A SWOT analysis (strengths, weaknesses, opportunities, threats) helps a firm's decision makers determine what makes the firm distinctive, where its skills lie, and what its abilities are in the context of the market. It is a natural part of the planning process, and the starting point for a firm when assessing its environment.
L'Oreal's strengths include the fact that it is the largest seller of haircare and beauty products in the world. It is the market leader, concentrating on 12 core brands which account for 90% of its sales. Some of these products are diversified by price, and some by cultural image. The company has taken advantage of economies of scale in packaging and advertising, enabling improvements in profit margins. Its net profit has doubled every 5 years during the last decade.
L'Oreal provides significant funding to research and development, uses and develops leading-edge technology, and regularly and successfully introduces new products onto the market.
Its weaknesses include profit margins that are slightly below some of its smaller rivals, a decentralized organizational structure that can make control difficult, and the difficulties in coordination and control of activities and image when operating in a global market.
Opportunities stem from the fact that L'Oreal has concentrated on hair-styling and color, skincare, cosmetics and fragrances, the fastest growing field in the beauty business. It is benefiting from increasingly ageing and affluent population in developed countries. Emerging markets accounted for 27% of world cosmetic sales in 2000 and are growing. Fluctuations in the economy have little impact on this market.
L'Oreal registered more than 400 patents last year, which could give them even greater market share in the future. Several acquisitions added to the bottom line and provided opportunities to enter new areas at lower costs. L'Oreal also benefited from favorable exchange rates in 2000.
Threats include a potential for monopoly that restricts it from entering into large mergers. Also, L'Oreal's products are luxuries that could be hurt by an economic downturn, although that has not happened in the past.