L’Occitane: French flair, Asian ambition

When Reinold Geiger put his money into L'Occitane en Provence, he thought he’d be a hands-off investor. Looking back he realises it takes a tough man to build a successful skin care company.

On the website of L’Occitane en Provence, there are icons of three flags representing the three languages in which the site is offered: Great Britain (English, business lingua franca); France (French, because L’Occitane has French roots); and somewhat unusually, Hong Kong (Traditional Chinese) instead of China (Simplified Chinese). It is a nod to the skincare company’s listing on the Hong Kong Stock Exchange (stock code 973) in 2010, when it raised HK$5.5 billion (US$700 million) in an IPO that broke new ground and raised some hackles.

“You don’t do this! There’s no company like yours listed in Hong Kong!” L’Occitane Chairman and CEO, Reinold Geiger (MBA ’76) told INSEAD Knowledge when asked about the reaction of European bankers when told of his intention to list in Hong Kong. “But because we have 50 percent of our business in Asia, and because brand awareness is much more important in Asia than anywhere else, once we decided to go on the stock market, we thought we should look at Asia. Then, we were developing Asia from a base in Hong Kong, so the natural place to list was Hong Kong.”

Betting big on Asia

Geiger’s decision to bet big on Asia has paid handsome dividends: revenues for the fiscal year ending March 2012 was €913.4 million, up €141.1 million or 18.3 percent from a year ago; net profit was €124.2 million, up €21.5 million or 20.9 percent from a year ago. Its current stock price is some 30 percent higher than the HK$15.08 when it debuted on the HKSE in 2010. All this is made possible by sales growth in Asia, where the Hong Kong market recorded an impressive 30 percent jump compared to the last fiscal year, but pales in comparison to the 55 percent growth notched up by China. Happy days for the company headquartered in South-Eastern France, but this spectacular growth might never have been.

“In the beginning, when we opened our first store in Hong Kong, and in Tokyo, nobody was buying our products, we were not doing well at all,” recalls the Austrian on his initial foray into the Asian market in the mid-1990s. The company was drowning in red ink, so much so that the auditors at PricewaterhouseCoopers warned, in Geiger’s words, that “this will kill your company”. “This is always unpleasant if somebody comes and tells you this, and you think, ‘Maybe he’s right.’ So after twenty seconds I told him that I’ll decide where to do business, and he should just take care of the accounts.”

L’Occitane’s healthy bottom line today has vindicated Geiger’s decision to persevere with Asia, and the company is on an expansion drive in the region. According to L’Occitane’s Annual Report for the 2012 financial year, the past 12 months have seen an increase in the number of stores in Japan (90, up from 83), Hong Kong (29, up from 22), and Taiwan (62, up from 52). Impressive numbers, but it is small change compared to China, where there are now 93 stores compared to 71 this time last year.

“It’s a very small number,” says Geiger. “I mean, our limitation in the number of stores we open in China is the people we can train to run our stores, because you don’t find many qualified people due to the fact that all this is new there. So, in all the other countries we can increase significantly the number of stores, so therefore, today, we’re still only in the beginning of our development.”

Serial Entrepreneur

L’Occitane’s present success owes much to its Chairman’s entrepreneurial instincts, which drove him to start his first business – a tour operator business specialising in trips to ski resorts – in London when he was just 23. That venture folded following strikes protesting against Thatcher government policies, leading Geiger to get a job for two years to pay off business debts before joining forces with three college friends to start a machinery distribution company. Geiger left that company following a professional disagreement with his partners, which led him to start yet another venture: a packaging company, where he struck gold.

“This company was doing pretty well and became one of the two leaders in cosmetic packaging in Europe and the United States. So I sold the company, and thought about what to do next. First I thought, ‘Just be a little bit of an investor.’ This is how I got into L’Occitane.”

But how did he end up being Chairman and CEO? “In the very beginning I was supposed to go in as an investor and the minority shareholder. But then I realised the company was doing very badly, and it looked like I was going to lose my investment, so I ended up working in it. At least, I thought, I cannot blame anyone else if it all goes down the drain.”

It has not gone down the drain. In fact, Geiger is worth some US$1.3 billion according to the latest Forbes list of billionaires. “I was not at all motivated to become rich. I just wanted to have no boss and do things by myself.” It is a dream for lots of people, so what made him succeed when most people fail? “I’m a simple person. I don’t complicate things too much, maybe I’m not too intelligent. When you’re too intelligent, it’s difficult.”

So he’s just smart enough to run a multimillion business empire. And yes, he does use his own products.

(This article is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu. Copyright INSEAD 2012.)