “very impressive” and highlighted professional products and dermatological beauty products as standout businesses. Premium hair care and fragrances led to market share gains in North America, North Asia and Latin America.
“Despite the current geopolitical and macroeconomic uncertainties, we remain optimistic about the outlook for the global beauty market,” Mr. Hieronimus said, adding that he remains “confident” that the company will “continue to outperform and deliver another year of sales and profit growth.”
For independent retailers and indie beauty brands watching from the sidelines, it’s an insightful read. While spending on high-priced discretionary products is visibly slowing, demand for affordable treats appears to be remarkably robust, a pattern that should give smaller operators in the personal care and wellness space reason for cautious optimism as they plan their own operations for the second quarter.
