Why L’Oréal’s CEO Loves ‘Organized Chaos’

March 15, 2017, 10:30 AM UTC
Portrait of J.-P. Agon.
Jean-Paul Agon, Chairman and Chief Executive Officer (CEO) of L'Oréal, at HeadQuarters in Clichy in February 2013.
Stéphane de Bourgies

When Jean-Paul Agon joined L’Oréal in 1978, he didn’t plan to spend his entire career at the cosmetics giant, much less become its fifth CEO. But as decades passed, the “organized chaos” of the now-108-year-old company kept Agon stimulated with new challenges and far-flung adventures. He ran divisions in Greece, Germany, and Asia and served as president of L’Oréal USA out of New York City before taking the top job in 2006. Over Agon’s tenure, L’Oréal’s revenue ($28.6 billion in 2016) and share price have steadily grown, thanks to global expansion, savvy acquisitions, and an aggressive focus on digital. (Last year the company’s e-commerce revenue grew by 33%.)

Agon, 60, spoke with Fortune about the future of shopping malls, brand authenticity, and navigating the “digital tsunami.” (Edited excerpts follow.)

For a long time, traditional consumer goods and retail businesses were in denial about the Internet and the impact it would have on them. When did you realize it?

Around seven years ago, some friends in the digital world were explaining what was going on, and I realized a tsunami was coming. I could see it from far away. I declared—like you declare war or mobilization—that 2010 should be “the digital year” for L’Oréal. And no one knew what it meant.

The good thing at L’Oréal is people are positive. That year, every division of L’Oréal—every country, every brand, suddenly everyone started something in digital. It was very disorganized, very chaotic, but at least suddenly, everyone got conscious of the huge transformation that was coming. Because of digital, everything today is much more interesting and more powerful than it was before.

What has worked and what hasn’t?

We have four divisions, 34 brands, 140 countries, and digital is by definition pretty decentralized, so you have hundreds of initiatives and experiments. Some of them, they try and see it’s not working. Some are doing really well. In four years we hired 1,600 digital people from the outside. We completely embedded them into the marketing teams. The next step is that [later this year] we’ll make every new marketing recruit get digital accreditation. It would be crazy to have someone doing marketing today that does not do digital.

The rise of social media has been credited for the boom in makeup sales. People want to look good in their selfies. On the other hand, young people also crave more authenticity online. There’s a bit of a conflict between being authentic and being a mass-market brand.

I’m not sure there is a conflict. There could be a tension. Brands have to be authentic, but for [consumers], it means the brand is transparent and there is sincerity in what they express. That’s what we are trying to do our best with. A brand like Kiehl’s is a big brand, but also a brand that is seen as totally authentic. It’s easier to look authentic when you’re very small, but I don’t think it’s impossible, even when you are a large brand, as long as you respect these rules.

L’Oréal is an active acquirer. Besides money, what do you offer entrepreneurs to entice them to sell their companies to you?

We offer them the total respect of the identity, culture, spirit, and soul of the brand. When you go to a Kiehl’s store today anywhere in the world—in Korea, China, France, Argentina—it is exactly the replica of the spirit, of the soul, of the identity, of the Kiehl’s store we bought [in 2000]. We have been more than loyal and cultivated the spirit of the brand. Except that now it’s a $1 billion brand.

This is very important if you are an entrepreneur and you want to pass the baton to someone else. And that’s what we guarantee. Look at Urban Decay—the creators of that brand are still with us and managing the business.

A few years ago, you were bullish on turning around the Body Shop, a retailer L’Oréal acquired in 2006. Then in February you put the company up for sale. What changed?

We tried and tried and tried. And maybe in this case we are being too loyal to the brand’s spirit. Because we didn’t want to change too much, in fact, we didn’t change enough. This is always a difficult balance. You have to evolve, but also be respectful to brands. We really put in our best efforts for 10 years. I still think it’s a beautiful brand with great awareness everywhere in the world, but maybe someone else can do something better with it.

It’s surprising, given that the Body Shop’s whole ethos of natural, eco-friendly products has become more relevant and mainstream in the past 10 years.

That’s true. But maybe also because it has become more mainstream, it’s less unique. There is always a flip side.

Do you predict, as many digital disrupters have, the end of shopping malls?

I don’t think tomorrow it will be either e-commerce or store. The future that we can see is to offer consumers a choice between different types of services and experiences. NYX [a professional beauty brand L’Oréal acquired in 2014] is a combination of e-commerce, freestanding stores where you find a huge range of products with [supplementary digital experiences], and you can also buy a more limited assortment in stores like Target and Ulta. That’s what the future that we can see is—to offer consumers a choice between different types of services and experiences. Stores in malls will be a part of this choice.

For more on the future of shopping malls, watch this Fortune video:

There is the famous saying that only the paranoid survive. What are you paranoid about?

The new aspirations of consumers. We have to adapt permanently, or even anticipate permanently, the consumer’s demands, desires, and dreams, so this is the obsession of everyone here. You have to adapt permanently to the evolution of the trends.

For many, many years, our competitors—especially here in the U.S.—called us a kind of “organized chaos,” because for them, we are not very organized. It’s intentional, because it allows us to always keep our mind open to new ideas, ready to jump on new trends and take new opportunities.

Read more of our interview with Agon here.

A version of this article appears in the March 15, 2017 issue of Fortune with the headline “Managing L’Oréal’s ‘Organized Chaos.'”

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