Beauty is big business - $777.65 billion worth of big on a global scale last year alone, and projected to grow to over a trillion dollars by 2034 according to some estimates.
It's also a ferociously competitive market. Previously diginomica has tracked the digital transformation of a number of major players in this space. In 2026, that digital focus centers inevitably on AI and the impact it is having on the way firms operate.
L'Oréal, established in 1909 is partnering with NVIDIA, while 80-year-old Estée Lauder, is collaborating with Microsoft and OpenAI. Both expect to see significant makeovers of their opportunities for growth as a result of operating efficiencies, as well as a boost to their overall Customer Experience.
For L'Oréal, CEO Nicolas Hieronimus, an articulate advocate for AI for many years, argues:
AI is truly going to power up beauty, to augment beauty in many ways. We embarked a few years ago now on AI and now generative AI. The R&D of L'Oréal was working with AI already a long time ago, but it's really a big acceleration now.
L'Oréal has re-organized to focus on three AI transformation pillars - how does the consumer look for products, how does the consumer get informed about products, and how can L'Oréal improve and increase the efficacy of all business functions across the group? Hieronymus elucidates:
It goes from BETiq, which is our AI-powered prognostic prediction tool for our A&P (advertising and promotional) investment. That really creates a lot of productivity. It's about creating content in our AI factories internally. And of course, it's our big IT transformation to create the backbone of this.
AI is genuinely proving transformative, he states:
Probably the part where it is the most transformative is on the way people look for beauty. Now more than half of consumers, especially the younger ones, do not go through the search bar. They ask questions to Large Language Models (LLMs), and, of course, we want to make sure that we become the reference source of knowledge for all LLMs. So we have multiple partnerships with all the big AI companies to make sure that the combination of our beauty know-how and their computing power allows consumers to find the best answers in their beauty quest. And of course, the best answers have to be the choice of a L'Oréal product.
Behind the make-up
Behind the scenes, AI has become "a big accelerator of our discoveries", he says:
Our R&I (research and innovation) was at the forefront of this technology adventure. We have partnerships with companies like IBM to create formulas, and we work with NVIDIA, too. That allows us to increase, in a very spectacular way, our capacity to create new products, to scan molecules, to create the molecule that will make this new cream that indeed works on making your skin stay young or re-set it. In the last 12 months, we've tested more molecules than in the last five years, so it's an incredible acceleration.
We use digital twins, and frankly if you combine our data with this computing power, it's a fantastic competitive advantage. It allowed us last year to be named #1 most innovative company in Europe across all sectors. But more than that, it's what lies behind the acceleration in product launches and innovation, and that allows us to accelerate our outperformance versus the market.
Over at Estée Lauder, it's a similar story according to Roberto Canevari, the firm's Chief Value Chain Officer, where there have been significant leaps in AI-enabled productivity, doubling the number of launches that can be done in a year. This is happening for two reasons:
One, a lot of systemic changes in our value chain processes. The way we harmonize testing and validation to expect quality with our third-party manufacturers, especially makeup third-party manufacturing is an important component of our value chain network. By eliminating some activities, by simplifying and synchronizing some activities, by-passing some actions...this is all speed that we gain in the launch.
Add to that the overhaul of the technology strategy. Estee Lauder has been keen to proceed pragmatically here and not succumb to the AI hype. Canevari explains:
One risk that we wanted to avoid was to have a lot of AI initiatives, not connected, a lot of pilots one after the other, which are then difficult to scale. What we wanted to do since the start is to say that whatever we do has to have an end-to-end view first, a full value chain view, and second, we are able to scale it. So we have created internally what we call our Digital Atelier, which is basically a competence center where we identify and define how to scale the best digital solution, AI solution.
A good example is the design-to-manufacture process, he says:
We are developing an intelligent technical packaging design using AI. What we're trying to do is to link a marketing brief to a packaging that is either already existing or similar packaging that are aligned with the brief. With small modifications, they are immediately industrialized, meaning it's much faster, [in terms of] the way we develop the packaging first.
But second, equally important, the packaging is industrialized, meaning when it goes to a factory line, it can be produced. We don't need to do the pilot run and do the testing, etc etc. This is months, two to four months we believe, of savings in the development and the industrialization. This will be savings because it's not about double tooling, so there will be speed, agility and efficiency at the same time. We are ready to deploy it. We're finishing it. So that's why we believe we have plenty of solutions to double down on that.
Another example of AI in action comes in the shape of ELLA, not a new super-model, but the Estée Lauder Line Assistant, pitched by Canevari as "our new colleague". He explains:
It's essentially an AI solution augmenting the capabilities of our people to identify immediately the best set-up of the line for a launch or for a change in the line for a performance requirement. Something that used to [take] quite a lot with different line operators is now instantaneously provided by ELLA. So again, it's speed, it's agility and it's efficiency because, of course, this is allowing more time to produce and more time to set up.
The human face
Another important aspect of the L'Oréal AI strategy centers on employees. A couple of years ago Hieronimus posited his thesis on how the rise of AI would impact on jobs. It was a sober analysis at a time when 'AI is coming for all our jobs' was the prevailing hysteria. He argued:
Short term, [AI is] a job creator. Half of the hirings we've been doing over the last three years has been either related to data or to AI. So right now it's creating jobs. Mid-term, I see my teams, they're all working too much and they're desperately hoping to have some sort of solution that helps them crunch the data, come up with better PowerPoints and not waste hours doing them. There may be some industries or some type of jobs where it's going to be a bit more radical, but I see this as a real way to free time and probably get our employees to have a better work life balance.
That led to one conclusion:
Short term or mid term, because we need time to train everybody - we've already trained 6,000 people, but we have 90,000!
Since then, there's been considerable progress it seems:
We've trained more than 65,000 L'Oréal-ans how to use AI with the L'Oréal GPT. They have a test that can help them assess their own mastery, and we provide more and more sophisticated learning.
This and the ongoing focus on human intelligence alongside its artificial counterpart play to ensuring that what Hieronimus pitches as "the real secret sauce" at L'Oréal - the corporate culture - survives the AI revolution:
It's a very unique blend of passion, energy, search for excellence, competitive fighting spirit. [Recently] we had our worldwide meetings where all the leaders of L'Oréal come to Paris to be presented the next year's plans by the brands, and they see all the brands that you know. They spent a week, all the country managers, in a room where they see like a fireworks of initiatives, of engagements, of communication. I can tell you that the energy, not just the parties at night, but the energy in the room and the passion these teams have for beauty, which they all specialists of is absolutely uncomparable.
My take
One last note on the lucrative nature of the beauty sector and why AI's competitive edge is so critical to crack by the incumbent market leaders, from Kecia Steelmanm CEO of US retailer Ulta Beauty:
Beauty is a competitive environment. Everybody wants to be in it because of the strong margins that come along with it...We're in a great category. It's not necessarily recession proof, but it's recession-resistant. The consumer is going to continue to prioritize this category as they're looking at their spend.
If AI can help the likes of L'Oréal and Estée Lauder to prevent leaving disposable income on the make-up table, expect the current focus on investment here to continue apace.
