estee lauder companies inc
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Estee Lauder study caseTRANSCRIPT
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Sharynn M. TomlinAngelo State University
EL
www.el.comIn lvlay 201 I . CEO Fabrizio Freda of Estde
conlpiutli"* scheclttlecl confereuce call:Laucler nracle the follon,ins conrnrettts clurittg tlte
Demand tbr premiurn -eoods ancl services in the U.S. is expectecl to lise 8 percent tltis yeat'.
Oul luxru'y brancls-Bobbi Brou'n. L:r N4er. Jo iVialone. Ton.r Fot'cl--erew stfoll-s clouble-cli-eits
fbr the qu?rrter. ht onr Skitt Care category. rvhich sau, stl'oll-q increases iti all regions, recent
technologically-advanced innovatiorrs inclucle Clinique Repairrvear Laser Foctts. Estde LaudeL
Aclvancecl Night Repair E),e Recoverli 6o,r'tptr". La Mer Regenerating Senttn. and OliginsPlantscription. We are pleased with the success of these uerv procittcts. Oul Hcir Crrre categot'y
is irnproving. Follorvin-u a successltl test in l0 stores. Butnble and bun'rble had expattcled to
all stancl-alone Sephora clools in the U.S, Oul Bumble salon netu'ot'k should benetlt fiontthe ret-erral pro-sraln at Sephola. The brand has also launched its th'st ever pritlt ad campaign
tbl its nerv textru'e cleam iu North Amelica in April. ibllou,ed by the U.K. this tnouth. Our
Fntgnux'e cate-sol'y grerv this quarter clespite a tough compat'isou rvith the three-year t'elautlch
o1'pureDKNY. Ser,eral of oul Lecent launches perfblrned well. incluctirtg Coach Poppy artcl Estie
Laucler Pleasures Bloonr. as u'ell as the prernium Jo Malone ancl Tom Forcl fi'agrances. We are
assnming a rvorldrvide license lbr Zegna. ',r'hich sl'roulcl strettgthett ottr itrtet'trational Fragratrce
porttblio especially in China ancl Enlope. Through nine of our braucls. we llo\\I hacl a plesence
in clepartment stores. tieestanclin,u stores. and Sephola in 38 cities in China. Our online initiativein the conntry extends onr reach to ulore than 346 cities. Estde Lattcier retrraius the top-ranked
Plesti-se brand in its distribution in China. \Ve are particularly pieased lvith our pto-etess tn
Brazil. Our NI-A-C ancl Clinique brancls continne to lesonate u'ith coltstttners. Tut'key is a
tast-_elorving entergin-u malket in tlre European region. Our sales there gainecl 34 percent in the
qual'ter. ancl u'e continue to -saiu share. We also gained share in South Afiica. u'het'e iurproved
coltsullter insights led to better product ilssortment and r.ttore efl'ective marketiu-e campaigns. In
Russia. our sales-everl,-cla1' reurains strong. rising more than 20 pelcerlt. q,hich is abont clotlble
the ovelall Plestige beauty -erou,th. I
Estde Laucler leleases its tburth quarter and t-iscal yeal financial t'esttlts in mitl-Augnst ct1'
each vear. The U.S. stock market clroppecl rnoLe thtn 1.000 points in the 10 clays prior to the
colrlpany's Au-sust 15. 201 I release.
HistoryBeautl'. 1,outh. ancl "torever )/out1_g" al'e comlnon themes in the pet'soual ploducts indttstry. But
more than that. tr 1,oun-u entreprerleur namecl Estie Laucler i'elt that nof onl)' could she provicle a
procluct that espoused those qualities. but a qualitl' artd plestige not beible seen itt the cosrnetics
tnarketplace. The Estde Laucler Conipan.v u'as founcled in 1946 b1'Nft's. Estde Laucler and het'
husbancl. Joseph Laucier. Estde Laucler r.r'as ahvays interested in beattty ar"rd began hel bttsiness
selling the skin care ploducts her chemist uncle Johu Schotz cievelopecl. Her first prodttcts u'et'e
solcl to beauty salons and hotels.
Iu the eally ),ears. Estie Lauclel u,as unable to convince N4adisorl At'enue to carry her procl-
ucts, Facin,u this rej'ection. she begau to rnarket her proclucts clirectly to let custornel's saniple her'
proclucts belbre they bought them. With that snccess. Estde Laucler began targeting high-class
custoutel's b1'sellin-u her ploclucts exclusively throtrgh boittiques aud depaltmellt stores. In l9'18.
30 SHARYNN M. TOMLIN
Estde Laucler established its filst clepaltment store account with Saks Filih Arenue in Neu' York.
During the next l51.ears fhe prodncts u,ere selectir,ell'distributed in better stores in the United
States. and in 1960 the companl,globalized its opelations rvith the introdttction of Estde Laucler
prgclucts at Harrocls in London. rvith the Hong Kong urarket opening the follorving "vear' The
iir-st pr.oclucts solcl *'ere Supel Rich All Purpose Creme. Cretne Pack. Cleansing Oil. and Skin
Lotiol. Aclclitiolerl brancls tbllou'ecl. such as Ararnis (a line of presti-ee fiagrance and -eroomingpr.oclucts lbr men launched in 1964). Clinique (the first derrnatologist-guided. allelgy testecl.
fl.a-sl.ance tiee cosmetics blancl launchecl in 1968). Prescliptives, and OriginS Natural Resonrces.
Estde Laucier colttiltues to acquire more bratrd licensing of natnes stlch as Tornnty Hilfi-eer'.
MAC. Bobbi Brorvn. La N{er. Kiton tra-srances. Donna Karan. attcl Aveda'
Estde Laucler u,as ntunecl one of 10 Outstandin-c Women in Br,rsiness in the United States
by business ancl tinancial editors in 1967. A year later she received the Spirit of Achievelnent
Aq,arcl tl'ont Albert Einstein College of lVleclicine at Yeshiva University. This u'as the same yeat
the conrpany expandecl again b1'opeuin-u Clinique Labolatories. Inc. The year 1983 was an
extrilol'clinary one rvith the illtrodtlctiort of its p|odr.rcts in the SoYiet Uniott.
In November 1998. Estde Laucler began selling a varietl' of products over the Interuet and.t'as
one of the tirst major prcstige cosmetics tirms to offer online shopping. A nerv division callecl ELC
Opline u'as created to mana-ge all online strategies and activities tbr all of its brands. Dtu'ing this
salte tine tiane other acquisitions. including Jo Malone. Stila Cosmetics (sold seten years later)
Gloss.cont. ancl Nerv York-based Bumble and bumble LLC rvere acquired. In 2003. Darphin ancl
Roclan + Fiekls were acquired. ancl a license r.r'ith fuIichael Kors tvas signed shortly atterward. In
200-1. the courpany's teeu-oriented Jane business rvas sold. ancl Estde Lauclel iaunched Beauty
Flirt. anci Goocl Skin thlough its BeautyBank division, fbllou'ed by Grassroots in 2005 ancl Daisl'
Fuentes in 2006. The sante year'also sau, license a-sreelrents u'ith Sean John, Missoni. and Donalcl
Trump. In April 2006. the Stila brancl. rvhich had been purchasecl in 1999, rvas sold.
Since 2008. Estde Lauclel companies har.e sr.rccesstully launchecl multiple new plocluct lilles.
itrcluclin-e Grassloots Research Labs. and in 2010 Estde Lauder annoultced the acquisition of
Smashbox Beautl, Cosmetics from the Factol brothers. -sl€at-grandsons of the le-eendary IVIax Factor.
Today Est6e Lauder ltas 28 bl'ancls. sells products in over 150 countlies and territories, atrcl
enplol's over 31,200 people u'orlchvide. While l4rs. Estde Lauder passed arvay in April 2004.
in her lit'e she u,itnessed the -uror.r,th
of tr small home operation to a rvot'ldq'ide corporation, rvith
anlnal re\.enues of rnore than 57.8 billion. She rvas very proud that the colnparly went public in
1995. ancl toclay it conlinues to be led by her chilclreu ancl grandchildren.
lnternal lssues
Vision/Mission/Ethics
Estde Laucler Con.rpanies' tision is: "bringing the best to everyone we touch and being the best
in evelything ll,'e cio. By 'the best' rve rnean the best products, the best people and the best ideas."
Furthelmore. the courpany is committecl to unconlprornisecl ethics and integrity. For all ernployees
doniesric:rl11, ancl globalll.. ancl the boarcl of directols. the hi-qhest stanclaril of ethics is a condition
of emplol'ntent. The conlpan), otficial homepage elaborates b1, stating the follorving:
"The Estde Laucler Companies. Iuc. is courmittecl to the highest stairtlald of profes-
sional ancl personal concluct. All employees of the colnpany are expected to condnct
rhentselr.es at all tintes rvithin the letter ancl spirit of the Code. The Cocle of Conduct
applies to all ernployees of the Compan.v throughout the u'orld aucl to the members ofthe Boalcl of Dilectors." A tull clescription of tlre cocle of conduct can be tbutrd at http://u'rvrv.elcoutpatries.com/pclt\/code-of'-conduct-20 1 0.pdf.
Estie Laucler cloes not have a rvritten mission statelnent.
Organizational Structure
Estie Lauclel utilizes a strategic lnsiness unit-type structure attcl. as noted above, contintles to be
mana_secl primaril;'trl,tanril-v urentbers. As inclicated in Exiribit l. three of the top l2 execr"rtives
haye Lalclet' as their'last name. ancl others ma1, be tanrily tnetnbers. The courpany has manufhc-
tur.in_e tircilities. R&D operations. ancl business otlices ou neat'ly e\rer)/ contitlent. as indicated in
CASE 4 . ESTEE LAUDER COMPANIES, lNC. - 2411 31
EL's Top Twelve Executives\\'iliianr Liurder',
Chairnrrrn oi the Boitrd
Arrrr lliGcsq , F{i}rvev Uedeoti,F,xecutive Yi1 Lxectrtive YI1 (lit'btii
Glallal Flutnart i{t'sc.trcli antl Det'ei-Re.rources ont€llt. Corpor.tt.'
Prcrdttct In n(]\'.1tiort.
;n,.1 Package
Developnrent
I'.r-elvn l iruder,
Se itior CcrptrrilteYP
I:abrieio Frer'll,CEO ancl Pi:eside:rt
S.rr:r lloss, Gregorl Polcer',
i:recutive VP anci Executive YP.
(ieiieiai Couuscl Glub.ri Suppit Clrain
Ri.-hard Krtnc.s,
F.xecutive YP anilci:o
Exhibit 2. belorv each -uroup vice president are fbur tlivisions: skin cale. rnakeup. ti'aglance, ancl
hair care.
Financial Position
Estie Lauder"s fiscal year ends on June 30. The corllpilrl),'s fiscal 2010 incoure statentents ancl
balance sheets are pi'ovicled in Exhibits 3 and -l respectivell,. Note that net incotne tuore thnu
dclublecl in 2010. Its successes in t'iscal 2010 demonstlates Estde Lauder's lesilience after a dis-
appointing dorvnturn in 2009. Note that net sales incleasecl 6 percent. ol to 57.8 billion. due to
grou'th in rnakeup. skin cale. ancl hair care procluct cate-uolies. -rlertelatiu-e a t'ecord gross margin
of 76.-5 percent. Operating income almost doubled fiom 1009 to 2010. and net earnin-ss increased
t'om S2ltl million to S-178 nrillicu.
By-Segment Data
Financial lesults for the colnpiluy's tbur divisions-skin care. makeup, fia-erance. ancl hair-care. are lrroviclecl in.Exhibit 5. Note that sales of skin cale products Account f'or -{l pelcent. or
53.-t-l billion. of net sales. ibllorvecl by makeup at 38 percent ol 52.96 billion. ti'agrance at 15
percent or Sl.l'7 billion. and hail cale products at 5 pelcent oL 5390.575 nriliion.Also shou,n in Exhibit 5. Estde Laurler clerived 56 percent of its sales tlom outsicle Nolth
anri SoLrth Arnelica.'Net sales in the Americas remainecl relatir,el)' flat u'ith a stnall ittcrease ofless than I percent or total sales of 53.4 billion. U.S. sales accountecl for irpplclxiuratell'S2.9
Et's Worldwide Facilities
Facility Location
\{urrutircturins. I 3 Factones
I{cse arclt itucl DevelopntetltOlleratiolls. -175 Scir'tttists
Business Oftices. -13 \\krrltln icle
.,\'o I 1 1 1'6,.' lt t t 1'r : //u u' \\'. c I c ( ) t'lt p it lr i c -r . c {) I r'} /.
Urtitr--rl Stittes. Belgiurlt. Srt'itzc-rllttttl. Lrttitetl
Kingtlom. anrl Citttitrht
t,lclr ille. Neu York: Oc'r'el. Belsititti: -lokt'tl.
Jitpan: \Iarkhitttt. Orltttt'it'r: Bllrittc- I'litlllesotil:Shungluri. China: I(obe. Jui-r;.ttt
North .\rtrerica. South Autericlt. Cetttt'al
AnrL'rica. Asia. Eiurope. I'lirldle Eltst.,{ttstrttliit.Neu Zculancl. Afl'icii
32 SHARYNN M. TOMLIN
Consolidated Statements of Earnings (in millions, exceptper share data)
Year Ended June 30,
201 0 2009 2008
Net Snles
Ct-rst tlf sule s
Gross ProfitO1;erati ng e.\ Iren se.s
Sellir']g. gellentl itttd atitrtittistt'lttive
Restntcturing atttl otlter si)ecial chalges
Gtrorlu' i I I i ntpai rttrett t
Iinllairnrettt ol' otitet' intitttgitrle itrttt Iong-Iiveti
a\sets
0perating Incollte
Interest exltrltse. ttet
Interest exlleltse ott tlebt extitt-gttisltttteilt
Iiarnirtgs llefot'e Ittcottre Tbxes
Provisiort t'oL ittct-rttte tttxe s
Net Larnings
Net eunriuqs attributable to n()rlc()ntrol1iug irtiet'ests
Net Earnings
Net earnings attributalrle to'l-hc' l:stee Llttttlet'
Contltatties ]ttc. per c()lttitt()tt shltt'e:
Basic
Dilutetl
\\rcightet[ itvet'age colt'lttttltt sltat'es otttstatrtling:
B asic
Diluterl
Cash tlivirlentis rieclltt'etl per c()llllll()ll sitat'c
EI -Conrllutt i cs.cottt.
$7,795.8
i.819.-f
* 5,966.4
5.067.0
6l.l1(r.6
31.8
_ r. I 76.5
789.9
7-1. 3
)1 ,3
688.3
-_ _l0l e
482..1
(!1 I
_ $+zs.J
_ s2.42
sr l8
t97 .7
t00.7
5.ff
$7,323.8
_ r .881.6
_ 5.412,2
4.883.9
76.8
I -r..3
-+8.8
312.7
_-_llil22(t.8
( 8..i )_
$21.8.4
si.ll _
. ! l:lo
r 96.3
tL)7.7
s.55
$7,910"8
I .996.8
5,914.0
5.088.9
0.4
1-1.0
7 43.9
___-_l]2,9484.0
( i0.2)
_$473.8_
_ s_1.4+
_ s2.1L
r 93.9
197.1
s.55
2009
5.0?3.8 5.103.3
418.4 810.7
1 5 .1 66.8
Consolidated Balance Sheets (000 omitted)
201 0
ASSE'I'S
Currertt Assets
Caslt aitti citslt c'tlttivitlettts
Accotrnts receir lrlrle . l'lc.t
Inventorv attrl pt'tttttotional tttet"citatttlise. ttet
Prellnitl e\l)eltses utttl otltet' cttt't'ettt assets
Total (ltrrrent,\ssets
Plopert\'. Plattt artd h,c;ttilltttcttt. ttet
Other ilsscts
Inve stittettts. ltt cost ot'ttLtt'ket vitlttc
C otlrirt'ill
Otlier irrtungitrlc it:sets. ttet
Other"irssets
Total othet'itssets
lotal assets
s r.l2a.7
716.?
lll(r.6
Jr7 5
_ 3.nl.qr .013.6
__ 12.2
_ 751.5
I ()9.5
__ _3 I 6._8 _r .19_!:0
. J5,335.6
s86-1.5
ti5 3.3
795.t)
ig?7_
-- l.e ill -1 .426,7
tl7_ 7ry?
l 5t). I
_ 3l -1.7
| .237 .,+ _
*_$5.176.6 -
CASE 4 . ESTEE LAUDER COMPANIES, lNC. - 2011 33
201 0 2009
LIARII,ITIES AND trQUITY
Current f.iahilities
Short-terrtr debt
Acccluttts 1ra1'able
Accruecl ittctltttc ti.txes
Other lccrue(l liabilities
Total Current Liabilities
Noncttrrent LiallilitiesI-ong-tet'ttt cleht
Accmett ittcottre taxes
Other noncun'ent Iiabilitics
Total littttcut'retrt Liabilities
fbfal Liabilities
Equit3'
Coninton stock. S.01 piir vitltre :650.0(X).00()
shares Class A atrthorizeti: sitltre s isstreti:
*)A.767.-135 at Jutte 30. 1010. ancl 183.91 I .350 at
June 30. l(X)9: l-10.0()0.000 sltares Class B atrtho-
rizecl: shitres issttetl atttl otitstanclirtg: 77.081.0-l I
irt .Iurte :10. l010. ancl 78.067 .)61 at Jtttre 30' 1009
Puicl-in caltital
Retitinetl eitt'tt i ttss
r\c ctttntr 1 ate tt otltet' collll)rehett s i ve I oss
Lcss: Tre rtsttrv stock. at e tlst: 70. i 15.805 Cirtss A
sltares itt Jttttc- 30. 1010. irntl 65.19-1.4'77 Class A
slutrcs at Jtrtte 30. l0t)9'['otal Stockholtlers' I!qtritl'Noncontrollitrg Interests
Total Eqtritl'
Total Liabilities antl Ecluitl'
sl3 +
J-)i -)
5.6
i. i I 8:0
1,572:2
I .105.(i
163.3
-t29.7
_J2q{_-_ 3.r0?__
2.7
1.-118.7
3 .5 6J.0
(196.7 )
+.798 7
{ 1.fi50.3 }
1.984.-l
_ ll .0_l.e(t-l
$5,335.6
s3 3.8
3:9. I33.2
_ilII j___
1..159.2 .*_
i .3 87.6
:5e. I
_ -!06 I __
2,0*53.4
3.512.6
l.(i
t. i45.6
3.195.0
( 1 17. i )
-i.ll6. I
t1.586. i t
1.640.{)
14.{) _1.664.0 _
$5.176.6
billiou or 38 1:er.cent of those sirles. ht Europe. the lvlidclle East. alld Atiica. net saies iuct'easecl
9 percent.f1om 52.6 billion to 52.tt billion. reflecting highel llet silles li'om travel retail ancl
distlibutol busiuesses.
Ner sales in Asia/Pacitlc iucleasecl l(r pelcent. or f}otn Sl.-1 trillion in 2009 to Sl.5 billion
in 2010. Str.irte-gic g1o\\,tl1 i1 China. cornbinecl rvith positive results in Korea anci Hong Korlg.
contributed to sales grou'th of this region. Most of the grotvth itr the inte|national markets is
anticipateil in Russia ancl Chinn. Currentll, irt Russia. ttre Clinique and Estde Lirttder brancls
represent about 60 percent of the skin care shaLe of the market. In China. skiu care sales
incr.eased b)' 30 perceut. Hou'ever. cleveloping markets such as Blazil arlcl India are shtlrviug
si-uns of potential gains.
Corporate Social ResPonsibilitY
Esfde Lauder stron-ul;, aclvocates cofpol'ilte social |esponsibilitl' to its custorue|s ltttd ctrt.ttlttttl.ti-
.in u,lrich it operates. Corporate philanthlollic pl'o-sranrs aticl cottrlttttllitf invollement initia-
. . 1rrr,e sgppor.tecl the activities ancl grou'th of nuttterotts clrganiz-ations declicatecl to healtli
.,nd huutalt services. eclucation. the envit'onntent. ancl the arts. Since 1992. The Estie Lirttclet
Cour'a1ies I1c. hirs been at the lbreilont of incleasing -ulobal arvareuess fbt caltcer throtlgh its
ri'nual Breast Calcer.,{rvareness Carrpai-un. Recently the companv annouucecl the establishmetrt
,i the E,stde Lancler Tribal Scholals Prograni to ltlovide scholalships to Auterican Indian stucients
- rldv i nll nrarketi n g. L'rttsi ness atrcl ellv i t'otlurental sc ietrce s.
34 SHARYNN M TOMLIN
Financial Data per Segment for 2008-2010 (in $ millions)
Revenue
l01i) 1009 l00B
Skin Cltt'e
I'lakeulr
[jnigntttce
Hirir Care
Othe r
Tirtitl
53.117. I
l.e78.lr .136.9
-{ r 3,9
55.+
$7.81 1.5
s2.886.0
1.83{).9
1.150.9
-101.4
61 .7
$7,331.9
s2.e96.8
3.000.-i
1.-i32.0
ll7, I
5-i.5
$7.910.8
Operating Inconle
l0l0 t009 1008
Skin Citt'e
I Iakeulr
FrirgLattce
Hiiil Cat'e
C)ther'
'[otal
J-'.4115+J+.i
-il 6.8
16.3
(6.1t1l_').+
sllT{.6
s29-i. I
179.8
r60.8 r
tllll.l
(-1.1 )
$5 I 0.1
s-f05.6
359.+
3fr.2
I r.5
{ 1,6)
$811.1
(ieographic Reventtes Anal)'sis
l0 r0 l(x)9 1008
Asiit/Pucific
Eurolte ltr litltllr-
Fiast/Atl'icir
,.\tncricits
Totnl
5'r,r tlt'r': F.LCortrplttt i es.cottt'
s 1.5 10.i
1.859.3
i.-l+1. i
$7,811.5
s 1.19e.-+
l.6l I .3
lJll -)
$7,331.9
S l.l9l.(r-1.006.7
3.7 I 1.5
$7,91().8
Est6e Lltrclel beiieves that the longterm success of the cotporation is dependelrt on its
i'ter-actiol 11,itl.r tire hunuur ancl ecologicai ertvironments. At Estie Lauder'. envit'ottt.uetttal ancl
e'rplo.vee saf'ety pefbnrrauce is et'ely employee's lespousibility. The anunal pertbt'mance t'evie$'s
of implt,yees in the uranufirctuling and lelatecl aleas al'e partially based otr reachin-s thei| sites'
enyir.olureltal lrealtft ancl sat'et1, objectives. The cornpany has established loug-terur ellvll'ollilell-
tal. health. ancl salety zel'o \\,aste anci zero acciclents goals. The mallagelnent systems at ail Estde
Laucler manptactur.in-u opelatiorrs ale cerlitiecl by an iuclepenclent thircl parl,y to confbrm to the
ISO l-1001 stanclartls. All operations ancl tacilities at'e cleclicated to excellence and to cotrtinnotts
iprproyentent through inrpleurentation of envit'ottlrental ancl sat-ety initiatives'
MarketingProduct
Estde Laucler ltar.kets nrore than 9.000 products tln(le1' ttratry brantl nttlnes. such as: Estde
Laucler'. Aramis. Clinique. Prescliptives. Lab Series Skincare tbr N4en. Origirls. M'A'C. Kiton.
La \,ler. Bobbi Bros'n. Tonutry Hiltiger. Donna Kat'an Cosuretics. Jo N{alone' Aveda. Bumble
alcl bultble. N4ichael Ksls Beaut1,. Roclan + Fielcls. Dalphin. Atnericau Beauty. Flirtl. Donalcl
Truntp. Gooil Skin. GlassLoots. Sean John. N,Iissoni. ancl Daisy Fuentes. and its tleu'acclttisitiolt.
S'rashbox. Exhibit 6 lists a t'erv of the cornpany's blancl nanre ploducts ancl the clate of Product
launch or acquisition. Note that SnlashBtlx \\'as iutroclttcecl in 2010.
The cor.npan\,'s ploclncts are clivicleci into skin care (moistltrizers. creatns. lotiotls. cleausers.
sitnsereells. ancl self:tanning proclucts). nrakeup (lipsticks. tllasci.iras. tbundatiorls. blusltes. eye
shaclorvs. nail polishes ancl porvclersl plus cornpacts. brttshes. ancl other makettp tools), tiaglance
(eau cle- per.tirpre spralis. colognes. perfirmes. lotions. porvclet's, creal'tls. aucl soaps based on par-
ticuiat. lragr.ancesr plus trath ancl arorrathet'apy proclucts). atlcl hair cale (sllatnpoos, condition-
ers. st-vli1g gels ancl ct'elnes. hail coloring ploclttcts. ancl hairspra-vs). Estde Lauder places high
r.alue ou cousuller conrnrunication iurcl awareltess. Ntttlerotls systellls ale in place to provide
CASE 4 . ESTEE LAUDER COMPANIES, lNC, __ 2A11 35
Est6e Lauder Brands
Brand Name
Estu<e Laucler
Anturis
Cliniclue
Prescriptive s
I-ub Serie s Skin Care for I'lerr
Origins
\'l-r\-CLa X'ler
Bobbi Bt'ou'n '-
-fomurv Hiltrger'
Kiton
Douna Kitrarr
Ave c1a
Jo \'lalone
Bunrl'rle arttl buurble '
tr,Iichaei Kols
Darphin
Rodau + Fielcls
Americlin Beauiv
,eood skin
Flirt !
Donalcl Trunrll. Thc Flagrirrice
gl'ilssl'()0ts
Sean Jolin Fragrances
T,IIS.SO]\I
L)itis)' F uc-tttes
Oion
S tttaslthor
S t t t t t't' t' : h t t p : l/u rv n'. e i cont pit rt i e's. etr111l.
customer ser'\'ice ancl open clialogue on hehalf of the
vichralized attention is oflereci tu custorners via brancl
global Consunler Care Centers.
colltpall\, 'uld its lrrands. sen'ice lrntl indi-u,ebsites. toll-ti'ee phorte numtlers. artcl six
Year Acquired
l9-16
196-l
r 968
197 L)
I e87
1 990
l 994
I e95
19r)5
1r)93
I 995
T9L)7
I 997
1 999
1000
1003
1003
1003
100-l
100-l
2001
100-t
t0t)5
1005
l()05
1006
:007
l0 r0
Place
The company sells its proclucts principally through selectir.e clistribution channels to coruple-rurent fhe inrages associatecl rvith its brancls. The channels consist primarily of upscale depart-ment stores. specialty retailefs. upscale perfumeries and pharmacies. anrl professional hairsalons. as q,ell as fieestanclirlg colnpany stores ancl spas. stores on cmise ships. in-flight ancl cluty
tiee shops in airports ancl cities. and the Internet. and recently through its tirlly launched social
meclia marketin-g channels. Estde Laucler r,r'as the filst rnajor lrrestige cosmetics fl'm to offershopping via the Internet. De1:artrnent stores relrain the best venue fbl hi_qh sel'r,ice and -greatbrancls. Currentll,. ciistribution of its ploclucts are as iblion,s: 27 percent 1}om U.S. depafitnentstores, 28 perceut tiotn international clepaftnleut stores. l3 pelcent tiom ireffirme|ies. 9 percent
fl'orn retail stoles. 9 percent tlom travel retail. ,5 percent trom salous ancl spas. and 9 pelcent tromotheL sottrces.
Online sales increased by 23 percellt in fiscal 2010. lvith manl,Estde Lauder brancls launch-in-u lar_ue-scale social netu'orking ancl online canrpai-uns. Consumers can chiit live u,ith makeup
artists and experirnent rvith cutting-ecl_se vil'tual makeu;l tools. such as Estde Lauder's "Let's
Play makeover'." u'hich enables consulrel's to simulate appll,ing makeup to an uploaded digital
36 SHARYNN M. TOMLIN
photo_uraph. The company's rvebsite launched u'ith ovet' -5.000 ret'ier.r's iiom cot.tsumers ancl
-generafed a 4,8 out tlf -5 ranking. using Tu'itter as art eft'ecti\/e nteans of providing service' to its
custoluefs.
Promotion
Estde Laucler \\,as the tilst cosmetics coulpany to ot'tel free samples and gitt-u'ith-purchase plans,
ancl contirtnes this strateg,v tocia1,. The corupany u,as also the tirst in the indusil'y to introduce
cgnsistent brand intagery around the u,ol'lcl. For this purpose. the companl' tlses celebl'ities ils
enclorsers in testirnonial aclr.ertising lbr conmet'cials on TV. as u'ell as in ma-eaziltes. Elizabeth
Hgrle1,. Carolyn Murphl,'. Liya Kebecle. Gu'yneth Paltro',v. and Anja Rubik have been signecl by
tle col.rpa1y. as u,ell us Hilan' Rhoda. u,ho u'as namecl the nerv thce of Est6e Lattder in January
2007. In 2010. the col11pall\,acldecl three adciitional spokespersons, Chinese mociel Liu Wen'
Frenclr rnotlel Constance Jablonski. and Ptlelto Rican moclel Joan Stnalls.
Price
Estde Lauriet' prices vtll'\i trotn protlllct
rriicl-high to high faltse of the inclttstt'1'.
their tat'get lllilrkets.
to llrochlct iltlrl froru brancl to brand, but tend to be in the
Prestige priciilg itplleal's to be an effective strateglr .-ui\retl
External lssues
Nluch oi the expected grolvth in the personal products industly u,ill be fueled by the risin-u
demancl ftom en.rerging ancl rleveloping rnarkets. In the next 20 yeals. more than 70 millionpeople across the _sriobe u'ill leach an income level that allorvs put'chasing of cosnretic products.
The rv|ole continent of Afiica is cornin-s online. Dulin-u 2010. the value of the U.S. dollat'rela-
tive to othel international curLencies u'as volatile. rvhich impacts companies rvith international
operations. Basically u4reu the valtte of the dollar is lorv. Estde Lauder benefits.
Estde Lauclel CEO Flablizio Freda renrains optimistic. stating in the 2010 Attttuul Report
t5at "Although consumel spenciing nray, be dorvn iu ltlally parts of the rvorld. thet'e is great
passion fbr our proclucts. inlterent consrrrrler clemand and gror,ving collstltner s'ealth. In fact.
the clentograirhics ch'iving oul business al'e stron-g and gettin-u stl'onger. Research shou's that
by 201,5, global rvomen's 1:ulchasirlg po\ver is expected to increase by 55 trillion atld beautl'
is the category these consul'ners are most likely to spend rnoney on afier tbod and clothing."'
Fnrther.rlole the U.S. Census Bureau preclicts that by the year 2030. Americans over the age
of 65 ll,ill represent one-fitih of the population. rvhich is expected to devote a substantial part
of their {iscretionary inconrc' to anti-a-uing ploducts. Younger constlmel's, a,se 20--30 years old,
ar.e choosing to invest theil purchasing dollars into preventive costnetics to battle the efTects
of aging. ancl eYen teeus are thinkin-e about ancl spencling molley ou these types of prodttcts.
Worlciu'icle clata is eveu nlol'e encoulaging. The rvorld's aging population lvill lnultiple by 2.5
tines in the next 40 years. representing over 33 percent of the total population. Ail geo-eraphic
re-uions rvill be irnpactecl b1, this increase. includin-e high grorvth cottntries such as China ancl
Inclia. Aclclitionally. the lit-e expectancy of the aging population rvill contintte to improve. rvith
the clitt'erence betu,een trlen ancl wolllell -tlaclually dintinishin,e.'
Althog-ch ecouomic conditions have ilnprovecl fiont 2009, the United States still is sttfl-ering
t1o1t high nnenrploynrent. ',r'hicl.r has translated into increasecl ievels of iob iltsecurity arnong the
s,orking population. Unen-rployment rates in 2010 are about 9 percent but are much higher in
nlalry areas. The stock tnarket clropped urore than I.000 points in Au-sust 20I L
Othel economic inclicatols are also reporting tnoclest results. The Conl'erence Board's
Ctlnsulter Ctxrticlencc. Index leleased in the latter part of 2010 was relatiVely lou' at 54. 1 but
letlected a steacll' -urou'th trend. and Standard & Poor's has projectecl an inf'lation-adjusted
gr.1lu'th of 2.6 percent tor 201 l. Aclclitionirlly of intelest to the pelsonal care sector of the indus-
it'f is the plojection that clisposable personal inconre increased 3.2 percent'in l0 10. One oftengr'erlookecl tirctor is the inrpact that rising energy prices catr inflict on the personal c.rre sector'
I{igh gas prices natulallv inrpact transportatiou costs" but aclditionally. increases in natufal gas
lrrices cau atl-ect the cost in proclucing pulp. n,hich is usecl in the rnanut'acturin-g of plastics tisecl
lirl packaging.-Even though the econoniy is strugglin-u. green products appear to be rnaintaining their posi-
tion. tvith the personal cilre sector erperiencing an increase in the nurnber of gt'eeIr products.
CASE 4 . ESTEE LAUDER COMPANIES, lNC. - 2011
:
Aclclitionaily. "natrlral" and "orgarlic" pl'o(iucts appear to be fin'oIabll' r'eceivecl by the consunrers
bil are strictly regulated b1' tire U.S. Depirrtrnent of A-uricultut'e ttucler the stanclarcls of the Nationai
Organic progiarr(NOP). rvhich states that 95 percent of the procluct's corltetlt uiust be ol'-sanic anci
also extends to the manufactttrin-t process.
Iunor,ation in ploduct clet'elopntent n'iil also retrtaiu au extt'eurelt' important tactor in the
inclustr.y. Cornpanie.S rvill continne to clevote substantial stttns of protits to the l'eseafch and
clevelopment of nerv ancl appealing products. Hou'evet'. given the colllpetitive pricin,u at lue-sa-
stores snch as Wal-Nlart. courpanies l.1a)/ be challen-uecl to continue their pattelns of innovative
r.esearch. Aclditionalll,. there have been consur.ner conlplaints and incluiries into the trse of aninlal
testiug f<x- ue1r, products. ancl nany personal care product cotnllanies al'e clropping this tbmr of
plocluct testing for more humaue aucl creative testing techniqttes.
Thotrgh the i'ecleral Food anci Drug Achr.rinistration cloes uot t'equire testing of cosrnetics. the
agency has nUitiecl manutactuLers tltat it u,ould start to etltbt'ce labeling that included the state-
,1ent l'Wa.nin-s-the sat'ety of this procluct has uot been detelrniued."J Hou'ever. these issues at'e
rx)t ne$'. havin-s afl-ected the indtistry fbr mol'e than 100 yeals.
CompetitorsAll of the top competitors in the persoual proclucts industr;' ale cliversified. u'ith nany bl'ancl
names and a u,icle range of proclucts. Due to illterlse advertisirt-u and brancl name recogtlition.
the i'clnstry has 4 r.elativel,v hi-rh profit mar-uin cornpaled to other indr"rstries. Tlte inciustrl'
has traditioniilly focusecl on t-ernale llrocltlcts. althou-uh compatries ate llow focusing on the
ultappeci rnale market. Cnstonrel sen,ice is expectecl rvith the sale of presti-se cosllletics alld
r..rur,rd",l u,ith high levels of custouter loyaltl'. A srttul.uat'r'of ke1'financial clata on llstde
Laucler ancl con.rpetitors is shorvn in Exhibit 7. Note that Estde Laudel is small compaled to
some of its lival fitms.
L'0real
L'Oreal is one of the norldn,ide leaclers in cosmetics ancl distributes products in l-30 cotttrtt'ies
with 19 global brancls.66.6l9 emplo-vees and offices in 58 countries. In 2010. the courpany
hacl €19.5 billion ip colsoliclatecl sales. ancl opelatiug profits of €2.2 billion' They embt'ace
responsibility for their emplovees. collsumel's. enl irontttettt. and the comtrltlnities in u'hich they
o1,".ot.. lncl through procluction ancl technoicl,uy strive tbr consistent quality u'or'lclrvicle. rvofk-
piace sal'ety. I.righ environmental staudal'cls. localization. and introvation. L'Oreal owlls lllany
brancls of cousurnel proclucts. ltrof'essional proclllcts. irItcl lttxttt'1" products. Garnier. L'Oleal PaIis.
a1cl Nlaybellirle New Yolk are all consunter proclucts. Some of the prot'essiorlal procluct brancls
include Redken. N1atrix. ancl L'Oreal P|ot-essional. Luxurl' lrroclttcts are brattds sttch as Laucoure.
Ralplr Lauren. and Giorgio Almani.
Procter & Gamble (P&G)
p&G has colsister.rtly pursuecl globalization. rvith or.er i27.000 etnplol'ees rvorking in over 80
coultties and the clistlibution of consurner procltrcts in l.{0 countlies. The P&G br':rnd portfbiio
inclucles Parnpers. Ticle, Ariel. Always. Parltene. Bottutl'. Folgels. Pringles. Chafmin. Dolvn,v.
Iaurs. Cr.est. Actolel. alcl Olay. While pt'obablS' 11't. nost diversified. rvith a greatel'deptlt of
procluct li1es. P&G continges to shor,r,strong gt'orvth and pr'ofitabilitl'. For the 2010 tiscal yeat'.
ih. .nn,pnn1, sa\\, arlother consecutive year of sales gt'orvtlt and tree cash f'lorv plocluctil'it1'. Nlany
p&G proclucts conpete directly q'ith Est6e Lauclel proclucts. P&G reported 578.9 billion of rer'-
enues with a net ilcome of S19.1 billion at the elld of the 2010 tiscal y'eat'.
Colgate-Palmolive
Colgate-Palmolive. tvhicl.r urarkecl its 200th year in 2006. ntalkets a talietl'of ploclucts in tl.re oral.
personal. a1d home care segments. The company hiicl inclustr'5r re\relltles of S 15.-564 ntillion in 2010.
ivith a grgss urargin of ,59.4 percent ancl a price earnings latio of 19.73. The col.llpany reportecl a
1et income of 52.203.0 nillion in 2010. The companl,''s oral. personal. aucl hotne cllre segmellts
geuetate the most revellues. but the conlpany also has a pet nutrition segnlent. Colgate's oral cat'e
brancls inclucle Colgate Total ancl Col-uate Max Fresh toothpastes. Col-cate 360 degree tnanttal tooth-
brushes. ancl Colgate and Col_uate Plax orai rinses. The orirl cale business also includes clental t'loss
ancl phat-maceutical proclucts tilr oral health prot-essiortals. Colgate's persoual care pl'odttcts include
37
38 SHARYNN M TOMLIN
Compa ny Reve n u es E B ITDA
Summary of Competitors-2010 (in millions; amounts in U.5. $ unlessdenoted otherwise)
NetIncome
Tota I
AssetsTota I
Liabilities PE Ratio
Ar.on Procluct r
Col gute - Pa Ittro Iivr'
Estie l-autier'
I 'Oi'e al ( r-Lll'()s )
Prtlcter & Garnlrle
I{r-i'lott
S t, 1 1,'r' r' : \ It-'l'gC ilttl tt I i tte. c() lll,
I 0.861 .13
I 5.5(r-1.0
7.795 Il(r.091.6
78.93 8.0
1.167.0
1.r63.7
3.506.0
l.t),+ 1.7
4.277 .t)
19.i0i.0577.7
606.30
l.103 .0
J78.3
r.99 7 .5
t) ^7 36.0
9-t.6
1.813,72
I 1.112,4
5.335.6
31.180.+
ll8.172.oI .(r16.3
6.217 .2 I 8. I 0
8.-+97.0 1L).13
3.387.1 19.50
12,188.3 NIA
67.057.0 17.3-l
3.087.6 N/A
Pahuolir e ancl Sottsoap brancls. h'ish Sprin,u ancl Protex bar soaps. and Speed Stick and Lacly Speecl
Stick cleotlolants ancl antipelspilants. Colgate's home caLe prodr.rcts inch.rcle Palmolive and A.iax
dishu'ashing liquids. Fabuloso ancl Ajax householcl cleaners. and Murphy's Oil Soap. In 200-1. the
contpan), initiatecl a ntassive resiructufillg pl'ogram that appears to be pro-uressing on schedttle ancl
reapiug expected benet'its. Colgate-Palniolive also has a strong and supportive t'elatiottship rvith
the plof-essional ancl tlacle -rroups that has increased rvith the iltroduction of treu' clental pt'oelttcts.
Avon
Avon Proclucts sells beautl, ancl relatetl proclucts consistin-e of cosmetics. fl'a,srances. skin care.
ancl toilctries. Its plincipal otfices are locatecl in Nerv York. Nerv York. As the world's lalgestdirect seller of personal plochrcts (prirnarily cosmetics). Avon markets its products in over 100
cc.runtlies thlor"rgl.r over 5 million inclependent sales lepresentatives. Avon's product line inclttdes
beauty proclucts. lashionjervelrl,. ancl apparei. Its top selling proclucts includes brancl traures such
as Avon Color. Anen,. Skin-So-Soft. Avon Solutions, Aclvauce TechniqLres. Avon Naturals. Vlalk.ancl Ar,on Wellness. Avon Products had 2010 total revenues of S10.862.8 million. rvith a gross
margin of 62.80 percent. a plice earnin-es latio of 18. 10. and net income of 5606.3 rnilliott. Avoncontinues to be a tbmriclable competitor.
Revlon
Heaclquartered in Ne'nv York. Revlon of'ters a variety of cosmetic and beauty products under rnany
brancl names. all of u4rich compete \\,ith Estde Lauder's product line. Revlon is one of the best
knou'n brand narnes in the rvorlcl ancl the conlpany excels at nass marketing. Revlon Worldwide
has S2.167.0 milliou iu total l'eveuues in 2010. s,ith a gross margin of 66.5 1 percent. The conr-pally's net income rvas 59-1.6 nriliion in 1010.
ConclusionEstie Laucler has initiated a fbur-yeal stateg)/. Pertbrrnance objectives incltide itrcreasitrg mar-
ket share in the -slobal prestige beauty market. generation of more than 60 percent of sales
tr'om international malkets. I percent o1'sales -urou,th from acqlrisitions ovet' the next three
vears.increasin-eoperatingmar-sinstrom l-Spercentto l.lpercent.iucreasingrateof inverttorytul'novel'. reduction of costs. ancl leinvestrnent of S50 million to increase global -srorvth and
market share.*Estde Lauder reportecl excellent lesults ibl the thircl qualter of ilscal 2011 u,ith quarterly
ealnings of 71 cents pel share. The results plompted the companl,to raise its tull-yeal dih.rtecl
earnings estirnate fl'om S-i.55 to 53.6-5 lrel share. Its t'iscal year ends on Jnne 30. Estde Laudelexpects that the Japau tsunami u,ill hamper total cor'npan1, sales fbr the tull fiscal year by about
half a percentage point. Net sales tbr the third quarter gre$' 16.0 pefcent year-o\,er-year to 52. I 7
billion flont S 1 .86 billion iu the prior'-year quarter. A u'eaker U.S. dollar benetitecl the company.
About SJ2 million s'as addecl to the quarter's net sales oq'ing to tlte adclitional olclers fl'oru
Eulope. About 53 I million s,as contributed b1'the cornpanl''s long-tet'm pertumery stfategy
acloptecl in the Eurooe. I'Iiddle East. and Atiica recions.
CASE4 . ESTEE LAUDER COMPANIES. lNC. -2011
For that thircl qnarter oti 2011. Est6e Lauder poste{l sales -rains in each of its _ceographicregions and ntaiol proclttct categories. Stroug sales -grou'th caure fl'om the company's intelna-tional businesses. particularlf in tlavel rc'tail. Asia/Pircifrc. and ernelging markets. For the tullyear fiscal 20 ll. net sales at'e expectecl to gro\\,atrout 10.5 pel'ceut. The companl/ expects t()tuassively increitse -global aclvertisin-u spencling rvith nerv initiatives anrl major proch-tct launches.While gross protit tbr the cluat'ter lose 19 perceut )/ear ovel'year to S1683.1 million. operatiu-cittcome soared 66 percent to 5209. I million ti'orn the correspouciin-u period a yeaf ago.
By segrtrel.rt tbr the thiltl quartel of fiscal 201 1. the coll.lllan\/'s Skin Care product salesrose l4 pel'cellt to S933.4 nrillion. Maketp sales jrunped 2"1 percent to S878.1 nrillion. Hair'Cale ploduct sales inched up l4 pelcent to Sl 10.0 uriliion. ancl Fragrance proclncr salessurgecl 4 percent to 5232.0 Inillion. By region. the companl"s sales in the Anrericas rose l2pel'cc-nt to S928.9 ntilliou: in Europe. the Nliddlc' East and Atrica sales surgecl 20 pelcent to5794.7 rnillion. and in the Asia/Pacitic re-cion sales soalecl l9 percent to 5442.8 utillion.
In a nutshell. Estde Lauder is cloin-e rvell fbr nou,. Hou'ever. nruch larger firrns suclr as Avon.LOreal, P&G. Colgate Palnttllive. aucl even Mar'y Kay Cosmetics ale u,olking halcl ever'1, clat, totake malket share flom Estie l,autler. Prepale a clear'. three-]'ear strategic plan tbr CEO FablizioFreda.
39
-!
J.l..,
r:i.
ii't .
htttrl ://u'u' tr,. e lcompan ies.c ont.Startclarcl & Poor" s. Irtdttrlrl Siri"r'('r',\ -- Hotrs'eltoIrlNortrltrrobles, Decenrber 30. 20 I 0,
"lbiletries antl Cosnretics." [rrr..r' cl opt,d irtIrrrlrt,stri (.\, online eclition.
-fhonrson Gitle.
Ccnrpanl, u,ebsite.
o.f Globul1006.
+