Estée Lauder at a Glance

Estée Lauder is a New York-based manufacturer of skin care, makeup, fragrance and hair care products. It operates under several brands including Estée Lauder, Clinique, MAC Cosmetics, Bobbi Brown, La Mer, Jo Malone London, Aveda and Too Faced, among others. It sells worldwide, primarily through department stores, specialty multi-brand retailers, perfumeries, pharmacies, salons and spas as well as via its own website. As of June 30, 2018, Estée Lauder Companies operated around 1,500 freestanding stores. [caption id="attachment_102028" align="aligncenter" width="700"] Source: Company reports[/caption]   Key Events: 2014-2019 Over the past five years, Estée Lauder has grown its revenues at a 6.3% compound annual growth rate (CAGR), due in part to its skincare and makeup acquisitions and investments in makeup brands Becca and Too Faced and skincare brands Deciem and Glamglow. In December 2019, the company expanded its skincare portfolio with the acquisition of Have & Be Co, a Seoul-based skincare company behind Dr. Jart+ and men’s grooming brand Do The Right Thing. This acquisition will expand the company’s leadership position in skincare and further diversify its consumer base. The company has continued to expand globally, with 75% of sales outside of the US. For future growth, Estée Lauder is focused on prestige beauty in emerging markets, primarily among the growing middle classes. The company uses data analytics to identify trends and insights to drive innovation in beauty subcategories. Skincare is Driving Estée Lauder’s Growth Estée Lauder has grown skincare from 42% of its portfolio at year end in 2015 to 44% at year-end in 2019, as shown in Figure 1. The company credited its skincare portfolio expansion, in part, to the brand’s ability to reach a wide range of consumers. For example, the Estée Lauder brand has expanded its best-selling hero franchise, Advanced Night Repair, to include its Intense Reset Concentrate. The Clinique and La Mer skincare lines have also performed well with customers of all ages. [caption id="attachment_102031" align="aligncenter" width="700"] Source: Company reports[/caption]   Four Brands with Net Sales Over $1 Billion Estée Lauder’s abundant brand portfolio includes four brands with net sales of over $1 billion: La Mer, Clinique, Estée Lauder and MAC Cosmetics. These brands are mainstays in the beauty industry and are household names for most beauty consumers. In August 2018, the company reported its high-end skincare brand, La Mer, reached over $1 billion in sales. The company also has four brands that each bring in between $500 million and $1 billion in net sales: Tom Ford, Jo Malone, Aveda and Bobbi Brown. [caption id="attachment_102032" align="aligncenter" width="550"] Source: Company reports[/caption]   Travel Retail is a Growth Driver Estée Lauder reported that travel retail is one of its highest growth channels. Travel retail includes duty-free sales in airports, on airplanes, cruise ships, downtown locations and border shops. The company is expanding into new airports, increasing the number of brands, products and services it offers to travelers and converting more travelers into buyers. Estée Lauder management said the biggest influence on travel retail has been the surge of mainland Chinese travelers, and their willingness to shop when they travel. Travel retail represented a little over 20% of the company’s growth, according to management at the Barclays Company Conference presentation in September 2019—with the Chinese consumer representing half of that. China Represented 12% of Estée Lauder’s Growth in FY19 and Hong Kong another 2–3% Mainland China accounted for about 12% of Estée Lauder’s growth in FY19, according to management at the Barclay’s Company Conference in September 2019, who added that Hong Kong accounted for an additional 2% to 3% of growth. CFO Tracey Travis said approximately one quarter of Estée Lauder sales are driven by Chinese consumers. Brands that are doing particularly well in China include La Mer, MAC, Tom Ford and Jo Malone. Approximately half of Estée Lauder’s brand portfolio is currently available in China, so there is still opportunity to expand. All distribution channels are growing at double digits; the company has enjoyed success in department stores in China, with freestanding stores and online with Tmall. Estée Lauder is Investing in Emerging Markets, Expecting Growth for Prestige Beauty To Come from Expanding Middle Classes in these Markets Estée Lauder is Investing in emerging markets as the company anticipates continued demand growth for prestige beauty from expanding middle classes in these markets. The company estimates the global middle class will grow by 600 million, mainly in emerging markets such as China, India and Brazil. At its annual stockholders meeting on November 15, 2019, the company said that by region, the best performance came from Asia Pacific, where all markets grew and in which China, Japan and emerging markets in Southeast Asia led growth. The company said that its business in Europe, the Middle East and Africa was fueled by growth in emerging markets including Russia and India. The company said it believes the growth of the middle class will create more opportunities to build market share with its new products as these increasingly affluent consumers attach greater importance to health, wellness and purpose-driven brands. Management said the company is accelerating its efforts in emerging markets and the middle-class demographic. [caption id="attachment_102033" align="aligncenter" width="550"] Source: Company reports[/caption]   Estée Lauder is Using Data Analytics to Innovate in Functional Beauty Subcategories Estée Lauder is using enhanced data analytics and consumer insights to identify new and emerging areas of demand in functional beauty, investing in subcategories as they emerge. Management reported it is focusing on fewer, bigger and faster innovations.

• The company discovered consumers were interested in foundations that also have skincare benefits, so it developed new products around its hero foundations that offer hydrating and smoothing benefits. Estée Lauder’s foundation business climbed 20% globally.
• The company made a breakthrough in lip color with a weightless and moisturizing formula that also offers long-lasting color. When MAC introduced Love Me Lipstick the brand’s lip business climbed double digits, and management said this innovation accounted for 30% of its makeup category in the quarter.

Management said it is focusing innovation on its hero franchises and locally relevant products, inspired by hard data, sophisticated analytics and consumer insights. Figure 5. Timeline of Key Estée Lauder Events, 2014–2019 [wpdatatable id=50]

Source: Company reports/S&P Capital IQ/Coresight Research