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Estee Lauder Companies : company profile

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Estee Lauder is one of the world's foremost marketers of prestige beauty and cosmetics products. It is the #1 specialised beauty marketer in the US, and #2 worldwide behind L'Oreal. The family-controlled group has a substantial portfolio of leading brands including the main Estee Lauder portfolio, Clinique and men's range Aramis, and also produces fragrances and cosmetics under license for designers including Tommy Hilfiger, Donna Karan (or DKNY) and Tom Ford. Other brands include MAC and Bobbi Brown cosmetics, Jo Malone fragrances and bath products, and La Mer and Origins prestige skincare. More recently the group has moved into haircare through acquisitions including Aveda and product extensions, as well as into the mass-market cosmetics sector, with a collection of products exclusively for Kohl's stores.

Advertising

Who handles Estee Lauder's advertising? Click here for Agency Account Assignments for Estee Lauder. Including unmeasured media, the group declared advertising and promotional expenditure of $3.3bn in fiscal 2018.

Competitors

See Personal Care index for other companies

Brands & Activities

Estee Lauder Companies Inc is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrances and more recently haircare products. The company's products are sold primarily through prestige distribution outlets such as department stores and duty-free shops, as well as a small collection of its own branded outlets, mainly under the MAC, Aveda and Origins banners. The group manages a portfolio of more than 30 owned or licensed brands, each with its own collection of separate sub-brands. In the US, its main territory, these together account for around half of the entire prestige cosmetics market. The group markets more than 70 different fragrance products, including four of the top 10 prestige fragrances sold in the US through department stores.

The company's three key brands operate across several beauty segments, and are marketed worldwide in more than 130 countries. The core Estee Lauder brand is used for a broad portfolio of women's makeup and skincare products, and has extended its profile more recently into men's fragrances and grooming products. It produces a wide variety of makeup products under several collections, including Double Wear and Pure Color. Skincare product families include Advanced Night Repair and Nutritious, as well as separate brand family Re-Nutriv. The women's fragrance portfolio is led by Beautiful - still one of the top two best-selling prestige fragrances in the US 30 years after its launch - and Pleasures, which also ranks among the top ten. Other include Sensuous, Knowing and Intuition.

In 2013, the group launched its first major new fragrance brand since 2003's Beyond Paradise, under the name Modern Muse. The group employs a small but high-profile team of brand ambassadors, of whom the best known is probably Elizabeth Hurley, an Estee Lauder spokesmodel since 1995, though she now only rarely appears in the brand's advertising. More recent additions to the stable include Eva Mendes, Stephanie Seymour and Kendall Jenner. Karlie Kloss joined the roster in 2018.

In 2011, the group launched a new beauty sub-brand, Aerin, conceived by Estee Lauder's granddaughter Aerin Lauder, also creative director for the main brand.

Although it remains the group's core brand worldwide, the commanding lead Estee Lauder established in the US prestige cosmetics sector in its heyday of the 1960s and 1970s has faded and it was overtaken in the domestic market by stablemate Clinique. Clinique was the first prestige hypoallergenic cosmetic brand when launched in 1968, and now acts as the umbrella for a wide variety of makeup and skin care products for both women and men. The brand diversified into fragrances in 1997 - products include top ten perfume Clinique Happy - and haircare in 2000. In 2008 it launched the first in a new line of prescription skincare products, Clinique Medical, developed in partnership with Allergan. In 2014, Kantar's Brandz ranking placed Clinique as the more valuable of the two lead brands, with an estimated worth of $5.4bn, compared to $4.0bn for Estee Lauder.

MAC, acquired in 1994, is now the group's third largest brand with retail sales of almost $2bn. Targeting a younger alternative audience than Estee Lauder and Clinique, it encompasses a range of skin care and colour cosmetics products, of which the best known is possibly its Viva Glam lipstick. Another key sector is male beauty. Aramis was one of the world's first prestige men's fragrances when it was introduced in 1964, and now encompasses a range of products including the Lab Series and Surface skin care products.

Estee Lauder also markets a number of other cosmetics products under license. It has held the license for Tommy Hilfiger fragrances and cosmetics since 1993. Products include the successful Tommy and Tommy Girl ranges, now sold in more than 120 countries. In 1997, it added the license for Donna Karan New York and DKNY cosmetics (including Cashmere Mist, another top ten fragrance in the US, and Be Delicious). In 2005, the group announced the formation of a joint venture with former Gucci duo Tom Ford and Domenico de Sole to launch fragrance Black Orchid as well as a range of prestige cosmetics under the Tom Ford Beauty brandname. This has now expanded into a major global franchise encompassing, fragrances and colour cosmetics as well as men's skincare products. Annual sales were reported to have hit $500m by mid 2016.

Other group-controlled licenses include Michael Kors, Kiton and rap star and fashion designer P Diddy, whose Sean John Fragrances were introduced in 2005. Its best-seller to-date was the Unforgivable fragrance range. This was followed in 2006 by a range of licensed fragrance and ancillary products under the Missoni brand. (Estee Lauder also managed the Coach fragrance brand for several years until it moved to Inter Parfums in 2016). The group continues to add prestige designer fragrances licenses to its portfolio, with Ermenegildo Zegna joining the collection in 2011, followed by Tory Burch and Marni in 2012. With a more mass-market audience in mind, the group has in the past acquired an exclusive license from Ford Motors to launch a range of fragrances associated with Ford's iconic Mustang sports car. In 2004 Estee Lauder launched a one-off fragrance under the name of property developer turned media personality Donald Trump.

In addition to its three key brands, the group markets several smaller, more specialised and primarily US-based beauty products. Prescriptives is a specialist foundation cosmetics brand, marketed in the US and a small number of other markets. However sales were modest and it is now sold only online. Origins is a range of skin care and cosmetic products based on natural ingredients and sold in 20 countries through selected outlets. During the 1990s, the group expanded its portfolio rapidly through a string of acquisitions. La Mer, also acquired, was originally developed by a NASA scientist as a high-performance moisturizer. An ultra-prestige product, the jars of skin creme are still individually hand-filled.

Makeup artist Bobbi Brown launched her own signature line of cosmetics in 1991, and the business was acquired by Estee Lauder in 1995. The group also acquired the Stila range, launched by another leading makeup artist, Jeanine Lobell, but in 2006 sold the brand on again at a substantial loss to private equity fund Sun Capital. British skin care and fragrance expert Jo Malone opened her own clinic in the 1980s, and launched her signature range a few years later. The business was acquired by Estee Lauder in 1999. In 2003 the group acquired French skincare and cosmetics brand Darphin, sold through independent European pharmacies, as well as specialist US skincare brand Rodan+Fields, sold via mail order and the internet. In 2010, the group acquired niche cosmetics brand Smashbox, a business launched by two of the great-grandsons of makeup legend Max Factor. Another small to medium purchase was fragrance business Le Labo, acquired in 2014 for around $50m, followed by luxury skincare product Rodin Olio Lusso, priced at $170 per bottle. Towards the end of 2016, the group announced its biggest ever acquisition with a deal to buy fast growing premium cosmetics brand Too Faced for $1.45bn, more than five times annual revenues this year.

Estee Lauder moved into the haircare sector for the first time in 1997 with the purchase of prestige salon brand Aveda. This segment was bolstered in 2000 with the purchase of control of another US salon brand, Bumble and Bumble. Both are sold primarily through hair salons.

The biggest challenge facing the group has been to reduce its reliance on department stores, historically its main distribution channel, but one with a declining share of the overall market, and increasingly dominated in the US by a single company, Macy's. In a development that surprised many observers, the group announced in late 2003 that it would begin marketing cosmetics through discount retailer Kohl's from 2004. It was Estee Lauder's first concerted move outside the prestige sector. Rather than devalue any of its existing brands, the group established a separate division, BeautyBank, to develop new cosmetics lines exclusively for Kohl's. The first three brands - American Beauty makeup and skincare, Flirt makeup, and GoodSkin Labs skincare - launched in 2004. (In Europe, Goodskin is sold exclusively through German beauty retailer Douglas). They were followed by Grassroots and a fragrance range branded to Cuban model/actress Daisy Fuentes. Tri-Aktiline Instant Deep Wrinkle Filler was launched in 2007. Although Kohl's has exclusive US distribution, Estee Lauder is developing additional international distribution channels. Some products are already sold through Boots in the UK and via Sephora in continental Europe. The group also operates its own chain of branded stores, mainly in Europe and the Middle East, primarily under the MAC, Bobbi Brown and Jo Malone brands.

The group has also carved out a niche in the large direct response TV sector. In 2007, it acquired Canadian hair and skincare range Ojon, marketed primarily via QVC, and launched its own new eye makeup range, Eyes By Design, for exclusive sale through HSN. It has also actively marketed its existing prestige brands via both QVC and HSN.

Financials

Strong growth in all major product categories and regions helped Estee Lauder Companies deliver another record performance for the year to June 2014. Revenues rose 8% to $10.97bn, while net income jumped 18% to $1.21bn. Both figures were best-ever performances. All group segments delivered solid growth of between 5% and 9% year on year. For the year to 2015, currencies caused a decline in topline to $10.78bn, while net earnings slipped to $1.09bn. Currencies weighed on the year to 2016, but reported revenues rebounded to $11.26bn, while net income came in at $1.11bn.

Revenues for the year to 2017 were up 5% to $11.82bn, while net income jumped 12% to $1.25bn. Growth was generated by newly acquired make-up brands Becca and Too Faced as well as a big boost in ecommerce sales direct to consumers.

In the year to 2018, Estee Lauder reported a 16% increase in annual revenues to $13.68bn. Pretax earnings were up 22% but a write-off of tax assets as a result of new regulations resulted in an 11% decline in net income to $1.12bn. Skincare products accounted for almost 41% of group revenues (or $5.60bn), but were overtaken for the first time in 2016 by makeup, still marginally higher at over $5.63bn. Fragrance added $1.83bn and hair care $570m. A growing proportion of sales now come from international markets. The Americas accounted for 37% of revenues in ye 2018, but EMEA became the single biggest region for the first time at 41% of revenues. Macy's is still the group's biggest single customer, accounting for 9% of revenues.

Although its shares are publicly traded, the Lauder family retains around 87% of voting rights. It is very much a family business still. The founder's son Leonard Lauder is chairman emeritus of Estee Lauder Companies. His own son William Lauder was previously president & CEO and is now executive chairman. Among other family members, Leonard Lauder's wife Evelyn was for many years global ambassador and senior corporate vice president responsible for fragrance development, until her death in 2011. Estee's other son Ronald Lauder (also the former United States Ambassador to Austria) is chairman of Clinique Laboratories. His daughter Aerin Lauder is global style & image director for the Estee Lauder brand and also runs her own line of Aerin Beauty products, licensed to the main group. Another daughter, Jane Lauder, was promoted to global president of the Clinique brand at the beginning of 2014. Aerin and Jane Lauder also sit on the company's board. The Lauder family announced a change in its management structure in 2007, bringing in an outsider to run the business for the first time. Fabrizio Freda, a former P&G executive, joined the group as president & COO, and replaced William Lauder as CEO in July 2009.

See Adbrands Account Assignments for other Estee Lauder Companies marketers

Background

Despite its prestigious image, the Estee Lauder brand was actually born above a humble hardware shop in the neighbourhood of Queens, New York. Josephine Esther Mentzner was the daughter of Czech-Hungarian Jewish immigrants. As a child, she was reportedly misregistered in school by a French teacher as Estee, and the name stuck. Having worked for a while in her father's hardware store, she got a job in the early 1930s selling Super Rich All-Purpose Creme, a skin lotion concocted by her uncle, in a concession at a Manhattan beauty salon. Here she charmed customers with what was to become a marketing standard in the beauty industry, offering a free sample of the lotion to take home with them. A natural saleswoman, Estee quickly progressed to a job behind the beauty counter in an upmarket department store. In the early 1940s she decided to set up in business for herself, supported by husband Joseph Lauter. She persuaded him to change his name to the more refined-sounding Lauder, and in 1946, they secured their first concession at Saks Fifth Avenue department store. They formalised Estee's free giveaway policy, offering a free sample with every product sold, a tactic now widely used in the industry, and known as GWP, or Gift-With-Purchase.

The company's big breakthrough came in 1953 with the launch of a combined bath oil and fragrance, known as Youth Dew. Gradually the company added other cosmetic products, and as the business grew, Lauder assembled a salesforce of hand-picked "beauty advisors" to sell her products through department stores and other upmarket retailers. A firm believer in word-of-mouth promotion, Lauder exhorted all employees to spread the word about the company's products with the motto, "Telephone, telegraph, tell-a-woman". Determined to capture an upscale market, she also priced her products at the highest end of the scale, making them seem even more prestigious. In 1957, Re-Nutriv, a skin cream made from shark and turtle oils, was priced at $115 a pot, when other premium lotions sold for around $10. Incredibly it was a big success.

The company now established itself in the international market, opening a London outlet (in Harrods department store) in 1960, followed by one in Hong Kong a year later. Lauder herself quickly threw off her Queens roots, becoming a sophisticated figurehead for her products. Although she never denied her humble background, the image she cultivated was that of Viennese royalty, rather than Jewish immigrant shopowner's daughter, and she set out to befriend the great and the good among the world's aristocracy. Meanwhile the company's advertising was high-class and refined. In 1970, the company signed sophisticated model Karen Graham to an exclusive contract as the "face" of Estee Lauder, and featured her in all its advertising for the next 15 years, establishing another industry standard. (She was subsequently replaced as Estee Lauder "spokesmodel" by Willow Bay and later Paulina Poriskova).

Gradually other brands were added to the stable. In 1964, Lauder introduced a range of men's fragrances, under the Aramis brand. Clinique, launched four years later was the first allergy tested, fragrance free cosmetics brand. The Prescriptives range, introduced in 1979, targeted professional women; while Origins Natural Resources, launched in 1990, was one of the first beauty products to be based on homeopathic and natural remedies. Estee Lauder handed over day-to-day control of the company to her two sons, Leonard and Ronald, during the 1970s and 1980s. In 1995 Leonard floated part of its stock, although the family retained voting and majority control. The IPO made billionaires of all three.

The group also used funds generated by the float to stock up on a portfolio of edgier, more urban beauty brands. Over the next five years Estee Lauder acquired a string of specialist makeup brands including Bobbi Brow, MAC and Stila, as well as prestige haircare products Aveda and Bumble and Bumble and British fragrance designer Jo Malone. Also in 1995, Estee Lauder signed Liz Hurley, the famous-for-being-famous girlfriend of actor Hugh Grant, as its newest spokesmodel. Initially the relationship benefited both parties enormously, as Hurley became one of the global paparazzi's favourite subjects. However the relationship came under some strain when Hugh Grant made headlines of the wrong sort after being arrested with a prostitute. Nevertheless, Hurley held onto the contract, and continued to be one of the world's most photographed women. By 2001 however her star had waned more than a little after a string of unsuccessful films and sensational newspaper headlines of her own. That year Estee Lauder signed up a new face, supermodel Carolyn Murphy, who gradually took over from Hurley. The company also began pushing forward family member Aerin Lauder, Estee's grand-daughter and a party-loving (but well-behaved) socialite, to become the public face of the company.

In 2000 the company dipped its toe into the online sector, acquiring beauty ecommerce website gloss.com. Following the downturn in the interactive sector, Estee Lauder recruited Chanel and Clarins as partners in the business. However it struggled, and the group wrote off its investment in the business in 2001. It was later discontinued. In a bid to face off fierce competition from rivals, especially L'Oreal, Estee Lauder has unveiled a deluge of new products in recent years. In 2001 alone it launched more than 300 new products under its various brands. The group's founder died in 2004 at the grand old age of 97.

Last full revision 4th August 2017

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