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The Beauty Business L'Oréal's Great Bluff

L'Oréal is the world's largest and most profitable cosmetics company -- and also its most secretive. There is one reason behind the secrecy: The dismal reality evident at the company's Paris chemical production facility would only mar the dreamy world invoked in L'Oréal's advertising campaigns, on which the company spends billions.

Clichy is a suburb in the northwest corner of Paris, barely visible on the edge of maps of the French capital. There are no postcards depicting Clichy, where low-income housing, warehouses and eight-lane highways are hardly the stuff of tourist brochures.

L'Oréal, the world's largest cosmetics company, has its headquarters in the center of Clichy. Though referred to as the "Beauty Factory," the building, with its brown glazed façade of windows, is every bit as ugly as its neighborhood.

In some ways, the building gives the impression of a high-security zone. Seven cameras are installed around the parking garage entrance alone. Inside, security personnel enforce a strict ban on photography. The concept of un-retouched reality seems to trigger allergic reactions at L'Oréal. The world's largest hair salon is located in the basement of the headquarters building. Here, 90 hairdressers provide free hairstyles to 300 women a day, students, the unemployed and retirees willing to let L'Oréal use them as guinea pigs for new hair colors. The women spend hours waiting for various coloring regimens to take effect. Their faces give the impression of hard labor -- not surprising, given the poor air quality in the windowless room.

Quality, at L'Oréal, seems to be inexorably linked to suffering. On the eleventh floor of the building, the walls are clad in wood and the carpets the color of apricots. This is where Béatrice Dautresme, L'Oréal's director of development, has her office. The only photos available of Dautresme are glamour shots taken by a few carefully selected photographers. She's 58, but she looks to be in her early forties. "The world would be a drearier place without L'Oréal," she says.

Dautresme, who in 2001 became the first and thus far only woman on the company's management board, is something akin to L'Oréal's supreme oracle. Her job is to predict fashion trends and figure out, at just the right time, what fashionable young Chinese women want their lips to look like, or how much wax mascara should contain to produce just the right degree of eyelash curvature.

She has to be familiar with cultural differences and be able to modify products accordingly. Shampoos for the Indian market should contain more oil than those intended for sale in Europe, and Japanese lipstick can't contain any perfumes. To help Chinese women understand why they should pay a premium for face cream sold under L'Oréal's Vichy house brand, it's labeled "Dr. Vichy" in China.

"We have an important mission," says Madame Dautresme, quite seriously. "Cosmetics represent freedom." Dautresme says one of the most important aspects of her products is their natural look. "Our products create self-confidence," she says, "and are a fantastic tool for finding one's own identity." She adds that the company believes in promoting tolerance and does its part to make a multicultural world a reality. Of course, L'Oréal's products also help combat feelings of isolation in the elderly.

When it comes to the elderly, L'Oréal's German spokeswoman, Monika Riemke, has even come up with an unusual theory about causal relationships: "Old people get up, stand up straight and no longer fall down as often when they use our products." As with almost everything at L'Oréal, there's even a study to support her theory. It's called "Look Good, Feel Better."

The company has come a long way with such formulas for happiness. What began in a small Paris apartment, where young chemist Eugène Schueller concocted the first synthetic hair dyes in 1907, has turned into a global conglomerate with more than €14 billion in sales. L'Oréal, whose profits have been consistently on the rise for the past 20 years, is a veritable hothouse when it comes to making money. The company's board only recently announced a record profit of €2.1 billion. The principle beneficiary of L'Oréal's success is Liliane Bettencourt, Schueller's only daughter, the majority shareholder in the company and France's richest woman. The 82-year-old heiress' fortune is estimated at €16.6 billion, and it seems unlikely that the well will be drying up anytime soon.

The group routinely floods retailers' shelves with its 17 brands, hundreds of items and ever-shortening cycles of innovation. It holds a 15-percent share of the global cosmetics market and sells 130 products a second. Innovations that initially appear in luxury brands like Helena Rubinstein and Lancôme are later passed on to mass-market labels like Ambre Solaire and Garnier.

In the late 1990s, when it became apparent that the European market was saturated, CEO Lindsay Owen-Jones restructured the group to a more global orientation. L'Oréal's British-born chief executive was especially interested in gaining new customers in newly industrialized countries like China, India and South Africa. He acquired brands, like the Chinese skincare series Mininurse and US brands Softsheen and Carson, which blanket the African American market with ethnic cosmetics such as skin lighteners and hair relaxers. As a result of the company's change in direction, the share of L'Oréal sales achieved in newly industrialized countries has increased from 9 to 20 percent in the past decade. The sale of the aura of beauty has long since boomed in the developing world.

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One of the most touching industry fairy tales is the story of perfume. It's set in Grasse, in the south of France, and its characters are farmers who cultivate roses, distill the extract, and sell it to perfume-makers who use the extract to create their scents. L'Oréal also plays a role in keeping this fairy tale alive, claiming, in its own, company-sponsored, environment report, that it "gives preference to renewable plant-based raw materials," despite the fact that the entire industry works almost exclusively with synthetic essences nowadays.

Although L'Oréal owns scents like Giorgio Armani, Ralph Lauren and Cacharel, it doesn't employ a single perfume-maker. This industry has long since outgrown the tradition of manual labor. Most of all, a scent is a name and a sinfully expensive ad campaign. Marketing is far more important than the product itself, which isn't even produced by the company itself.

The group employs contract manufacturers like Swiss perfume specialist Givaudan, whose scent factories bear a resemblance to refineries. In Givaudan's glass display cases, refined essences share shelf space with toilet cleaners. In terms of pure product value, there isn't much difference between the two items. A €60 fragrance has a product value of about €1.50.

But cosmetics isn't the only industry in which the product has become so heavily dependent on its image. In fact, products and brands are hardly related to one another these days. But while the production process in some industries, such as the auto industry, still possesses a displayable aesthetic, companies like L'Oréal prefer to keep it under wraps. And what, after all, is there to show? Chemical laboratories? Enormous vats? Animal tests?

"We have not been conducting animal tests since 1989," says Riemke, with a touch of outrage in her voice. What she fails to mention is that Pierre Simoncelli, L'Oréal's chief lobbyist in Brussels, spends his days lobbying just about everyone in the European Parliament, even members of the Green Party, in an effort to overturn the prohibition on animal testing for cosmetics. By opting to outsource its production to small contract manufacturers, L'Oréal has managed to keep its own hands clean -- as clean as its advertising. A few months ago, L'Oréal ran an ad for its anti-cellulite gel in the magazine Gala, using the following headline: "No more orange skin effect! 85% say it's effective." The company surveyed 50 women, most of whom claimed that they felt their skin becoming firmer after only eight days. But the gel and two of the company's other brand-name products failed Germany's Eco Test, in which they were deemed "inadequate."

According to the test, the products don't just produce what's referred to as a "flabby" result (like most competing products), but also happen to be chemical cocktails. In addition to polyethylene glycol, which can make the skin more permeable to pollutants, testers discovered phthalate (a softener), which the EU has classified as being detrimental to reproduction. In two L'Oréal products, the testers also found artificial musk compounds, which accumulate throughout life in the body's fatty tissue. "There is no cosmetic cream that can get rid of cellulite," says Eco Test's Kerstin Scheidecker matter-of-factly.

Hans Schaefer once worked for L'Oréal in this grey area between cosmetics and medicine. Until four years ago, the German biochemist was a member of the group's research team, which includes 2,900 scientists worldwide.

When Schaefer talks about his efforts to develop anti-aging products, he sounds a bit like a schoolboy trying out his new chemistry kit: "One time I mixed together vitamin C, vitamin A, collagen, an anti-inflammatory and antioxidants, but it didn't work."

But Schaefer has also been involved in some true breakthroughs. In the mid-1980s, he developed a retinoid-based acne cream, which L'Oréal subsidiary Galderma used to gain a foothold in the drug industry. To be on the safe side, Galderma had human testing of its tricky synthetic molecules outsourced to Warsaw.

Schaefer also developed a hair-growth agent, but now seems to have strayed from the old marketing approach. The tincture "only slows down hair loss to a limited extent and doesn't work for everyone," he says. According to Schaefer, anyone who is willing to use the product must be truly obsessed with his hair. "It's sticky," says Schaefer, who spent years working at L'Oréal's research center in Clichy.

On this morning in Clichy, two biochemists talk about the group's "aggressive patent development" and the fact that L'Oréal holds 515 patents worldwide. Some, they say, are already based on nanotechnology and the encapsulation of substances, an important element in new food supplements with cosmetic effects. L'Oréal is developing such products jointly with food multinational Nestlé, which is L'Oréal's second-largest shareholder after Liliane Bettencourt. The biochemists also mention "Metashine," a tremendously successful new lipstick that shines "like the paint job on a car." In fact, they say, the process was "essentially" borrowed from the auto industry.

The path into the epicenter of beauty leads through laboratories containing devices that look like steel microwaves. Suspended inside are dyed strands of hair, which are first exposed to UV radiation and then rinsed for days to determine the most effective chemical composition of hair dye. Bruno Bernard has just published an article on the function of the hair follicle in the British Journal of Dermatology. A copy sits on his desk. In the mid-1990s, Bernard and a team of researchers managed to grow a record-breaking 1.5 centimeter strand of artificial hair in a Petri dish.

"We added a little glucose and some vitamins to the follicle," says Bernard, "just like in Fructis shampoo." And what's the outcome? "We believe it can have a local growth effect," he says, "but it isn't necessary to add these substances." L'Oréal's spokeswoman turns a shade paler in response to this last comment.

A giant poster showing the layers of human skin hangs in Rainer Schmidt's small office. Before coming to L'Oréal's dermatology department 20 years ago, Schmidt worked as a biochemist at the Free University of Berlin. "At first I didn't know anything about the skin," he says. Now his desk is littered with models of reconstructed human skin. They look like ravioli.

But Schmidt would rather talk about marketing, saying that a competitor recently launched ads claiming that plant-based DNA has a rejuvenating effect on the skin. "That's ridiculous," he says. But when you take a closer look, says Schmidt, such claims are "probably also a factor in our company." Riemke fidgets in her chair. Then she interjects that, naturally, any ad copy the group uses is first "reviewed by the legal department," and suggests that the interview should be brought to a close.

Schmidt and Bernard are sitting in what one might call the global beauty farm's academic wing. From their employer's perspective, their scientific instincts should begin to fade at the point where marketing begins. Sure, the company invests €480 million (about three percent of sales) in research -- though only about a third of that in basic research. But what L'Oréal doesn't like to communicate is that it spent  2.2 billion on advertising and promotion in 2003. The French conglomerate is the world's eighth-largest advertiser, reporting record growth in advertising expenditures of 37.3 percent over the previous year.

L'Oréal's use of its relatively new PR slogan, "Because I'm Worth It," to push through exorbitant price hikes speaks for the power of advertising. According to the French consumer advocacy journal Que choisir, retail prices for some of L'Oréal's products jumped by up to 46 percent after the new campaign was launched.

Even in the 1920s, company founder Eugène Schueller was already blanketing the French public with his marketing campaign. In an indication that his success was gradually going to his head, he funded a group called "La Cagoule," a crude bunch of part-time fascist terrorists who ended up plotting to overthrow the government in 1937. In 1941, Schueller said that the national revolution "can be nothing but bloody." After the war, in an effort to whitewash earlier indiscretions and secure his company's future, he hired François Mitterrand to run one of his beauty publications. L'Oréal was then one of the first companies to hire its own head of PR, part of Schueller's strategy of using advertising as a "tool to combat the laziness of consumers."

Well-known singers were hired to go on tour with L'Oréal's chansons. The company announced its "Day of the clean child," marching legions of young girls through beach resorts to sell suntan lotion.

Today L'Oréal's models are called "ambassadors," almost as if they had volunteered to fight for some humanitarian cause. They include celebrities like Claudia Schiffer and Catherine Deneuve, as well as black singer Beyoncé Knowles. In L'Oréal ads, Knowles says one of her favorite products is the hair dye Féria Color Booster, one of the company's harshest chemical cocktails. A few products in the Féria line contain phenylenediamine, an aggressive allergen that's been known to cause severe eye damage when used in mascara since as far back as the 1930s. The substance can change the chemical balance in bodies of water, is classified as hazardous waste and may be carcinogenic. It also happens to be a popular dye.

To indemnify itself against risk, L'Oréal includes a bunch of fine print about skin irritation and "blinding" on the package insert. Of course, the disclaimer says, the warning about blinding only applies to those who come up with the idea of using the product to dye their eyebrows. Beyoncé Knowles also advertises L'Oréal sprays, gels and mousses. To transform her naturally kinky black hair into straight, artificially brown shiny hair, she'll need relaxers that break down sulfur compounds and then use oxidants to rebuild them. If the singer were to massage only a fraction of the amount of the product she's advertising into her hair, her head would turn into something like a small chemical hazardous waste dump. What L'Oréal calls the "ethnic" hair care market is ultimately nothing but an effort to condition millions of black customers to pursue the European ideal of beauty.

But even this strategy is not inconsistent with Schueller's recipe for success. In 1934, he advised his dealers to "tell people that they're ugly."

Translated from the German by Christopher Sultan

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