L’Oréal CEO Nicolas Hieronimus has spoken about the impact of the Middle East conflict on its business, both directly in the region and more widely.
“Despite current geopolitical and macroeconomic uncertainties, we are optimistic about the outlook for the global beauty market,” said Hieronimus in a statement accompanying L’Oréal’s first quarter financial results, which were revealed this week.
Speaking on a call with investors, Hieronimus said he was wary around the conflict, with the impact so far “manageable” in March.
“I am conscious of the uncertainties that lie around the conflict,” he said.
“What we do not know is whether durable inflation on cash prices will impact consumer behaviours.
“So far, and we are monitoring this very closely, we have seen absolutely no reduction of consumption in our markets, whether it is Europe, North America or SAPMENA [South Asia Pacific, Middle East and North Africa].
“Should the conflict last longer, this will have an impact on the price of the brand, [and] will have an impact on our sourcing, on our logistics.
“We are all waiting to see the resolution of this conflict.
“So, that leads us to a certain level of carefulness.”
SAPMENA was L’Oréal’s fastest-growing region in Q1, with sales up 15.4%.
However, the region accounts for less than 3% of L’Oréal’s sales, said Hieronimus, and it is less exposed to the region than other companies operating in the luxury space.
A still manageable impact is likely to be seen in L’Oréal’s Q2 results, depending on how long the conflict lasts.
“It is really more both the tourists visiting the big mall, Dubai Mall and the travel retail that is going to impact business more than any other division,” said Hieronimus.
“So, I would say it will have an impact, but it will really depend on how long the conflict lasts, and whether, particularly tourists and travellers, are confident to go back to this region.”
Beiersdorf outlines conflict’s impact on business
Hieronimus is not the only beauty boss to outline the effects of the Middle East conflict.
Beiersdorf CEO Vinent Warney this week said on a call with investors discussing the Nivea and Eucerin maker’s Q1 results that the Middle East is down 50% in March, however, the region makes up just 3% of its sales.
“We are not so much suffering,” he said.
“Minus 50% in the Middle East [is for] for Nivea and Eucerin. It is a small business for La Prairie.
“We are not suffering in sell-out. That is the good news, because we have been able to find ways to stock the retailer in due time.
“We are suffering in net sales, which means that [there is] no issue on the consumption, [or] on the sell-out, but we hope to be able to continue to find ways.
“We are extremely creative, using all the means you can imagine to drive our product to the Middle East.
“We are using the other routes, like everybody is using Salalah [Oman], Khor Fakkan [UAE], Jeddah [Saudi Arabia].
“We are rerouting as much as we can to be sure that we can serve our consumers.”
On the same call, Beiersdorf CFO Astrid Hermann said: “The crisis in the Middle East weighed on the Africa, Asia, Australia region with 170 basis points headwind on growth.
“Excluding the Middle East, Africa, Asia, Australia would have grown by 1.1%.”
However the conflict could have “a substantial impact on our cost, which we will try to find measures to obviously offset,” said Hermann.
“Given the size of our business in the Middle East, the direct impact will be quite low, but we know obviously this could lead to a much more global impact, and then obviously have a much larger impact on us,” she said.
The immediate impact of oil and gas supply disruption is “relatively limited”, Hermann explained, and the logistics side “has been manageable so far”.
“We are obviously really watching the supply situation and ensuring that we are set there,” she said.
“We are working through obviously many different scenarios, as you can imagine, on what could come if this crisis is staying for longer.
“That clearly could trigger significant cost increases, and we will then obviously look at all the tools we have to ensure that we can offset the impact from that pressure.”
Hermés last week said sales had been hit by the Middle East conflict, both in the region as well as in other markets, such as France, which benefit from tourist visitors from the area.
LVMH CEO Bernard Arnault has said the crisis affecting the Middle East could end in “world catastrophe” if it is not resolved.