Cosmetics and beauty giant L’Oreal has spooked the media sector with massive cuts to its marketing and advertising budgets, believed to be as much as half of its annual estimated $60 million spend.
L’Oreal has been one of the biggest print spenders but has unleashed deep cuts to its spending in Australia after the company had to address some unforeseen internal issues around retailer trading terms.
So dramatic are L’Oreal’s cuts, covering flagship brands such as Garnier and Maybelline, that talk in the media sector is intensifying about how long it will take for the group to recover. The issues facing the company are understood to be local rather than global.
L’Oreal reviewed its media account in late 2010 and at the time it said its spending was around $60 million a year. Some are suggesting it is now in the $25-30 million range or lower.
Added to the internal issues, said to be around deferred retail rebates, the company is under enormous pressure from retailers who are reducing L’Oreal’s products and pushing margins hard.
“They have big issues much like Unilever and Procter & Gamble,” said one observer aware of the company’s current challenges.
“They are really feeling the pinch from their retail customers but on top of that there have been some internal issues which are creating problems.”
Media executives would not talk publicly about L’Oreal’s marketing cutbacks although they confirmed the French company’s retreat was affecting the market. “They have halved their advertising commitments with all media,” said one. “It’s hurting everyone. They will come back when it all settles down.”
But another media executive was less optimistic, citing the impact such dramatic spending cuts in marketing might have on L’Oreal’s key brands and sales. “This could take them years to recover,” he said. “You can’t envisage this improving overnight.”
However, L’Oreal’s Australian managing director Johan Berg said in a statement just before press time: “I’m not in a position to share specifics on the spend, regarding media investments in total or for specific brands, but indeed we have done adjustments between divisions and brands which are in line with our future business objectives. I can confirm that we are confident that we are on track.”
Berg said L’Oreal’s key divisions were gaining market share. “As you know, the last three years have been challenging for all retail related businesses. We have also felt that business has been harder than before and more initiatives have been put in place to achieve growth.”
This article first appeared in the 19 October 2012 edition of AdNews, in print and on iPad. Click here to subscribe for more news, features and opinion.
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