Antonio took the first glance at the auditorium: his PR and corporate relations teams were on positions, the microphone was waiting on the table and the presentation slide said “Managing through crisis. Guest lecture with L'Oréal Russian general manager.” There seemed to be around 70 people in the room: some were seating and adjusting their headpiece translators, others a second ago engaged in their phone conversations – now were swiftly taking their places upon noticing Antonio come in. While unpacking his private clicker, which he brings with him to guest lectures at all times, he used the opportunity to study the audience: they were much more mature than the usual undergraduate crowd attending L'Oréal’s lectures and workshops – mostly executive management program participants. “The subsequent Q&A section could go either direction” – thought Antonio affirmatively nodding to the first latecomers wave at the doors, – “either no questions at all due to language barriers and concerns about the next scheduled engagements or the opposite – so many that there would be a virtual queue.” As it would turn out in two and a half hours later, when the moderator had to cut off the last question bearer due to the building shutting down for the night, this would be the second case, just as Antonio had hoped for.

Although L’Oréal has been a household brand name in Russia for many years, those not from the cosmetics industry often did not realize that L’Oréal encompasses a wide range of product categories and brands: some developed in-house, some co-branded or licensed and others – acquired. Therefore, every public presentation, that of Antonio or otherwise, starts with an informative prelude, where the scope of the L’Oréal’s business in Russia is presented.

L’Oréal has been present in Russia since the 1990s. It is represented by 32 international brands (Table 1) across 5 beauty categories (haircare, hair color, skincare, fragrances, makeup) in all distribution channels: the market for consumer goods, department stores, perfumeries, pharmacies, drugstores, beauty salons, travel retail outlets and branded retail outlets, as well as e-commerce. In 2010, the first L’Oréal plant in Russia was opened. The plant with an area of 10 thousand square meters was located in the industrial region southwest of Moscow – Kaluga and produced hair care products (shampoos, conditioners) and hair dyes of the L’Oréal Paris and Garnier brands. All of the products within these brand lines, which are sold in Russia (as well as several neighboring countries), are produced there.

The company’s mission is to offer women and men around the world the best beauty products. Each L’Oréal brand is an independent business. The economic success of the company depends on marketing, and in each country, the market is organized in its own way as the divisions retain their characteristics and remain original. French brands differ in spirit from Japanese and American, and even within the brand teams a special atmosphere and culture are often developed. The general rule for all is the same: each specialist should treat the business as their own. Therefore, units independently choose development paths and goods promotion methods. For example, when the management of the Garnier brand in Russia felt that the adaptation of European advertising did not work well in the Russian market, the team suggested launching a campaign with a local celebrity. The idea was successful and helped the brand increase profits (In placer).

L’Oréal produces cosmetics for everyone, without exception: for young buyers and people of age, for the wealthy and those who are inclined to save, for the advanced and unassuming. Although, in general, the L’Oréal’s market is perceived as a whole, the company acknowledges that the market is developing and new groups of buyers appear that require a special approach. Therefore, L’Oréal’ constantly works on the development of products for a wide variety (and sometimes very narrow) of consumer groups. For example, a line of anti-aging products for women over 65 years old has recently been released. Another example is the recent acquisition of the brands NYX Professional makeup, Urban Decay and Kiehl’s, whose target audience is millennials – the most dynamically growing group of consumers of cosmetics (Zhukova, 2017).

Antonio always liked to round up this part of the presentation by sharing insights on the unexpected peculiarities of Russian consumers:

“In Russia, sales of personal care products are at a higher level than in many European countries. Russians are very reverent about their appearance and pay special attention to it. In percentage terms, the use of many products in Russia significantly exceeds the figures in neighboring European markets. An interesting fact: Russians before all others began to use hair dye! And the sales of these products are higher than any other. Russians love new products, and readily accept them as their favorite. L’Oréal actively adapts some of the most popular products, taking into account the preferences of Russian cultural traditions and local specifics” (Zhukova, 2017).

Even though during the past 5 years the income of Russians dropped by about 11%, this did not affect the frequency of beauty product consumption. At the same time, the average amount of purchase in cosmetics shops has decreased and consumers started to pay more attention to discounts and engage in price benchmarketing between online and offline channels of sales. To save time and money, women often prefer to perform beauty procedures at home. This leads to an increase in the popularity of products, which could be used for lifting, peeling, hair removal and hair coloring at home. The popularity of express products with collagen, hyaluronic acid and extracts of medicinal plants, which give a quick visible result, is also growing, i.e. eye patches, cream masks and serums. Russian consumers’ preferences are in general shifting in favor of organic cosmetics (beauty products with a natural composition), derma cosmetics (problem skincare) and cosmeceuticals (the recipe is close to medical standards) (Indiger, 2019).

Although, in general, the market dipped for 2019 both in value (−2.1%) and in units sold (−1.6%), online sales of cosmetics grew by 23% in sales value and units in comparison to the previous year. E-commerce now accounts for 8% of the market (Figure 1). Online stores are pulling customers from such channels as network perfume, drogerie stores, non-chain perfumery and hardware stores. The most common online shopper is considered to be mothers with young children, as well as those who are interested in brands that are not sold offline. Otherwise, Russians usually prefer to test the product before buying – check on the skin for decorative and care cosmetics, smell the aromas. Also, with an offline purchase, it is possible to consult with a sales consultant (Ibid).

“A Crisis is like a virus: it appears in the system, spreads instantly, and infects everything around it.” – Antonio continued.

The financial crisis of 2014–2015 was the result of the loss of confidence in the Russian economy, which motivated investors to sell off their Russian assets, leading to a decline in the value of the Russian ruble. This was triggered by the fall in the price of oil in 2014 by nearly 50% and the international economic sanctions imposed on Russia following the annexation of Crimea and the Russian military intervention in Ukraine. The weakening of the ruble affected the increase of inflation to 12.91% by the end of 2015 (Statbureau, 2020) and, as a result, has contributed to a decrease in real disposable incomes of the population and cooling consumer demand (World Bank Group, 2015).

Antonio knew well that learning more on L’Oréal’s product portfolio and the history of the 2014–2015 crisis was not the primary goal of the listeners, who came to the lecture – they were there for the numbers: growth rates, prices and sales indicators. Having the experience of heading several companies himself, Antonio believed that there was absolutely nothing wrong with this attitude: it is with numbers that you present and defend your strategies to your superiors and interpretation of those numbers is what gives you an indication of your current place in the market. In L’Oréal, there has been long-lasting respect for “numbers”: the budgets spent on market analytics are traditionally the highest across and beyond the industries, where the company operates. Antonio often regards this to be one of the company’s greatest strategic advantages. This is also the reason for the company in Russia being highly secretive concerning market and sales analytics.

Before the crisis, L'Oréal Russia held a market leader position (11% market share) and showcased overall stable growth except for the year 2011, which exhibited a significant drop in sales. In the company, they attributed this drop to the price increase, which happened in response to the 2007–2008 financial crisis under previous management. In early 2016, in response to the Russian ruble devaluation from 32.55 rubles per US dollar to 83.59, the cost of resources procurement increased by 80%–100%, which led to L'Oréal Russia immediately feeling the pressure on revenue.

The real salary indicator dropped by 9%, unemployment grew to 5.3%, production in Russia lost 9%. However, L’Oréal’s research showed that the main concern and source of distress for Russian consumers was not unemployment, but the price increase. For L’Oréal, this meant the reduction of the middle class by 15%, which as the company empirically learned earlier has been comprising the #1 source for the company's growth in the past. The product categories which suffered the most were deodorants, hair dyes, skin care and in particular cosmetic face masks, and sunblock products. It appeared that during the crisis Russians preferred to spend money on durable goods rather than keep savings. Consequently, in the first half of 2015, sales of cosmetics in pharmacies decreased by 5% in rubles and 24% in volume, while the average retail price of cosmetics increased on average by 24% to 223 rubles (Gritsenko and Demidova, 2015). In the first quarter of 2016, the Nielsen Russian consumer confidence index fell to a record low in the history of observations – 63 points – against 72 points in the first quarter of 2015 (Gordeev, 2016).

Based on prior experience of the company in Russia during the 2008–2009 crisis, L'Oréal Russia concluded that they should not pursue competition benchmarking nor rely blindly on the industry prognoses during times of unpredictable economic turbulence. “Putting price increasing and cost-cutting as the imperative for crisis coping strategy in the cosmetics industry – is the kiss of death” – Antonio stated casting doubt on the general reaction to this type of economic situation. During the previous financial crisis, L'Oréal Russia increased prices on average by 20%–25% in response to an equivalent increase in purchase costs. Although this kept the revenues stable for the short term, it backlashed harshly on the company’s revenues in 2010. That strategy was in a lot of ways based on forecasts made during the crisis, which promised that the ruble would not fully recover from the economic situation, which did not come true. Understanding that whatever the new crisis might bring, leaving the Russian market was not an option for L'Oréal, and the decision was made to come up with a strategy, which would be aimed at the long term, even if it leads to an unfavorable evaluation of the branch's performance by the headquarters in the short run.

During that period L'Oréal Russia followed four principles, which were determined by a path of trial and error:

After this type of presentations, Antonio usually could not keep from feeling a little bit sad – what he wanted to discuss even more than sales, was how much the company tries to give back to the community. He understood that for the majority of companies it would be hard to imagine the amount of emphasis put by the L’Oréal Group on ensuring sustainable development across the many markets it serves. This is mostly due to the low priority, which Russian citizens generally give to ecological issues. Although research shows that the share of the population, which worries about the environmental state in Russia (35%–40%) has grown by more than twice since the early 90s, it is still relatively low in comparison to other global markets. Most Russians do not engage in any environmental behavior apart from basic energy-saving practices.

It would not be an exaggeration to say that preserving the environment is a priority for the L’Oréal Group. It always cared about reducing the damage done to the environment, but now this area has become a priority without which modern production is considered impossible (Zhukova, 2017). In fact, Antonio often says that in L’Oréal Russia, they do not so often discuss issues of profit and new products as much as – how to improve the environmental development of the company. These discussions take place on weekly bases, either through live meetings, email correspondence or phone conversations with Katerina from the head office in Paris, the chief corporate responsibility officer at L'Oréal.

The company’s commitment to sustainable development up to the year 2020 is manifested in the “Sharing Beauty with All” program, which was launched in 2013. It covers all related issues, from product conception to distribution, including the manufacturing process and the supply of ingredients (Table 2).

Each year, the L'Oréal Group publishes updated indicators related to the progress of the program (see Figure 3 for the latest report visualization). Most of the respective initiatives conducted in L'Oréal Russia are connected with the Vorsino plant expansion. Strict compliance with international quality standards at the L’Oréal in Vorsino plant allowed to manufacture products that have the same characteristics and meet the same ecological requirements as those that are produced at other L’Oréal group plants. Environmental integrity, social equity and economic prosperity make up the important concept of “Triple Bottom Line” that guides the government of L’Oréal Vorsino plant. The range of ongoing sustainable measures taken by L'Oréal Russia categorized by the direction of impact on the company’s sustainable development strategy is available in Exhibit 1.

L’Oréal group represents a market leader with ambitious aspirations and a serious approach to sustainable development, which has been widely recognized internationally (L’Oréal Russia official website, 2018). The company is ready to invest heavily in new technologies supporting efficient consumption. About 3.5% of revenues are further invested in R&D. This resulted in the launch of new product lines made from natural ingredients. An example of such a line is botanic therapy.

“For us, this is not a project” – Antonio commented as L'Oréal Russia’s received the “Eco-Corporation of the Year of Ecology” award in 2019. – “Environmental responsibility or, as we call it – sustainable development is the main principle according to which L’Oréal conducts business” (Zhukova, 2017).

In his car on the way home after the guest lecture, Antonio decided to check the latest news around the COVID-19 situation. It was the 27 of February: no infection cases in Russia. Next, he would look up France, the location of the company’s headquarters: 38 cases, double from the day before. He then learned that Italy had 650 new cases of sickness, which indicated a 46% increase from the previous day – not yet alarming, but rather unsettling. Italy was his home country, and he had a family living there. He automatically checked his flight schedule in the calendar: next week, on the 5th of March, Antonio had plans to visit Novosibirsk with a similar guest lecture. Just in case the virus gets to Russia by that time, he made a memo suggesting for the next university visit to probably give up the opening line of the lecture comparing the crisis to a virus to avoid triggering COVID-19 related associations. However, this lecture was meant to be postponed to 2021.

Not a long time after, on the 9th of March, Antonio held a staff meeting to discuss the likely consequences of oil prices drop due to the failure of negotiations in Vienna, which happened that weekend. The OPEC member countries tried to negotiate additional production reduction by 1.5 million barrels per day, of which 0.5 million should be borne by Russia and other countries not included in the cartel, which led to Russia exiting the treaty (Kalyukov, 2020). By most indicators, this situation reminded him of the 2014–2015 crisis in Russia. The perspective did not look pleasant, but as it seemed at the moment – nothing the company have not gone through already before.

Several hours before the meeting he got a call from the head office in Paris. “The COVID-19 situation is getting worse. They say that the World Health Organization is going to announce a pandemic.” – said Katerina on the other line. Based on the China scenario, one could expect borders lockdown, the imposing of self-isolation, a transition to a remote form of working, and even the temporary discontinuation of operations, such as distribution, retail and production. It became obvious to Antonio that today’s meeting agenda has to be extensively modified. He postponed the meeting to the next day and asked the analytical department to pull some numbers reflecting ongoing economic trends and prognoses estimates, the financial and production department – to calculate the consequences of the temporary shutdown of the plant, and the marketing department – to analyze the media for reactions to the COVID-19 situation and consider the impact on the company’s image.

The analytical department has sent the requested information (Table 3). To their mind, like in the 2008 recession, the pandemic was going to cause a financial shock that would hurt consumer sentiment and demand. However, unlike in 2008, the COVID-19 pandemic was likely to add uncertainty in the market about the crisis, prolonged store closures and disruptions to manufacturing. The financial consequences of shutting down the plant in correlation with potential international distributional problems and the dropping oil prices would be harsh. The situation was not just putting in jeopardy the payback of expenses on the performed plant renovation, which according to the plan should have happened that year, but was also threatening the success of achieving the highly sought sustainability program goals due in 2020.

Upon discussing the situation with the headquarters, there appeared to be only one option to both continue working towards the program goals achievement and keep the plant from shutting down by producing first aid essential product was to start making gel-sanitizers, which were a subject of a supply shortage. In response, the production department representative expressed concerns regarding the long period it takes to get approval for a new product, especially that containing alcohol, and the extensive expenses on plant product lines repurposing. “Would COVID-19 even still be an issue by that time?” – wondered the Head of production. The marketing department elaborated on the proposal by expressing concern about publicity considering that the company is trying to capitalize on a social disaster, the fact that the main competitors are likely to also start the production of sanitizers, and that the associations with the product category do not feat any of the brands in the portfolio. “Perhaps we could give away the sanitizers as social aid?” – someone suggested.

“Maybe, just like last time, this crisis could be used to boost our progress in achieving the sustainable goals for 2020?” – Antonio contemplated.