American women are shunning the beauty counter at their local department store and it is proving a problem for L’Oréal, the French cosmetics firm, which suffered a severe shrinkage in US sales in the first quarter of the year.

The tightened grip on purses caused L’Oréal’s American revenues to fall by 7 per cent in the the first three months of the year, cutting €70 million (£56.5 million) from the group’s overall turnover, which increased by only 2 per cent during the period.

L’Oréal is also suffering from the strength of the euro and the weakening dollar which reduced reported income by 5 per cent. On a like-for-like basis, North American sales were down 4 per cent while L’Oréal’s group revenues were up 5 per cent.

Signs that the US downturn is crimping the beauty market caused a big sell-off in L’Oréal shares in Paris, where the stock dipped by 8 per cent. America represents about a quarter of L’Oréal sales, even after the recent shrinkage in the dollar and while analysts had expected a weak American performance, the 7 per cent reduction was more painful than anticipated.

Jean-Paul Agon, L’Oréal’s chief executive, said that he had been expecting a “lacklustre” first quarter after a good final quarter in 2007. “In fact, it turned out to be more difficult because of lower footfall in department stores and larger than expected stock reductions by our distributors,” he said.

L’Oréal was hit hard in its US luxury products business, which includes its perfume ranges, and in its consumer products, mass-market shampoo and make-up ranges. The company cited “very cautious stock management” by its customer retailers. L’Oréal’s US problems may be exacerbated by a general drift by US consumers away from department stores – the traditional vendors of beauty products – to discount stores and internet shopping. This is a troubling development for a business that depends on glossy marketing and the perceived prestige status of its products.

In the UK, sales at Body Shop, the chain founded by the late Anita Roddick and acquired by L’Oréal for £800 million in 2006, rose by 7.4 per cent but organic growth from existing stores was only 1.9 per cent, a sluggish performance.

Asia continues to be the French beauty company’s growth motor with sales advancing 22 per cent on a like-for-like basis. Chinese revenues advanced by 30 per cent while income from Eastern Europe, which includes Russia, increased by 26 per cent.

However, Western Europe sales remain less impressive, with like-for-like sales growth of 2.3 per cent. L’Oréal blamed weak sales of sun protection products due to stock reductions by retailers after a sun-starved summer in 2007.

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