And it is no secret to anyone that the pandemic accelerated the digitization of direct sales beauty companies in the world. Oriflame, according to Betancur, had already advanced before the outbreak of COVID-19. “The pandemic was a thermometer to measure how digital we were as companies in the multilevel and direct sales industry and it showed us that we were prepared. Digitization is a reality of our business that can be done from a cell phone and although it was a challenge for traditional direct sales companies, for those that are more digital and focused on messages to young people, it was an opportunity”, says the executive Colombian.
In Latin America, the operation in Peru has been one of the most successful in these years of the pandemic, since it was the market that grew the most: 25% in 2020 and close to 30% in 2021.
However, the commitment of the beauty company of Swedish origin is at the regional level. Currently, Latin America represents about 18% of Oriflame’s global sales, which amounted to €1,016.5 million (approximately US$1,101 million) in 2021. The objective in the medium or long term is to reach 30%. This, in part, due to the suspension of operations in Russia, a key market for the company that represents more than 15% of its sales.
“The ongoing war coupled with operational and legal challenges make it impossible for us to continue our Russian business in its current form. Therefore, we will further reduce operations in Russia by suspending investments, marketing, training and events. In addition, we will also suspend online sales to end consumers in Russia. These actions will have a material impact on our business in Russia,” Oriflame said in a press release last March.
The armed conflict between Russia and Ukraine has also impacted the company’s credit rating. Thus, at the beginning of April, Fitch Ratings downgraded its rating from B+ to B, with a negative outlook. “The downgrade reflects our expectation of significant challenges doing business in Russia, which contributed 16% of total sales in 2021 and a third of earnings, according to Fitch estimates. This reduces the size and diversification of the company. In addition, we assume margin pressure on your operations held back from cost inflation with limited price pass-through and marketing costs tied to a slight resumption of events and a continued challenging recruiting environment for your sales reps. ”, Fitch said in a statement.
Moody’s made the same decision, after lowering the company’s rating from B1 to B2. “The downgrade reflects the deteriorating operating environment in Russia and the significant negative impact that reduced activities in the country will have on the company’s operating performance,” said Lorenzo Re, Moody’s Vice President, Senior Analyst and Principal Analyst at Oriflame. .
Héctor Betancur points out that after the conflict in Russia and its surroundings, the company has looked much more at Asian countries and the operation in Latin America. “This company has always depended a lot on sales made in Europe, but with recent events, we are going to put a much greater effort in Latin America because it is definitely a region that has a lot of potential and great investments are coming in the future” , He says.
However, the path to gaining greater participation in Latin America is not easy either. Until now, the pandemic continues to drag barriers to the expansion of the company, especially when it comes to recruiting more saleswomen, which has a direct impact on sales.
This is reported by the company in its 2021 results report. “In Latin America, sales in euros decreased by 16% due to a lower number of members (saleswomen) mainly in Mexico, Peru and Colombia. This is the result of weak recruiting performance during the second half of 2021, which was partially offset by successful reactivation programs. Sales activity remained stable for the region as a whole, with a slight decrease in productivity. During the (fourth) quarter the region made investments to reverse sales and reduce excess inventory. This resulted in a decrease in operating margin to 5.8% from 11.9% a year earlier,” the document says.
At a global level, the signs of recovery are auspicious. According to Euromonitor, it is estimated that between 2021 and 2025 the beauty sector will grow by 14% worldwide, data that shows a partial recovery after the decline in cosmetics consumption in the pandemic.
Nordic beauty made in Latin America
Part of consolidating Oriflame’s presence in the Latin American market (they operate in Mexico, Peru, Chile, Colombia and Ecuador) is investing in local manufacturing. This also as a measure to avoid delays in the supply chain that has been hitting all industries in the world. Although Betancur does not specify the amount of the investment, some specific projects are already being worked on.
“In Peru we have a project to modernize our service center in Lima so that it is up to the level of the company, which has been growing strongly. Most of our products are imported and developed in Europe and we have also invested in the supply chain, to have more inventory in all Latin American countries. We are exploring options of local sourcing or local productions. We are going to be reviewing these projects that are part of the great proposal of how to make this business in Latin America more dynamic, in which the company is definitely entrusted to grow”, says Héctor Betancurt.
That yes, the manufacture of some lines will remain in its European plants, especially the food supplements since the consumer values that. “But if part of the basic portfolio (we would produce it in Latin America). We are studying the way so that in the medium term we can be producing in the region. Currently we import everything from Europe”, says the Oriflame executive.
This year they will also enter Argentina, although other strategic markets are not yet in the short term. “The vision of this company has always been the same in the last 55 years. We want to be number one and for that we have to be in the largest markets like the United States. We have to have leadership positions in all the markets of this region, including Peru, although today we are among the 10 largest companies in the industry in Peru, but we have to be number one or two. That is the big project and the company is investing a lot in Latin America to make it so,” he says.
Another factor that Oriflame will have to deal with in the coming months to become one of the main beauty brands in direct sales in Latin American markets is the presence of beauty multilatinas such as Natura, Belcorp and Unique that dominate in the region.
For Betancur, Oriflame, being a Swedish company, promotes the Swedish beauty trend, which, like the Korean or Japanese, is gaining ground in the world.
One of the trends, according to Euromonitor, is that people are looking at what the Nordic countries are doing because it is one of the longest-lived and healthiest regions and after the pandemic this is being highly valued and this is precisely what this company professes . This is reflected in its products, its digitization and its business proposal and that is where we are going to force the big competitors because they cannot copy us in that. There is only one company of Nordic origin in this industry in the world and that is Oriflame”, he says.