Household Products

'Lipstick effect' and China's love of luxury fuels L'Oreal's strongest growth in a decade

Key Points
  • French cosmetics giant L'Oreal posted its strongest sales growth in more than a decade on Friday.
  • New markets were its strongest growth driver, with sales in the Asia-Pacific region up 24 percent.
  • CEO Jean-Paul Agon told CNBC on Friday that he was not worried about the impact of a Chinese economic slowdown.
L'Oreal CEO: Still very confident on China
L'Oreal CEO: Still very confident on China

Strong Chinese demand for luxury products helped French cosmetics maker L'Oreal post its strongest sales growth in a decade during 2018.

Speaking to CNBC's Julianna Tatelbaum on Friday, CEO Jean-Paul Agon said there was no reason why this level of growth would not be sustainable.

"The market accelerated and could stay strong in 2019. We have many reasons for this strong growth like Asia, eCommerce, travel retail, skin care, and all these reasons will stay here in 2019, so we are pretty optimistic for this new year," he said.

Downturns in sectors such as autos and technology could also help to fuel L'Oreal's growth this year, Agon added, with people setting less of their income aside for more extravagant purchases.

"It's the famous 'lipstick effect' — sometimes when people spend less on expensive items like cars or buying apartments, they have more available income and they like to indulge themselves with beautiful products. It could be absolutely positive for us," he said.

A key growth driver for L'Oreal in 2018 was new markets, including the Asia-Pacific region — where ongoing Chinese demand for luxury products saw like-for-like sales grow by 24.1 percent. However, Agon told CNBC he was not concerned about the possibility of a slowdown in the world's second-largest economy.

Keith Bedford | Bloomberg | Getty Images

"Let's not cry before it hurts — there is a reason for this strong consumption. You have hundreds of millions of consumers exceeding to a level of income where they really want to indulge themselves," he said. "In China we also have products at all levels of price … L'Oreal Paris is the number one beauty brand in China, and Maybelline is the number one make up brand, so we have products for everyone — we are still very confident."

Despite L'Oreal's strong overall sales, the numbers in its more established markets were flatter. Like-for-like sales in Western Europe declined by 0.3 percent in 2018, while sales in North America were up by 2.7 percent.

"It's not a mystery the European market and economy in general has been pretty flat these past 12 months, which reverberates in the beauty market itself," Agon said. "We cannot bet on the fact that the European economy will accelerate next year, but we are betting on the fact that we will be able to get more market share and accelerate our own growth."

"The good thing for L'Oreal is that we are covering all segments, all markets, all categories, (so) when another part of the market is going faster we take advantage of it. There is always a bright spot somewhere, (and) we are always able to take advantage of that bright spot, so I'm not at all pessimistic or worried.

L'Oreal CEO: Expect consumer division to pick up this year
L'Oreal CEO: Expect consumer division to pick up this year