5-806-162
REV: OCTOBER 30, 2006
TEACHING NOTE
L’Oréal and the Globalization of American Beauty
This case was written for use in the first module of HBS’s Entrepreneurship and Global Capitalism
course. The course is a business history elective taught in the second year that seeks to investigate the
origins and dynamics of global capitalism; the identification and exploitation of global business
opportunities over time; the business challenges posed by “foreignness;” and how these challenges
have changed over time.
The first module begins with the creation of the first global economy in the 19th century, and
tracks its subsequent collapse following the political and economic crises of the first half of the
twentieth century. The second module focuses on the political and regulatory factors that led to the
end of the first global economy, and which have continued to be major influences on international
business until the present day. The third module considers the growth of the second global economy
since 1980. This case is taught in this third module. While written specifically for a business history
course, this case can also be taught in courses on marketing and international business.
Case Overview and Structure
Industry Background
The case examines the challenges of globalizing Kiehl’s, an upscale US cosmetics business that
was acquired by L’Oréal in 2000. L’Oréal, a France-based company, has become the world’s largest
beauty company over the last two decades. The Kiehl’s story is set in the wider context of L’Oreal’s
growth in the US market through a series of acquisitions of hair care and cosmetics companies.
L’Oréal now offers a portfolio of beauty brands based in a number of countries that it sells globally,
although the majority of brands are based in France and the United States.
As the case makes evident, the beauty industry is enormous, and growing rapidly. In 2004 the
global personal care industry was valued at $160 billion, and was growing at 7% per annum. Although
the industry originated as one developed by a large number of entrepreneurial firms, a significant
number of which were founded in the United States by women, in recent years industry consolidation
and globalization has resulted in the emergence of the large global players identified in TN Exhibit 1,
,806-162 Teaching Note -- L'Oreal and the Globalization of American Beauty
and led by L’Oréal. Many students, usually male, are surprised to learn of the size and dynamic growth
of the industry. It is sometimes helpful to bring their attention to the wider significance of beauty
products. There is compelling research from a range of social sciences that there is a ‘beauty premium.’
Physical attractiveness, which may be enhanced by the products of this industry, exercises a major
impact on individual lifestyles, ranging from the ability to attract sexual partners to lifetime career
opportunities and earnings.1
The beauty industry has a number of important characteristics. An important distinction is made
between mass and prestige brands, although cross-buying is common in developed markets. Prestige
cosmetics have been defined as the industry segment “where products are linked to the image of
luxury and exclusivity and enjoy higher pricing, quality and brand positioning.”2 The prestige market
accounts for over 40% of the total cosmetics market. L’Oréal holds an unusual position in the prestige
cosmetics sector as it is the only mass market company with a significant exposure to the segment. As a
company, it has a presence in every distribution channel. Lancôme, a L’Oréal brand, is the world’s
leading premium cosmetics brand. The other luxury brands sold by the company are Helena
Rubinstein, Biotherm and Shu Uemura, a Japanese brand acquired in 2003.
In recent decades a major trend in the industry has been the fragmentation of the market by
ethnicity, gender, demographics and psychographics. Kiehl’s is particularly illustrative of the later. The
business began as a family-owned company, and for a long time the brand was confined to its original
East Village store, which cultivated a neighborhood pharmacy feel. Kiehl’s did not advertise. Its
popularity was boosted by celebrity endorsement, but the celebrities approached Kiehl’s rather than the
other way round, and were not paid for their endorsements. Instead, the company made contributions
to charities on their behalf.
Historical Evolution
Instructors teaching this case in a history course should be aware of the evolution of the industry.
The modern beauty industry emerged during the second half of the nineteenth century, and has both
reflected and in part shaped cultural and social values ever since. Rising discretionary incomes,
urbanization and changing values spurred fast growth, notably in the United States. Shifts in values
were significant also. In Western societies, most people smelt badly until the middle of the nineteenth
century, due to a widespread aversion to washing with water, which had become prevalent during the
outbreaks of bubonic plague in the Middle Ages. However thereafter personal cleanliness assumed the
status of an indicator of moral, social and racial superiority. In addition the use of cosmetics, formerly
associated with prostitution, became increasing accepted, beginning in the United States.3
Subsequently hygiene practices and beauty ideals became widely diffused despite apparent deep-
seated obstacles to globalization. As in all consumer products, there were wide cross-national
differences in income levels, distribution systems and regulations, but there were also strong
physiological and cultural influences on demand. While there is evidence that infants may share basic
understandings of ‘attractive’ faces, regardless of ethnicity, human beings have varied considerably in
how they presented themselves through clothes, hair styles and physical appearance. This reflected
skin tone and hair texture differences between ethnic groups, climatic and dietary variations that
impacted how people smelt and presented themselves, and cultural and religious values.
While perfumes were a traditional beauty product, and toilet soap the first beauty product of the
modern industry, there was rapid product and marketing innovation, especially in the United States.
Colgate sold its first toothpaste in 1873, packaging its powders and pastes in a jar, and in 1896
invented the collapsible toothpaste tube. Shaving creams were developed in response to a rapid
2
, Teaching Note -- L'Oreal and the Globalization of American Beauty 806-162
decline in the wearing of beards. Cosmetics made a transition from a handicraft to a factory industry
as the association between the use of cosmetics and immoral behavior broke down in the United
States. Mass production and mass marketing techniques created new markets. In Europe, product
innovations frequently originated from pharmacists and chemists, such as the founder of L’Oréal.
During the interwar years there was further product innovation. Existing products became more
affordable and accessible. The first metal lipstick container appeared in 1915; the first screw-up
lipstick container was invented in 1921. American entrepreneurs developed mascara, shampoos, and
at-home hair dyes. Cosmetics began to be nationally advertised. Cosmetic products such as lipstick
and nail polish gained social acceptance to the point where, at the outbreak of the Pacific War in 1941,
the US government declared the production of lipstick a wartime necessity. By 1948 90% of American
women used lipstick, and two-thirds used rouge. The United States accounted for over half of the
world beauty market in 1950.
During the postwar decades the beauty industry grew quickly. The US and Japanese personal care
markets grew in constant terms at 6.1 and 14.9% per capita between 1950 and 1974, while constant
per capital income grew at 2.5 per cent and 11.7% respectively. The international growth prospects of
the industry were enhanced by rising incomes, the globalization of Hollywood and American
fashion, and the postwar increase in international travel.
There was a rapid growth of global investment in the industry after World War II. US, European
and Japanese firms created production and marketing operations in many countries, but there were
and remain major obstacles to building a global beauty businesses. The first related to markets. The
problem was not merely that most of the world lacked the level of disposable income to purchase
most of these products, but also that consumer preferences varied widely across the full spectrum of
beauty products even at similar income levels.
A second set of obstacles to globalization relates to access to distribution channels and marketing.
The advertising strategies used to grow the US beauty market were not readily transferable. There
were many restrictions on media advertising outside America.
Third, it is challenging to access distribution channels in foreign countries. Both prestige and mass
cosmetic brands struggled to persuade distribution channels to provide space on their shelves or
floors. In prestige, this meant persuading exclusive department stores to provide floor space in a
good location, which usually meant displacing incumbents.
Finally, there are obstacles to globalization arising from differences both in human physiology and
governmental regulations. Products and brands needed some reformulation because of differences in
skin tone, hair texture and climate. Moreover as the products of the industry could affect health, there
was extensive regulation of permitted formulations and preservatives, claim substantiations and
ingredient labeling.
The case explores how such obstacles were overcome by L’Oréal in particular.
Case Description
The case begins with the protagonist, British-born Philip Clough, president of Kiehl’s, moving into
his new head office in Greenwich Village in New York City. Kiehl’s had been acquired by L’Oréal in
2000. It was now a part of the Luxury Products Division of the company. The two other divisions
were Consumer Products, which sold brands that were distributed through mass market retailing
channels, and Professional Products, which sold hair care products to salon professionals. TN Exhibit
3
REV: OCTOBER 30, 2006
TEACHING NOTE
L’Oréal and the Globalization of American Beauty
This case was written for use in the first module of HBS’s Entrepreneurship and Global Capitalism
course. The course is a business history elective taught in the second year that seeks to investigate the
origins and dynamics of global capitalism; the identification and exploitation of global business
opportunities over time; the business challenges posed by “foreignness;” and how these challenges
have changed over time.
The first module begins with the creation of the first global economy in the 19th century, and
tracks its subsequent collapse following the political and economic crises of the first half of the
twentieth century. The second module focuses on the political and regulatory factors that led to the
end of the first global economy, and which have continued to be major influences on international
business until the present day. The third module considers the growth of the second global economy
since 1980. This case is taught in this third module. While written specifically for a business history
course, this case can also be taught in courses on marketing and international business.
Case Overview and Structure
Industry Background
The case examines the challenges of globalizing Kiehl’s, an upscale US cosmetics business that
was acquired by L’Oréal in 2000. L’Oréal, a France-based company, has become the world’s largest
beauty company over the last two decades. The Kiehl’s story is set in the wider context of L’Oreal’s
growth in the US market through a series of acquisitions of hair care and cosmetics companies.
L’Oréal now offers a portfolio of beauty brands based in a number of countries that it sells globally,
although the majority of brands are based in France and the United States.
As the case makes evident, the beauty industry is enormous, and growing rapidly. In 2004 the
global personal care industry was valued at $160 billion, and was growing at 7% per annum. Although
the industry originated as one developed by a large number of entrepreneurial firms, a significant
number of which were founded in the United States by women, in recent years industry consolidation
and globalization has resulted in the emergence of the large global players identified in TN Exhibit 1,
,806-162 Teaching Note -- L'Oreal and the Globalization of American Beauty
and led by L’Oréal. Many students, usually male, are surprised to learn of the size and dynamic growth
of the industry. It is sometimes helpful to bring their attention to the wider significance of beauty
products. There is compelling research from a range of social sciences that there is a ‘beauty premium.’
Physical attractiveness, which may be enhanced by the products of this industry, exercises a major
impact on individual lifestyles, ranging from the ability to attract sexual partners to lifetime career
opportunities and earnings.1
The beauty industry has a number of important characteristics. An important distinction is made
between mass and prestige brands, although cross-buying is common in developed markets. Prestige
cosmetics have been defined as the industry segment “where products are linked to the image of
luxury and exclusivity and enjoy higher pricing, quality and brand positioning.”2 The prestige market
accounts for over 40% of the total cosmetics market. L’Oréal holds an unusual position in the prestige
cosmetics sector as it is the only mass market company with a significant exposure to the segment. As a
company, it has a presence in every distribution channel. Lancôme, a L’Oréal brand, is the world’s
leading premium cosmetics brand. The other luxury brands sold by the company are Helena
Rubinstein, Biotherm and Shu Uemura, a Japanese brand acquired in 2003.
In recent decades a major trend in the industry has been the fragmentation of the market by
ethnicity, gender, demographics and psychographics. Kiehl’s is particularly illustrative of the later. The
business began as a family-owned company, and for a long time the brand was confined to its original
East Village store, which cultivated a neighborhood pharmacy feel. Kiehl’s did not advertise. Its
popularity was boosted by celebrity endorsement, but the celebrities approached Kiehl’s rather than the
other way round, and were not paid for their endorsements. Instead, the company made contributions
to charities on their behalf.
Historical Evolution
Instructors teaching this case in a history course should be aware of the evolution of the industry.
The modern beauty industry emerged during the second half of the nineteenth century, and has both
reflected and in part shaped cultural and social values ever since. Rising discretionary incomes,
urbanization and changing values spurred fast growth, notably in the United States. Shifts in values
were significant also. In Western societies, most people smelt badly until the middle of the nineteenth
century, due to a widespread aversion to washing with water, which had become prevalent during the
outbreaks of bubonic plague in the Middle Ages. However thereafter personal cleanliness assumed the
status of an indicator of moral, social and racial superiority. In addition the use of cosmetics, formerly
associated with prostitution, became increasing accepted, beginning in the United States.3
Subsequently hygiene practices and beauty ideals became widely diffused despite apparent deep-
seated obstacles to globalization. As in all consumer products, there were wide cross-national
differences in income levels, distribution systems and regulations, but there were also strong
physiological and cultural influences on demand. While there is evidence that infants may share basic
understandings of ‘attractive’ faces, regardless of ethnicity, human beings have varied considerably in
how they presented themselves through clothes, hair styles and physical appearance. This reflected
skin tone and hair texture differences between ethnic groups, climatic and dietary variations that
impacted how people smelt and presented themselves, and cultural and religious values.
While perfumes were a traditional beauty product, and toilet soap the first beauty product of the
modern industry, there was rapid product and marketing innovation, especially in the United States.
Colgate sold its first toothpaste in 1873, packaging its powders and pastes in a jar, and in 1896
invented the collapsible toothpaste tube. Shaving creams were developed in response to a rapid
2
, Teaching Note -- L'Oreal and the Globalization of American Beauty 806-162
decline in the wearing of beards. Cosmetics made a transition from a handicraft to a factory industry
as the association between the use of cosmetics and immoral behavior broke down in the United
States. Mass production and mass marketing techniques created new markets. In Europe, product
innovations frequently originated from pharmacists and chemists, such as the founder of L’Oréal.
During the interwar years there was further product innovation. Existing products became more
affordable and accessible. The first metal lipstick container appeared in 1915; the first screw-up
lipstick container was invented in 1921. American entrepreneurs developed mascara, shampoos, and
at-home hair dyes. Cosmetics began to be nationally advertised. Cosmetic products such as lipstick
and nail polish gained social acceptance to the point where, at the outbreak of the Pacific War in 1941,
the US government declared the production of lipstick a wartime necessity. By 1948 90% of American
women used lipstick, and two-thirds used rouge. The United States accounted for over half of the
world beauty market in 1950.
During the postwar decades the beauty industry grew quickly. The US and Japanese personal care
markets grew in constant terms at 6.1 and 14.9% per capita between 1950 and 1974, while constant
per capital income grew at 2.5 per cent and 11.7% respectively. The international growth prospects of
the industry were enhanced by rising incomes, the globalization of Hollywood and American
fashion, and the postwar increase in international travel.
There was a rapid growth of global investment in the industry after World War II. US, European
and Japanese firms created production and marketing operations in many countries, but there were
and remain major obstacles to building a global beauty businesses. The first related to markets. The
problem was not merely that most of the world lacked the level of disposable income to purchase
most of these products, but also that consumer preferences varied widely across the full spectrum of
beauty products even at similar income levels.
A second set of obstacles to globalization relates to access to distribution channels and marketing.
The advertising strategies used to grow the US beauty market were not readily transferable. There
were many restrictions on media advertising outside America.
Third, it is challenging to access distribution channels in foreign countries. Both prestige and mass
cosmetic brands struggled to persuade distribution channels to provide space on their shelves or
floors. In prestige, this meant persuading exclusive department stores to provide floor space in a
good location, which usually meant displacing incumbents.
Finally, there are obstacles to globalization arising from differences both in human physiology and
governmental regulations. Products and brands needed some reformulation because of differences in
skin tone, hair texture and climate. Moreover as the products of the industry could affect health, there
was extensive regulation of permitted formulations and preservatives, claim substantiations and
ingredient labeling.
The case explores how such obstacles were overcome by L’Oréal in particular.
Case Description
The case begins with the protagonist, British-born Philip Clough, president of Kiehl’s, moving into
his new head office in Greenwich Village in New York City. Kiehl’s had been acquired by L’Oréal in
2000. It was now a part of the Luxury Products Division of the company. The two other divisions
were Consumer Products, which sold brands that were distributed through mass market retailing
channels, and Professional Products, which sold hair care products to salon professionals. TN Exhibit
3
