As a background information, with an annual sales of EUR 1.2 billion (approx. $1 billion), Oriflame is Europe’s second largest direct selling firm, after Vorwerk. The company was founded in 1967 in Sweden by Jonas and Robert af Jochnick brothers and Bengt Hellsten. Listed on the Stockholm Stock Exchange, Oriflame has been a public company since 2004.

Between the years 2010 and 2016, the picture was not bright at all for Oriflame. At the end of 2015, company’s revenue was 20% less than what it was in 2010 and its net income was about one-third!

2016

2016’s first quarter was not promising, either. Revenue was down 1%, unit sales down by 6%, and the number of active consultants by 9%, as compared to the first quarter of 2015.

Then, Oriflame reported different results in the second quarter: Global sales was up %3, operating profit increased by 42% and net profit doubled, on a year-over-year basis.

3Q also came with positive figures: Global sales increased by 6%, operating profit by  32% and net profit by 160%.

The last quarter’s revenue was up by 5%, operating profit by 29% and finally, net profit by 183%.

At the end of 2016, Oriflame’s annual sales was EUR 1.249 million that was 3% higher than what it was previous year. With this, Oriflame was reporting an annual growth figure for the first time since 2010.

CEO Magnus Brannstrom commented, “2016 was a year when we made significant steps to improve the overall position of Oriflame and when the success from our online leaders and the sales of Skin Care and Wellness sets and routines reached new levels. It was a year when we returned to Euro growth.”

In fact, skin care and wellness were the two categories that increased their shares in 2016:

The management reported it had focused mainly on the below areas in 2016:

* Strategic product categories
* Driving sustainability across the business
* Continuing the online development
* Digital business transformation in the IT and finance areas
* Capturing manufacturing opportunities

2017

First Quarter

Oriflame started the year with a strong sales growth performance, achieving +11% over Q1 of 2016. Its strategic categories skin care and wellness continued to perform well, with double digit sales growths during the quarter.

At the business units level, Latin America grew by 20%, CIS (former Soviet Republics) 15%, and Asia & Turkey 15%. Oriflame’s Europe & Africa region was the only one that reported negative growth in the first quarter (-1%).

Company’s performance on the profit side was even better. Operating profit increased by 41% and net profits by 83%, compared to last year’s same quarter.

Second Quarter

Last quarter, Oriflame reported EUR 348 million sales. This represented an increase of 12% from previous year. This increase was a result of the strong growth achieved in two regions, Asia & Turkey and CIS each of which reported 19% quarterly sales increase. Latin America’s sales was up 6% and Europe & Africa’s was again, down 1%.

Quarterly operating profit was up 32%, bringing operating margin to 12%. Oriflame’s net profit increase was also 10%.

Outlook

Oriflame’s global results in the last four quarters are on the chart.  Here, what we see is a strong growth both in terms of revenue and profitability.

As far as regional performances are concerned, two regions stand out among the four: Asia & Turkey and CIS. Oriflame’s biggest region Asia & Turkey’s average growth rate in the last four quarters was an impressive 21%. This region posted double-digit increase in each and every quarter. For Oriflame, just as important was the developments in its CIS region. This unit for a very long time, has been a major headache. At last, CIS succeeded to report positive figures in Q1 and Q2 of 2017.

Having all those said, it seems there are two important areas that still need to be tackled by Oriflame management: Unit sales and the number of active consultants on the field. These are obviously the two key performance indicators in the direct selling industry that are vital to long-term success.

Oriflame’s unit sales performances in the last four quarters, were as follows: +1%, -4%, -3%, and +4%. As can be seen from these numbers, Oriflame’s revenue increase within this period was largely impacted by price increases (or, price mix), rather than unit sales.

On the active consultants’ side, the situation was even worse: -5%, -7%, -4%, and again, -4%.

So, maybe it is too early to say Oriflame has successfully comeback. The stock market first, positively reacted to the results in the second half of 2016, taking the share price up to SEK (Swedish Krona) 373 in early March 2017. To compare, it was  SEK 107 in February 2016. After that however, the stock price started going down and has reached SEK 279 most recently:

Apparently, Oriflame’s future success will depend on:

1) How it will deal with the two significant key performance indicators (i.e. unit sales and number of active field members)

2) Whether it will be able to maintain and even improve the positive numbers achieved in CIS markets.

3) If it will make successful launches in large but difficult markets like the U.S. and Brazil as the CEO Brannstrom said last year they had intentions to expand into.

…..

Hakki Ozmorali is the Principal of WDS Consultancy, a consulting firm specialized in providing services to direct selling firms. He is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication. He is an experienced professional with a strong background in direct sales. Hakki was the first corporate professional in the Turkish network marketing industry. His work experiences in direct selling include Country and Regional Manager roles at various multinationals in Turkey and in Canada. You can contact Hakki here.

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Natura

However, it is the 8th largest player in the global industry as of 2015 year-end. Last year, Natura’s total sales was more than USD 2.4 billion. To compare, Natura’s sales volume is higher than companies’ like Tupperware, Nu Skin, Oriflame, Jeunesse or USANA that are familiar names to many.

Beginnings

Natura was founded in 1969 in Sao Paolo, Brazil by Antonio Luiz Seabra as a cosmetics retailer. The shop he ran was far from being a success. This situation changed five years later when he adapted the direct selling method in 1974. At the age of 73 now, Seabra’s net worth is estimated as $1.26 billion. He is still in Natura’s Board of Directors.

By 1977, company’s product portfolio was still only 40 products. In 1990, Natura’s sales reached $180 million and $350 million in 1994.

2000s

In 2003, Natura ended testing its products on animals. Natura became a public company and was listed on Sao Paulo Stock Exchange in 2004. The same year Natura overtook Unilever to become the market leader in the Brazilian cosmetics industry.

2005 was the year when it made its first international move by expanding into France. The same year marked the appointment of Alessandro Carlucci to lead the company. Carlucci had been with Natura for 15 years, having joined right after finishing his university.

Natura celebrated another milestone in 2009: 1 million consultants on the field

2010 and the Following Years

By the year 2010, an article on The Economist was praising the company saying, “Natura Cosmeticos is emerging as a cosmetics giant by dint of clever marketing and borrowing from others. Everything about the company, from its use of recyclable materials in its packaging to its use of ordinary women rather than supermodels in its advertisements, is designed to emphasise the twin themes of naturalness and sustainability. Natura is also a master of what might be dubbed “lean innovation”. About 40% of its revenues come from products introduced in the past two years.”

In a Harvard Business Review article in 2012, Natura’s success was noted as “exceptional”. This was due to its first-class performance in Brazil, world’s third largest beauty market in an era when all emerging markets were dominated by international brands that also placed it among world’s top 20 beauty companies.

Natura was the 10th Most Innovative Growth Company on Forbes’ 2013 list. In late 2014, it was granted the “Benefit Corporation” status and “B Corp” sustainability certification. This certification is given by B Lab, a non-profit U.S. organization, and is developed to promote high standards of environmental and social stewardship and transparency. At that time, Natura was the largest and the first publicly owned company that obtained this certification.

In fact, Natura had long been known as a pioneer in sustainability, being also recognized by organizations like Corporate Knights, the U.N. Environmental Program, SustainAbility and the Boston Consulting Group.

In late 2015, Natura took an important step. After a long period of offering its products only through the direct sales channel since 1974, it announced it would also open retail outlets and start retailing as well. Before this, Natura had a store in Paris and a concept store in Brazil. It was then said, the concept store was a part of company’s learning process before launching the omnichannel strategy. In an interview this year, Paulo Ferreira, VP Sales at Natura, declared the significant points in this strategy as:

• Direct selling will still be Natura’s main sales channel, while the stores will take a complementary role.
• A synergetic effect is expected to take place between these two channels as customers are striving for convenience and this will enable them to reach products through different means.
• Stores will enable customers to try out new products which will be to the benefit of all channels.
• Stores will increase the sales potential of Natura representatives as they will boost brand awareness.
• Differentiating products among the channels will be a consideration.
• Current retail strategy focuses on stores in busy shopping centers and on having company-owned outlets, not on franchising.

E-commerce

Natura had started exploring the opportunities on the Internet in 2012 on a smaller scale, with pilot tests. Then, it launched Rede Natura (Natura Network) that would allow consultants to open and run their own e-commerce sites.

By mid-2016, Natura announced Rede Natura had 70,000 “digital franchisees” (was 32,000 in mid-2015) and 950,000 registered consumers.

Dependency on the Brazilian Market

For a very long time, Natura did not have a need to explore the international opportunities. This was mainly due to the existence of a lucrative domestic market and its strong leadership position there. However, this would change. In 2013, Euromonitor was saying, “Natura Cosmeticos’ position as the leading cosmetics company in Brazil may ultimately depend on its ability to connect to international markets.” That year, Brazil accounted for 84% of Natura’s global revenue of R$ 7 billion (approx. USD 2.2 billion) and the remaining 16% was generated by its other markets like Argentina, Chile, Mexico, Venezuela, Colombia and France.

Once a rising star, Natura was shown as “the world’s worst performing cosmetics company” in a Bloomberg article in 2013. And the reason to this was the “stagnant revenue from its core Brazilian market”.

As a sign of being forced to turn its face to international markets more, in February 2013, Natura acquired 65% ownership in the Australian retailer Aesop for USD 62 million. Despite this move, when Natura management talked about “international markets” what they still had in mind were the Latin American markets only.

CEO Change

In August 2014, Natura announced CEO Alessandro Carlucci was leaving Natura after being in this office for 10 years, and working for the company for 25 years. The company said it was Carlucci’s decision to leave and that he had expressed this to the Board a year earlier. He was to be replaced by Roberto Lima, the former Chairman of Publicis media group in Brazil. During his term at Natura, Alessandro Carlucci was elected as the Chairman of the World Federation of Direct Selling Associations (WFDSA), in the conference in Istanbul in 2011. He served for the WFDSA for three years until 2014.

The Numbers

When we look at the two charts below, we see a company whose revenue has constantly been increasing but facing a decline in its profits at a much higher pace.

In the first three quarters this year, Natura reported the following sales growth rates: +3%, +5%, and -5%. The three quarters put together, Natura’s revenue performance in 2016 is about 1% better than what it was in the same period of 2015.

Profits this year? The net income generated in the first nine months of 2016 was R$ 99 million. This figure was R$ 368 million in 2015’s first three quarters!

The Share Price

The negative performance on the profit side would obviously be reflected on Natura’s share price on the stock market. Having seen the bottom in September 2015, the share price somewhat picked up after that, despite the profitability did not recover.

Another CEO Change

Two years after his appointment, Natura Board announced late in October 2016 that Roberto Lima had resigned. The new CEO is Joao Paulo Ferreira. Ferreria has been with Natura since 2009 and his last position was the Vice President.

The Question

Looking at all this what we see is a large direct seller (now, an omni-channel player) with a history, an extensive product offering, and a good reputation. So, the question here is: If Natura had chosen to go international more aggressively, would it be better off than it is today?

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