Natura Cosméticos S.A.

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Natura Cosméticos S.A.

Rodovia Régis Bittencourt, Km 293—Edificio 1
Itapecerica da Serra, Sao Paulo 06882-700
Brazil
Telephone: (55) (11) 4147-8300
Toll Free: 0800-704-5566
Fax: (55) (11) 4147-8370
Web site: http://www.natura.net

Public Company
Founded: 1969
Employees: 3,495
Sales: BRL 2.46 billion ($839.59 million) (2004)
Stock Exchanges: Bolsa de Valores de Sao Paulo
Ticker Symbol: NA
NAIC: 325611 Soap and Other Detergent Manufacturing; 325620 Toilet Preparation Manufacturing

Natura Cosméticos S.A. is a leading player in sales of cosmetics, fragrances, and toilet products in Brazil, which is the world's fifth largest market for these products. With an army of more than 450,000 salespeople (whom the company calls "consultants"), it relies on direct sales to the home and ranks a close second to Avon Products Inc.'s Brazilian subsidiary, Avon Cosméticos Ltda. Natura has direct-sales operations in other Latin American countries and has opened retail stores in Paris and Mexico City. Active in disseminating new products, the company keeps up to date with the latest pharmaceutical, chemical, and biochemical research in its field and is said to be Brazil's largest investor in scientific techniques. It has an enviable reputation for ethical corporate behavior. While exploiting Brazil's bountiful plant resources for its Ekos line of products, it uses only sustainable ingredients from special reserves in remote areas and strives to aid community development in these areas.

Beauty a la Brazil: 1969–89

Antonio Luiz da Cunha Seabra was working as an economist in the Brazil office of the Remington Electric Shavers Division of Sperry Rand Corp. when he founded Natura in 1969 with $9,000 in cash and a handful of cosmetic formulations by Jean-Pierre Berjeaut. The small shop that Seabra opened in Sao Paulo was a kind of luxury boutique, with a staff of four promoting Berjeaut's creams and lotions, which were based on natural products. Seabra gave consultations there, coaching clients on how to use the products correctly and promising therapeutic benefits. "They were difficult years," he recalled, speaking in 1998 with Nelson Blecher of Brazilian business magazine Exame. "Sometimes there wasn't even money to pay the light bill."

This changed in 1974, when Natura abandoned retailing in favor of direct sales by door-to-door salespeople working on commission. During this period the company developed a network of 2,000 salespeople and raised its annual sales to $5 million. Among the benefits of direct sales, according to one of Seabra's partners, was that it enabled Natura to anticipate consumer trends in this fickle field before retailers could do so. In addition, this marketing method was said to make it easier for the company to promote and sell all of its products, whereas retailers tended to concentrate their efforts on only a few hot-selling items.

As the business grew, Seabra and Berjeaut financed expansion by founding, between 1979 and 1981, related companies with outside entrepreneurs. Four distributorships and a makeup firm called L'Arc en Ciel operated independently. Guilherme Peirao Leal, a distributor who had invested $40,000 in the business, became a partner in 1979. In 1983 Leal brought in Pedro Luiz Passos, an engineer who became superintendent of production and later was made a junior partner. By 1986 Natura was fielding 16,000 "consultants," averaging growth of 40 percent a year, and dominating high-end door-to-door sales of cosmetics in Brazil. That year, the company introduced Chronos, a facial skin-care treatment for fine lines and wrinkles that was the first in Brazil to promote cell renewal. This line exceeded the company's own expectations by accounting for sales of 90,000 units in scarcely its first month and a half. Chronos remained a Natura staple, but not all of the company's endeavors were successful. Another line, called Númina, was a failure. Taking the enterprise into neighboring countries proved premature. Natura also tried retailing again, but abandoned the effort after losing $2 million in 1987. A crisis involving company shares in the late 1980s resulted in Berjeaut's departure, and the five autonomous enterprises were merged into Natura in 1989.

Natura's Way in the 1990s

Natura's sales reached $180 million in 1990, then fell sharply the next two years because of an economic recession in Brazil. As a result, the company dismissed 15 percent of its 1,800 employees. However, taking advantage of an opportunity created by their company's difficulties, Seabra and Leal purchased the 26 percent share of the company held by Yara Pricolli for $25 million. Seabra thereby raised his stake to 38 percent, and Leal to 36 percent. During this period the two established Natura's basis for further growth by recruiting experienced executives from larger competitors such as Johnson & Johnson Indústria e Comércio Ltda., Gillette do Brasil Ltda., Procter & Gamble do Brasil & Cia., Shell Brasil Ltda., and Unilever Brasil Ltda.'s Indústria Gessy Lever Ltda., and also by investing heavily in technology and quality control.

Natura surpassed its 1990 revenues in 1993. In that year Chronos announced a new line of anti-aging creams, based on two years of trial and $1.5 million in development expenses. The complete line, consisting of liquid toilet soap, tonic lotion, peeling gel, creme gel, emulsion for the eye area, and a cellular renovator, cost 32,000 cruzeiros (almost $100). It proved a smashing success, selling 70,000 units a month. Natura also introduced a new perfume, Shiraz, developed by Brazilian, French, Mexican, and Swiss researchers. It sold for $28 per container. The company was again venturing outside Brazil, having entered Portugal in 1991 and having just established subsidiaries in Argentina and Chile.

Natura's revenues reached $350 million in 1994. The following year the company had a 14 percent share of the Brazilian market for cosmetics and personal hygiene products and was offering 250 kinds of perfumes, shampoos, creams, and lipsticks. It was fielding 105,000 salespeople, mostly in Brazil but also in Argentina, Bolivia, Chile, and Peru. The next year, 1996, was even better. Natura's revenues reached $580 million, of which some 20 percent came from third-party goods such as lingerie and jewelry. Its sales force, now up to 160,000, had three million customers in Brazil alone. They sold 61 million units of 270 products, with each salesperson averaging $5,760 worth of goods, on which they received a commission of 30 percent. For Natura the payoff was even sweeter: a 28.3 percent return on the company's net worth.

Natura's rapid growth created both new opportunities and daunting challenges. In the company's early days, such multinational giants as Procter & Gamble and Unilever confined themselves to marketing the cheap mass products found in Brazilian drugstores and supermarkets, leaving fragrances and artisanal creams to smaller, specialized enterprises. Then the giants moved into their territory, attracted by its high profit margins. They were willing and able to spend large sums on research and development for a torrent of the new products demanded by a fickle public. Between 1992 and 1996, cosmetic sales in Brazil grew from $2.6 billion to $5.7 billion. Natura hired a French-based Vietnamese scientist, Anh Tuan Tran, to furnish technology and introduced 108 new products in 1996. Forty percent of its sales came from products not in existence two years earlier. In addition, the company began work on a new factory in Cajamar, five times larger than the existing one in Itapecerica da Serra, and nearer to Sao Paulo (about 19 miles away). It was completed in 1999 at a cost of $110 million.

Although Natura followed the lead of big multinational competitors in some respects, it remained a most unusual company that reflected its idiosyncratic founder. Greatly influenced by the thinking of psychiatric pioneer Carl Gustav Jung, Seabra spent more than a decade in Jungian psychoanalysis and shared the master's interest in mythology as a manifestation of what Jung called the collective unconscious. In his garden Seabra erected a Buddhist and a Taoist temple; nearby he placed a chapel in homage to St. Francis. Each day of the week, he believed, was influenced by a different force of nature. For example, Monday, the day of Aphrodite, favored intuition and was suitable for considering new products. Although his company relied on opinion surveys and experiments to launch its highly successful Essencial line of perfumes, it initiated its popular Mamae e Bebê (Mother and Baby) line for babies, pregnant women, and new mothers despite a survey indicating that the market for infant products was too small.

According to Seabra, cosmetics were so associated with superficiality that most people did not realize the power of these products to transform personality by reestablishing self-esteem. Unfortunately, Leal told Blecher, "In the world of cosmetics, in particular, there prevails deception, illusion, falsehood, in the quest for success at any price." Natura sought to avoid false promises for its products, preferring the word antisinais (antisigns—i.e., of aging), rather than "rejuvenation," since nothing can reverse the march of time. The company did not hire supermodels but instead employed advertising featuring ordinary women older than 30.

Company Perspectives:

Natura, for its business behavior, the quality of its relationships and its products and services, shall become a world-wide brand, identified with the community of people engaged in building a better world through a better relationship with themselves and others, with nature, of which they form part, and with the whole.

An admirer of Levi Strauss & Co. as a corporate model, especially for ethical conduct, Seabra earmarked a percentage of Natura's dividends to finance social projects and refused to do business with companies that employed child labor. Also a follower of business guru Peter Drucker, he championed accessible, responsive management that would break down hierarchy, work in teams, and make decisions by consensus. Officially, the firm had three presidents by 1998: Seabra, "president-founder"; Leal, "executive president"; and Passos, "operational president." Seabra took a six-month sabbatical in Paris in 1996, and Leal took one the following year in Boston, where he attended business courses at Harvard University. Responsiveness also extended to the public, and Natura directed hundreds of service personnel to field calls from its clients and salespeople. Employees were paid a median monthly salary 16 times the national minimum, with the lowest about five times the minimum level. They shared in the profits and held a portion of the company shares (17 percent in 1998). Natura also made a major investment in its salespeople, who were sent to classes in cutaneous biochemistry and physiology and were not permitted to work for competitors.

By 2000 Natura had about 300 items in its portfolio, divided into men's and women's fragrances; hair care; color cosmetics; facial skin care; body care; sun care; bath products; children's products; mother and baby products; and vitamin and mineral supplements. Chronos, now extended to include body-care products, remained one of its most popular lines, along with Mamae e Bebê, Natura color cosmetics and fragrances, and Natura Homem for men's grooming. The company claimed to have one of the largest cosmetics research-and-development centers in Brazil, with access to universities and international study centers that kept its researchers up to date with the latest techniques in the fields of dermatology, chemistry, biochemistry, and related subjects. Natura also was reported to be Brazil's largest investor in scientific testing, in order to introduce an average of 120 new products a year.

Another recession, in 1998 and 1999, took a heavy toll on Natura's revenues and profits and led to a 10 percent drop in employees. Nevertheless, in 1999 the company bought Flora Medicinal J. Monteiro da Silva Ltda., a company almost a century old, which had 300 products and was researching 280 species of Brazilian plants. This was an essential part of what the company called its "Manhattan Project," which resulted in the Ekos line, introduced in 2000 with 21 products and developed at a cost of BRL 185 million (about $100 million). In 2002 this line accounted for 10 percent of company revenues.

The Ekos line consisted of a range of body-care products such as shampoos, bath soaps, massage and moisturizing oils, and perfumes, made from exotic fruits, roots, and nuts obtained from the Amazon rainforest and other Brazilian forests or small, traditional plantations. In addition to its commercial advantages for Natura, the indigenous products initiative was seen by the company as offering an alternative to the destruction of fragile environments by the clearing of forests for the logging of tropical timber or for mining, cattle raising, or intensive farming of soybeans and other cash crops. In Brazil's Xingu national park, Leal and other Natura executives participated in a festival, sleeping in native huts. Two months later, 13 indigenous leaders visited company headquarters, seeking assurances that Natura was committed to buying their products for the long term and not only for the life cycle of a single cosmetic, at the most, only five years.

Natura, which had established an Internet site for sales in 2000, added a printed catalog in 2003, with a circulation of 800,000. It was updated every three weeks. The company also was producing a television program broadcast twice weekly on an over-the-air channel. In May 2004 Natura issued the first initial public offering of stock by a Brazilian company in more than two years, selling $240.9 million worth of shares, or 22 percent of total equity, on the Borsa de Valores de Sao Paulo. The company announced an impressive net profit of BRL 300.41 million ($102.5 million) in 2004 (compared with BRL 65.16 million, or $21.16 million in 2003) on net income of BRL 1.84 billion ($627.99 million). Gross sales, before deducting for commissions, came to BRL 2.46 billion, or $839.59 million. It held a 19 percent share of the cosmetics, fragrance, and toiletries market in Brazil, second only to Avon.

A weakness for Natura was its failure to make an impact abroad; foreign sales came to only 3 percent of the total in 2004. The following year the company opened a retail outlet in Paris. This boutique, on the Left Bank, a two-level store created to resemble a Brazilian home, initially marketed only the Ekos line, now a collection of at least 72 units, and showcased fragrant bowls of grains, flowers, herbs, and other raw ingredients used in its products, which it arranged by scent and color rather than by function. Natura opened another retail outlet, in Mexico City, later in the year. It also was planning to expand its direct-sales operations into Colombia, Costa Rica, Ecuador, Mexico, Uruguay, and Venezuela by 2007. The company's sales staff had swelled to 481,000.

Although Seabra, Leal, and Passos all had grown children, none of them were working for Natura when they announced in 2005 that they would yield the presidency to Alessandro Carlucci, a 38-year-old executive who had been with the company since completing business school 15 years earlier. As chief executive officer, Carlucci would be in charge of day-to-day management, while Seabra, Leal, and Passos would be copresidents of the administrative council (that is, cochairmen of the board).

In addition to the Chronos, Ekos, and Mamae e Bebê lines, Natura was fielding, in 2005, the Tododin line, a broad range of products for daily use, employing natural ingredients such as milk, sugar, and honey, in cosmetics, fragrances, and toiletries; the Natura Unica line of makeup products for the face, lips, and eyes; and Faces de Natura, consisting of skin treatment products, cosmetics, and fragrances for young women.

Key Dates:

1969:: Natura is founded by Antonio Luiz da Cunha Seabra.
1974:: Natura abandons retailing in favor of selling its products door to door.
1986:: Sales of the company's new Chronos line exceed all expectations.
1990:: Natura's sales reach $180 million a year.
1996:: Natura is selling 270 products to three million Brazilians.
1999:: The company moves into a new factory built at a cost of $110 million.
2000:: The new Ekos line consists of products mainly derived from Brazil's tropical forests.
2004:: Natura goes public, selling 22 percent of its equity on the Borsa de Valores de Sao Paulo.
2005:: Natura opens retail outlets in Paris and Mexico City.

Principal Subsidiaries

Commodities Trading S.A. (Uruguay); Indústria e Comércio de Cosméticos Natura Ltda.; Natura Brasil Cosmética Ltda. (Por-tugal); Natura Cosméticos S.A.(Argentina); Natura Cosméticos S.A. (Chile); Natura Cosméticos S.A. (Peru).