CASE STUDY 131 L'Oreal USA. Do Looks Really Matter in the Cosmetic Industry?
CASE STUDY 13-1
L’Oreal USA.
Do Looks Really Matter in the Cosmetic Industry?
The cosmetic and fragrance floor of the Macy’s in San Jose was bustling with shoppers as Elysa Yanowitz, regional sales manager for L’Oreal, and John (Jack) Wiswall, general manager of L’Oreal’s designer fragrance division, to whom Yanowitz reported, walked together through the store on a routine visit in the fall of 1997. As the two walked past the Polo Ralph Lauren counter, which is licensed to L’Oreal, Wiswall noticed a woman of Middle Eastern descent selling fragrances behind the counter. He instructed Yanowitz to “get [him] someone hot” and fire the Middle Eastern employee. Passing by a young good-looking blonde, Wiswall pulled Yanowitz aside and said, “Get me one that looks like that.”
A few weeks later Wiswall visited the store again and was upset to discover that Yanowitz had not dismissed the saleswoman as instructed. Visibly frustrated with her refusal to follow his order, he asked Yanowitz upon leaving the store, “Didn’t I tell you to get rid of her?”1 Despite repeated inquires from Wiswall, Yanowitz refused to fire the sales associate, claiming later that she could not dismiss the woman without adequate justification. Additionally, the employee was one of the top-selling sales associates in the region.
Wiswall became frustrated and with the help of Richard Roderick, vice president of designer fragrances and Yanowitz’s immediate supervisor, he began to solicit complaints from Yanowitz’s subordinates. In their quest for negative feedback on Yanowitz, they claimed that she maintained a dictatorial style of leadership and was disliked by her subordinates. Wiswall and Roderick also performed audits on Yanowitz’s expense reports and prepared memos about problems with her performance. They told her she had become a liability and was making too many mistakes. Ironically, only one year prior, she had been awarded “L’Oreal’s Regional Sales Manager of the Year.”2
Yanowitz, typically a first-rate manager, became distressed and preoccupied to the extent that it affected her job performance. As a result, her sales numbers began to slip and in July 1998 she was forced to take a medical leave of absence. She cited job-related stress as the cause of her departure.3 After three months, L’Oreal replaced her.
Elysa Yanowitz
Elysa Yanowitz started as a sales representative with L’Oreal in 1981 when the company name was licensed by Cosmair, Inc. Yanowitz rose through the ranks to become a sales manager in 1986. She was responsible for managing L’Oreal’s sales force and dealing with the department and specialty stores that sold L’Oreal’s fragrances. Yanowitz’s performance was consistently rated as “Above Expectations” or just short of “Outstanding.” During her career she received multiple awards for her sales performance.4 In 1997, L’Oreal restructured to merge its European Designer Fragrances Division (where Yanowitz worked), with its Polo Ralph Lauren fragrances division. At this time, Yanowitz received the additional responsibilities of marketing Polo Ralph Lauren fragrances in her region.
L’Oreal
L’Oreal S.A. Paris is the world’s number one cosmetic company specializing in the development and manufacturing process of hair care, hair color, skincare, color cosmetics, and fragrances for the consumer and professional markets.
The history of L’Oreal began in 1907 when Eugene Schueller, a young French chemist, developed an innovative hair color formula and sold it to Parisian hairdressers. Mr. Schueller started a small company that would later be L’Oreal and put in place the guiding principles of the company: research and innovation in the interest of beauty. By 1912, Schueller was exporting his hair color products to Holland, Austria, and Italy. A few years later, he was selling products to the United States, Russia, South America, and the Far East. While L’Oreal got its start in the hair color business, it soon expanded its operations to include other cleansing and beauty products. Today, L’Oreal is the world’s largest cosmetic company marketing 500 brands and more than 2,000 products in all areas of the beauty business. In 2002, L’Oreal recorded over 14 billion (euros) in consolidated sales.5
L’Oreal USA, a wholly owned subsidiary of L’Oreal S.A. Paris, was founded in 1953 (by exclusive licensee Cosmair, Inc.). Since its foundation, the company has acquired a host of big-name consumer product brands, including Maybelline, Garnier, and Softsheen Carson. The company also owns several salon product lines including Redken, Matrix, Kérastase, and Mizani, as well as fragrance brands Ralph Lauren and Giorgio Armani. L’Oreal USA’s upscale Lancôme, Shu Uemura and Biotherm cosmetic and skincare lines are also sold in department stores nationwide. With a broad distribution network of salons, mass-market, specialty, and department stores, L’Oreal USA is the most comprehensive beauty company in the United States.
The Polo Ralph Lauren Brand
In 1967, Ralph Lauren began the Polo Ralph Lauren company with 26 boxes of ties. Interested in promoting a lifestyle with his ties, Ralph Lauren named his line after Polo, a sport of discreet elegance and classic style. Today, 35 years later, the company is a $10 billion global business of menswear, womenswear, childrenswear, home collections, accessories, and fragrances.
Polo Ralph Lauren’s brand and distinctive image have been consistently developed across an expanding number of products, brands, and international markets. Defined by its all-American style and combination of classic taste, quality, and integrity, Polo Ralph Lauren is a leader in the fashion industry. The company’s products are distributed through upscale department stores such as Macy’s, Nordstrom’s, and Neiman Marcus.6
Polo Ralph Lauren’s brand names, which include Polo, Polo by Ralph Lauren, Ralph Lauren Purple Label, Polo Sport, Ralph Lauren, RALPH, Lauren, Polo Jeans Co., RL, Chaps, and Club Monaco among others, constitute one of the world’s most recognized families of consumer brands. Through an exclusive partnership with Polo Ralph Lauren, L’Oreal USA markets and manages the Polo Ralph Lauren fragrance line. However, not all of the company’s [brand] products are licensed through L’Oreal, just the fragrance line. In 1997, L’Oreal’s European Designer Fragrance Division merged with its Polo Ralph Lauren Fragrance Division.
The Cosmetic Industry
Cosmetic products are generally grouped into five main categories: perfumes and fragrances, decorative cosmetics, skincare, hair care, and toiletries. The marketing of these products represents an important part of building cosmetic brands. The cosmetic industry typically markets its products using creative packaging and superior formulations. Employees in the cosmetic industry must have the ability to monitor and interpret fashion and consumer trends both locally and internationally in order to offer the latest in product innovation and packaging technology. They also must work closely with clients while creating products and developing marketing strategies to maximize the sales potential within specific market segments.7
The cosmetic industry is fortunate to operate in markets that are less sensitive to economic cycles than others.8 When the economy is difficult, customers who delay purchase of a consumer durable will continue to buy cosmetics products because they provide a sense of well-being at a reasonable price. However, Lindsey Owen-Jones, Chairman and CEO of L’Oreal, recently warned investors that the current cosmetic market is “one of the worst we’ve seen for years.”9
The target consumers for the cosmetic market are primarily working, college-educated women over the age of 20 who have an active lifestyle. However, there is an emergence of teenagers as a market segment as they wish to assert their identity and personality. Another consumer trend is the spread of skincare products and cosmetics for men. Although the market for men is in its infancy, it constitutes another promising opportunity for the cosmetics industry.
Appearance-Based Discrimination: Human Resources/Legal Implications
Appearance in the fashion and cosmetic industries is very important because beauty products are tied directly to the brand’s image. Companies in these industries depend on their sales associates to be “brand ambassadors” and project the qualities of the brand to the customer. In today’s competitive environment and particularly in the fashion and beauty industries, it is critical that beauty-based companies create an experience that is appealing to the target customer. For example, at some Abercrombie stores, applicants are required to submit a professional head shot with their application to ensure that they are a good match with the “Abercrombie style.”10 This trend of hiring attractive employees is occurring in other industries as well. Hotels, bars, and other businesses also are beginning to recruit only the best-looking employees to attract customers and charge premium prices.
Hiring someone who is attractive isn’t illegal, per se. In recent years, however, several cases have emerged disputing whether employers can base employment decisions solely on physical appearance. In a 1981 case, Wilson v. Southwest Airlines Co.,11 Southwest defended its then-existing policy that only attractive women could be hired as flight attendants and ticket agents. Southwest argued that female sex appeal was a bona fide occupational qualification (BFOQ) under Title VII because the airline wanted to project “a sexy image and fulfill its public promise to take passengers skyward with love.”12 However, since Southwest is not in the business of providing “vicarious sex entertainment,” the district court rejected its defense.
What is and is not discrimination? Employers may fire their best employee; they may also fire a woman, a person who practices a certain faith, a pregnant woman, a disabled person, a gay or lesbian, or a foreigner. However, they cannot terminate them because they are a woman, of a certain religion, pregnant, disabled, gay or lesbian, or from a foreign country. The motive for the termination is the single governing factor in a lawsuit for discrimination when an employee falls within a protected category.13
Employees are protected under Title VII of the Civil Rights Act from discrimination based on sex, race, religion, color or national origin, but height, weight, and physical appearance discrimination are not included.14 Part of the problem is the fact that attractiveness is subjective; people have different opinions on what is appealing. To protect themselves, some companies have created policies that state that employees must be “well-groomed and attractive,” but these companies run into difficulty when the policy is not consistently enforced across sexes and races.15
The Court of [Appeals] ruled that the L’Oreal case was one of sex discrimination: A male executive cannot insist that a female subordinate be terminated because she is not sexually appealing to him, when no similar orders are issued with respect to male employees. Just as an employer may not enforce rules that regulate men and women differently based on their appearance or sexual desirability, an employer may also not discriminate against employees on these bases.
The L’Oreal case also raises the question of wrongful termination. The state of California operates under an “at will” employment model. This means that employees work at the will of their employer—subject to two exceptions, discrimination and contract—and an employer may terminate without reason or notice. Employers cannot discriminate against employees on the basis of age, race, sex, national origin, and several other criteria. Employers also cannot fire contracted employees who are hired to work for the company for a specified time period or purpose but are not directly employed by the company.
Working at L’Oreal
L’Oreal’s sales team includes employees with different educational backgrounds and work experiences. For some positions, the company requires sales associates to have a cosmetology license, previous experience, and specific knowledge. L’Oreal is particularly interested in employees who are enthusiastic about fashion and beauty, possess customer service abilities, are analytical, have excellent negotiation skills, are willing to travel and relocate, and are computer literate.16
L’Oreal describes itself as a fast-paced, energetic company that employs smart, focused individuals who enjoy their work. The company boasts that it is not a “cookie-cutter corporation.” In fact, L’Oreal claims that its workforce diversity “will amaze and inspire you.” Since the company strives for diversity, would it seem reasonable to terminate a sales associate on the basis of her appearance and background?
Yanowitz vs. L’Oreal
In 1999, Elysa Yanowitz filed a sexual discrimination suit against L’Oreal. During a four-year court battle, Yanowitz insisted that Wiswall had violated California’s fair employment law barring sexual discrimination when he sought to fire the saleswoman. She further argued that it was illegal for L’Oreal to retaliate against her for not carrying out an order she believed violated the law. L’Oreal’s legal representatives argued that Wiswall and other company officials did nothing wrong and took action to reprimand Yanowitz for her errors and oversights.17
On March 7, 2003, a three-judge panel of the Court of Appeals for the First Appellate District in San Francisco reinstated her claim of retaliation, which was dismissed previously by the trial court. The panel wrote: “An explicit order to fire a female employee for failing to meet a male executive’s personal standards for sexual desirability is sex discrimination.” The panel also said, “A lower-level manager’s refusal to carry out that order is protected activity, and an employer may not retaliate against her for that refusal.” On June 11, 2003, the California Supreme Court voted 6 to 1 to review the appellate court’s ruling.18
Rebecca Caruso
On August 4, 2003, L’Oreal USA named Rebecca Caruso as its Executive Vice President of Corporate Communications. She replaced John Wendt, Executive Vice President, Corporate and Public Affairs, who [would] retire in December after 23 years with L’Oreal USA. Prior to joining L’Oreal USA, Caruso worked in communications and public relations for Toys “R” Us, Inc., McDonald’s Corporation, and Chrysler Corporation of America.
Caruso must decide the best way for her department to handle L’Oreal’s communication response concerning Yanowitz’s lawsuit. Because she joined the L’Oreal team in August 2003, she faces an interesting challenge of dealing with this case after all the major events have occurred. In her new capacity, Caruso is responsible for the management of all internal and external communications and diversity initiatives for L’Oreal USA. She must work closely with Mr. Jean-Paul Agon, President and CEO of L’Oreal USA, to deal with this lawsuit and prevent it from developing into a public relations disaster. With the upcoming trial date and the media heavily covering the case, she must determine how to retain L’Oreal’s strong brand identity and reputation.
