PARIS (Reuters) - For years the undisputed leader at high-end hair salons, L'Oreal is losing its shine as hair stylists turn to cheaper products from rivals such as Germany's Wella and Schwarzkopf to weather an economic downturn.
It is still early to tell how far the trend is being replicated elsewhere in Europe, but on its home turf along the boulevards and avenues of Paris, the world's biggest cosmetics group is feeling the pressure.
"L'Oreal is no longer reigning supreme," said Michele Duval, head of the French National Council for Hairdressing Businesses, which represents 4,500 hair salons. "It is increasingly challenged by the aggressive price policies of Wella and Schwarzkopf."
L'Oreal, whose professional brands include Kerastase, Matrix, Redken and Mizani, is the most expensive and toughest supplier, according to hairdressers like Dominique Garret, who owns a salon called C Comme Cheveux in a residential quarter near the Arc de Triomphe.
"L'Oreal is so big, it has been dictating conditions to stylists and some, like me, just got fed up," said Garret, who switched to Wella. "Wella and Schwarzkopf have stolen customers from L'Oreal -- that's for sure."
Wella is owned by Procter & Gamble Co of the United States and Schwarzkopf is a subsidiary of Germany's Henkel.
Even though sales to salons make up only 15 percent of L'Oreal's turnover, what customers see on the shelves of their hairdresser influences what they buy at the supermarket.
"The professional channel is important for their image," Charles Manso de Zuniga, analyst at Dresdner Kleinwort in London said of L'Oreal. "Hair salons are also a good place to test new products."
L'Oreal, founded in 1909 as a hair dye company, denied it was losing market share in France or anywhere else in Europe and said professional sales in France continued to grow in recent months.
The company, also known for perfume, Lancome creams and other beauty products, still makes 40 percent of its sales from hair products. It estimates that it has more than 50 percent of the French hair salon market.
"In France, L'Oreal offers the most complete portfolio of brands which enables us to meet expectations and needs of all salons," L'Oreal said in a statement issued to Reuters.
Industry experts say it is difficult to verify market share in France as there is no independent panel and companies are reluctant to divulge details.
Wella and Schwarzkopf both say they are gaining ground in France.
In an e-mail, Wella said it had poached large customers from L'Oreal in September, including the Michel Dervyn group, which is behind a 270-salon group including the super-posh Alexandre de Paris.
Schwarzkopf, named after the Berlin drugstore owner who created the brand a century ago, said it had seen the net number French professional customers rise 10 percent in the year to date.
"Our market share is growing in France and we keep winning new salons," Katharina Hoehne, head of Schwarzkopf's professional division in France, told Reuters.
She said Schwarzkopf expected professional sales in France this year to grow 8 percent, as they did in 2007 -- in spite of the consumer downturn -- thanks in part to the launch of new lines such the Essensity organic natural product range.
L'Oreal also said it had gained major customers from its rivals.
Several independent hairdressers said they opted for Schwarzkopf or Wella not only because they were slightly cheaper than L'Oreal but also because the two German brands had made great strides in quality and marketing in recent years.
"The packaging (of Schwarzkopf) products is very good and the quality for me equals that of Kerastase," said Frederic Maret, 31, who used L'Oreal for 10 years and switched to Schwarzkopf when he opened Le Salon Et Vous near the Louvre in April.
He said the move to Schwarzkopf allowed him to cut his costs by 10 to 15 percent. He also said he found Kerastase was now distributed too widely in hair salons in France, which made it lose its exclusive appeal.
L'Oreal issued its second sales warning in three months on October 31 and said it expected 2009 to be another difficult year as the global downturn hits spending on cosmetics.
In the quarter to September, it saw a steeper decline in sales to beauty salons -- 2.7 percent -- than to consumers -- 0.9 percent.
It said it would maintain its global marketing spending, sacrificing its decades-long double-digit annual earnings per share growth in order to keep up its sales growth, a move that stock analysts welcomed.
"Their marketing spending was below what it should be to hold or gain market share and they are now remedying to that," said Harold Thompson at Deutsche Bank in London.
In France, stylist associations and large hair salon franchises say business has been holding up relatively well, suggesting the global downturn is not to blame for all of L'Oreal's woes at home, where some regard it as a national institution.
Jean-Claude Biguine, the last major French hair salon chain that still belongs to its founder, still uses L'Oreal.
According to its owner, Jean-Claude Biguine, L'Oreal products are the most innovative and the price difference is relatively small. "I am French and I defend French brands," Biguine said.
Reporting by Astrid Wendlandt; Editing by Eddie Evans