Wella Profile And Swot Analysis
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Wella is to sponsor Red Nose Day in March this year, introducing a limited edition red hairspray to coincide with the event, which takes place in the UK on March 11. With each sale of the spray, Wella will donate 50p to Comic Relief, which raises money for projects in both the UK and Africa.
The company will no doubt be hoping the sponsorship will raise its profile as a charity-giving and fun-loving company, and follows a similar sponsorship in 2003, when Wella came on board as the official hair partner of Red Nose Day 2003. In that year, the company provided a free sachet of hair gel for customers who bought a red nose.
As well as the red hairspray for Comic Relief, Wellla has this month released three new products into the UK market containing the patented ingredient Creatine, which athletes have used as an energy supplement. The products - System Professional Volume Shampoo, conditioning Mousse and leave-in Volume Builder - claim to give hair increased volume.
Wella System Professional Volume Shampoo is a strengthening shampoo for fine hair, which the company says cleanses hair gently without overloading; Wella System Professional Volume Mousse strengthens fine hair, adding up to 50% more volume; while Wella System Professional Volume Builder is an intensive leave-in treatment, which gives hair long-term volume at the roots.
Wella is one of the largest hair care companies in the world. The company comprises three business divisions: professional, consumer, and cosmetics and fragrances.
The professional division sells products for coloring, perming, styling and other hair care treatments exclusively to hairdressers. The division's brand portfolio includes not just the Wella brand but also the Londa brand for Eastern Europe; Kadus, a provider of hair care products exclusively for hairdressers; the US designer brand Sebastian; and Graham Webb International. The full-service range is completed by the brands Welonda and Belvedere for salon equipment and Tondeo, the market leader for cutting equipment. With 82,300 annual events reaching 1.5 million hairdressers, Wella's Friseur Service is the world's largest provider of hairdresser training.
The consumer division sells products aimed at retail consumers. These include hair color products as well as styling and care products. In addition to Wella, the division produces brands such as Londa; the Ultra Sheen and Gentle Treatment brands from the US; the designer brand Nicky Clarke from the UK and Decoré from Australia.
The cosmetics and fragrances division is organized by the holding company Cosmopolitan Cosmetics. Its prestige brands with selective distribution include Gucci, Rochas, Dunhill, Anna Sui and Bogner. The bridge segment, which has a wider coverage, includes further successful brands like Cindy Crawford, Mexx and 4711. Cosmopolitan Cosmetics is represented in 150 countries by about 35 subsidiaries and 2500 employees.
Products & Services Analysis
The company recorded revenues of E1550.0 million during the fiscal year ended June 2004 (six months), compared to revenues of E3311.6 million during the fiscal year 2003. For the fiscal year 2004, revenues from Europe (excluding Germany), the company's largest geographical market, accounted for 43.6% of the total revenues.
Wella generates revenues through its three business divisions: professional products (49.2% of total revenues during fiscal 2004), consumer products (26.5%), and cosmetics and fragrances (24.3%).
Revenues by Division
During the fiscal year 2004, the professional products division recorded revenues of E763.0 million, compared to revenues of E1536.5 million in fiscal 2003.
The consumer products division recorded revenues of E411.2 million in fiscal 2004, compared to E932.3 million in fiscal 2003.
The cosmetics and fragrances division recorded revenues of E375.8 million in fiscal 2004, compared to E842.8 million in fiscal 2003.
Revenues by Geography
Germany accounted for 19.6% of the total revenues in the fiscal year 2004. Revenues from Germany were E304.4 million in 2004, compared to E686.8 million in fiscal 2003.
Europe (excluding Germany), Wella's largest geographical market, accounted for 43.6% of the total revenues. Revenues from Europe (excluding Germany) were E676.4 million in fiscal 2004, compared to E1397.9 million in fiscal 2003.
Asia/Pacific accounted for 17.1% of the total revenues. Revenues from Asia/Pacific were E264.4 million in fiscal 2004, compared to E563.8 million in fiscal 2003.
North America accounted for 12.5% of the total revenues. Revenues from North America were E193.9 million in fiscal 2004, compared to E430.8 million in fiscal 2003.
Latin America accounted for 7.2% of the total revenues. Revenues from Latin America were E110.9 million in fiscal 2004, compared to E232.3 million in fiscal 2003.
Wella is a global hair care product company that also sells cosmetics and fragrances. The company has a strong product development program. However, the growing demand for private label cosmetics and hair care products is threatening to eat into the company's market share.
The company has a strong product development program which enables it to maintain a healthy pipeline of products. The company's product development initiatives saw some major product launches in 2004. Key product developments during 2004 included the revolutionary Magma product, which enables the hairdresser to lift and color in one step; the Head Games range of styling products; and Wellastrate Heat Straight Perm. The company's product development program has continuously has ensure that its product range is in step with market needs.
Wella has operations in 150 countries. While the company is represented in stable and mature markets in Europe and North America, it also has an increasing presence in dynamic, emerging markets in Eastern Europe, Asia-Pacific and South Africa. Its presence across the globe insulates the company from regional demand fluctuations and enables it to address local needs that can then be leveraged in other parts of the world.
In the e-business sector, the sales of the company's online shops logged substantial, double-digit rates of gain in the first six months of 2004, with the growth even picking up pace compared with the first six months of 2003. In Germany, the company's most important market, another online shop was started and that has seen a good response. In addition to successfully launching the salondaily.com portal for hairdressers in the United States, Wella recorded further growth in the membership of and visitors to its hairdresser portals in Germany and Japan.
Strong growth in Asia-Pacific
Compared with the first six months of 2003, sales and local earnings of the Asia/Pacific region (excluding Japan and Korea) rose by more than 20% during the abridged financial year 2004. The rollout of the Biotouch brand was completed with its launch in Australia, New Zealand, China and Indonesia. In the perm products segment, the Perform Carnitin brand was re-launched in some of the region's countries. The Color Touch formula developed especially for the Asian market made a promising start in Thailand, Malaysia and in the Philippines. The rollout of Magma as of April 2004 also made a highly encouraging start thanks to the fact that Magma responds to the customer's desire to lighten dark hair and color it in one step. In Japan, the company's most important market in the region, the Professional division held its leading position in the hairdresser market despite a decline in the business. The strong growth of the Softouch brand in the semi-permanent hair color segment contributed to maintaining Wella' position as market leader in the region's hair color market.
Acquisition by P&G
In April 2004, Wella and P&G concluded a domination and profit transfer agreement (effective from June 2004) and Wella became subsidiary of P&G (effective June 2004). This gives the company a large advantage against its competitors besides providing it with access to P&G's strong financial support. As a result of this acquisition, Wella will benefit from P&G's extensive distribution network and marketing strengths.
The operating loss of the company during fiscal 2004 was E195.2 million, compared to an operating profit of E103.3 million during the first six months of fiscal 2003. The net loss was E84.8 million during fiscal year 2004, compared to a net profit of E40.7 million during the first six months of fiscal 2003. In comparison, net profit of competitors has been growing. Alberto-Culver witnessed net profit growth of 12.6% during 2004. Similar figures for Beirsdorf and L'Oreal were 198.4% and 22.7% respectively. Continuing operating losses would weaken the financial structure of the company and impair its ability to raise funds for organic or inorganic growth opportunities.
Low market share in North America
In spite of having powerful brands like Wella, Sebastian and Graham Webb International, the company has a marginal share of the North American cosmetics and toiletries market. North America is a large market for cosmetics and toiletries. The company lags far behind in this region, which is dominated by L'Oreal and Unilever.
Increase in long term debt
For the abridged financial year ending June 2004, Wella had a very high long-term debt equity ratio of 84.3%. This is a significant increase from the long-term debt equity ratio of 71.5% for the year ending December 2003. The rising debt coupled with the operating losses could place pressure on cash flows.
High growth potential for male grooming products
There is a high growth potential for male grooming products in UK, USA and Europe. French men spend the maximum on grooming products followed by the Germans, the Dutch and the Americans. Men in the UK spend a total of £920 million a year on personal hygiene products, £278 million a year on hair care products, £88 million on fragrances and £65 million on skincare products. The UK market for male grooming products is likely to grow to £1.5 billion by 2008. A trend toward greater usage of personal care items among young men has also seized the US. Young men between the ages of 8 to 18 are an important and growing sector of the health and beauty care industry, representing a potential market of $2.8 billion by 2008. This high growth in demand for male grooming is a large opportunity.
Growth in emerging markets
Eastern Europe, Asia-Pacific and African cosmetics and toiletries markets are expected to register high growth rates. The primary drivers for this trend are higher disposable incomes, high population growth and increasing awareness among consumers. In order to leverage this opportunity, the company is increasing its reach in these markets.
Wella is shedding 18% of its global workforce to streamline its joint supply chain process with P&G. This is expected to significantly reduce the company's labor costs and thereby increase the company's per employee productivity and profitability.
Growth in private label cosmetics and hair care products
The company has been facing stiff competition from private label brands. The private label products available in the cosmetics and hair care market are improving in quality and are attracting a growing number of consumers who are keen to get better value for their money. Though private label cosmetics constitute only about 2% of global cosmetic market, the segment grew by 24% in 2003. More competition is expected in the hair care category where nearly 10% of total sales are attributed to private label products.
Poor population growth in Western Europe
According to demographic experts, the population in Western Europe, Wella's major market, is expected to grow at the rate of 0.2% per year for next 25 years. Minimal population growth in Western Europe would result in a largely saturated market for mass products.
Consumer protection issues
Various consumer protection groups are raising concerns over the harmful chemical ingredients in cosmetic products. According to a study conducted by Environmental Working Group, about one-third of the 7500 cosmetic products contain human carcinogens. Due to increasing public pressure, the United States' Food and Drug Administration (FDA) is also expected to enforce stringent quality norms on cosmetic products. An unfavorable regulation, can adversely affect the growth prospect for the industry.