L'Oreal appears to have been hit particularly hard by what it described as "a sharp drop in salon visits" in North America last quarter. North America was by far the weakest global market for L'Oreal last quarter, pulling down an overall organic sales growth rate of 3.4% for the quarter. That led L'Oreal to revise its full-year top-line forecast to 4% from a prior rate of more than 5%.
In comparison, organic sales fell 1.8% in Western Europe but soared 15% in the rest of the world, primarily developing markets, for L'Oreal.
The salon trade was the only point of weakness in North America L'Oreal elaborated on, and it appears to have been a problem for competitors, too. P&G likewise cited weakness for its Wella business, though overall the company reported a strong -- and for the first time in more than a year better than L'Oreal -- quarter for its beauty business, with organic sales up 6% globally.
Salon operator Regis, too, cited slowing traffic at salons last quarter, said Cyrus Bulsara, principal in Professional Consultants & Resources, which specializes in the salon trade. He sees two factors hurting marketers of salon beauty products, including the growing role of independent "booth operators" who rent booths at salons but don't sell many products, and women visiting salons less frequently. "The average used to be every five to six weeks," Mr. Bulsara said of visits for hair coloring. "Now, women are waiting every six to eight weeks to have coloring done."
Historically, the salon industry has resisted recessionary pressures, Mr. Bulsara said, but he believes this time is different. He doesn't, however, see women returning to mass off-the-shelf hair colorants, noting that sales of hair color in food drug and mass outlets measured by ACNielsen were down 1% last quarter.
Distributors cut orders
L'Oreal also said distributors had slowed purchases in some cases because of the current economic crisis, echoing what P&G Chairman-CEO A.G. Lafley said on a conference call yesterday, that some P&G retailers and distributors likewise were decreasing inventory levels.
Despite slowing sales, "We have made the decision to maintain strong advertising and promotional support for our brands in the fourth quarter in order to prepare for 2009 in the best possible conditions," L'Oreal CEO Jean-Paul Agon said in a statement.
And despite the third-quarter slowdown, L'Oreal actually appears to have hiked U.S. media spending, which was up 10.5% to $123.9 million in July and August (excluding outdoor) from the year-ago period, according to TNS Media Intelligence.
Rivals appear to be paring back
By contrast, P&G and Unilever, which met or exceeded their top-line growth goals, both appear to have cut U.S. media spending last quarter -- P&G by 11.9% to $498 million in July and August, and Unilever by an even steeper 37% to $93.8 million in the same period.
Unilever's organic sales rose 8.3%, mainly on price increases and a 0.7% increase in unit volume last quarter, and the company said today it had increased absolute advertising and promotional spending in the quarter globally by about $13 million.