Executive Summary
The current report is an overview of selected company L’Oreal which is based in France. The trademark of L’Oreal is extremely popular in the entire world which covers products not just used for gal-derma but also for dermatology. The main business of the company is cosmetics production and distribution and is actively marketing products and 25 international brands covering products such as make-up, perfumes and fragrances, hair care, styling and skin care products which are produced in either its own facilities or are being sourced from different suppliers in other countries. Company’s business operations are diverse and are spread into 130 countries with a wide customer base.
The report consists of different sections and covers important aspects of the cosmetic industry and L’Oreal’s business model. The report provides information which could be used both internally and externally in order to have a better understanding of the business model of the company and also the factors which need to be taken into account for satisfying business intelligence needs. The report provides an in-depth analysis of how the company aligns its financial, strategic and operational goals by focusing on the core businesses and markets it serves. This report draws information from the company’s sources regarding the corporate structure including its important subsidiaries and operating model that it implemented for its operations along with the profile of products and services it offers. A crucial part of the report consists of the financial statement analysis which provides results for various ratios under three categories of liquidity, solvency and profitability ratios. This analysis is based on the particular information pertaining to shareholders’ interest in the company. In addition to the financial analysis the report also includes generic strategy of L’Oreal, industry life cycle and its competition analysis. In addition to these environmental and social issues facing the company are discussed along with issues of global financial crisis which have impact on the company’s business.
Global Financial Crisis
The global financial crisis which erupted from the U.S. and failure of its subprime mortgage industry in the middle of 2007 is continuing to take its toll on businesses and consumers around the global markets. Businesses have shrunk with major closures seen in different markets and investors are losing confidence and values of their investments which is resulting in unexpected shocks in world’s capital markets. L’Oreal being a public limited company and its share listed on Paris Stock Exchange has shed almost half of its value in the last two years with a slight improvement seen this year (Yahoo!, 2009).
Consumers are also feeling the liquidity crunch which has forced them to cut back their spending. This has pushed companies to shrink their production plans and revert their focus on their core businesses. Despite structural changes in companies they are not able to pull themselves out of the financial crisis and has caused governments to intervene by injecting cash in these companies. However, the problem is yet to be solved and consumers are becoming increasingly uneasy with the situation facing the corporate sector. This is a situation which suggests that if food prices and oil prices consumer will be in worse condition and many will find it difficult to meet their ends even in developing countries which are taking this situation very seriously (Shah, 2009). L’Oreal being an international company surely has to closely examine the current financial situation which is driving air out of its major market and customers spending.
This slowdown in the economy and people losing their jobs and sources of income can have a severe impact on the sales of L’Oreal as people in such economic conditions save more and buy alternate products which are cheaper. Therefore, it is pertinent for the company to strategically plan out its business in the coming months or so.
The company has already cut its sales and profit forecasts for the current financial year in respect of the prevailing economic conditions and is thinking of pulling back from some of the less profitable markets. The company results have not met shareholders expectations in the last year. This is also apparent in the current year as company’s expectations in 2008 for the current year were almost 6% increase in sales however due to unexpected huge loss of profit driven from its department stores closing and a sharp decline in its customer visiting its salon chain (Montague-Jones, 2008). The company has been forced to undertake some crucially important and somewhat unacceptable decisions which includes cutting down 500 jobs just in the US and it is further planning to let go of nearly 5% of its workforce within the next six months. The company has closed down its factories in Wales and Monaco because of poor results from the European market (Montague-Jones, 2008).
References
- Montague-Jones, G. (2008). L’Oreal plans to widen margins to combat the downturn. Web.
- Shah, A. (2009). Global financial crisis. Web.
- Yahoo! (2009). L’Oreal Share Price. Web.