Estee Lauder Companies Inc
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Sharynn M. Tomlin Angelo State University
EL
www.el.com
In lvlay 201 I . CEO Fabrizio Freda of Estde Laucler nracle the follon,ins conrnrettts clurittg tlte conlpiutli"* scheclttlecl confereuce call: 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 Oligins Plantscription. 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 fiont the 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 initiative in 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. 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.
I
History
Beautl'. 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 proclucts, 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 Saks Filih Arenue in Neu' York. in better stores in the United u,ere prodncts selectir,ell'distributed During the next l51.ears fhe rvith the introdttction of Estde Laucler its opelations States. and in 1960 the companl,globalized the follorving "vear' The opening rvith Kong urarket the Hong London. prgclucts at Harrocls in Oil. and Skin Cleansing Cretne Pack. Purpose Creme. Rich All *'ere Supel iir-st pr.oclucts solcl (a and presti-ee fiagrance line of such as Ararnis tbllou'ecl. Lotiol. Aclclitiolerl brancls -erooming pr.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. Estde Laucler established its
filst clepaltment store account with
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 professional 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 of the 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 manufhctur.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
, Yi1 Glallal Flutnart Re.rources
Arrrr lliGcsq
F,xecutive
F{i}rvev Uedeoti, Lxectrtive YI1 (lit'btii i{t'sc.trcli antl Det'eiont€llt. Corpor.tt.' Prcrdttct In n(]\'.1tiort. ;n,.1 Package
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l iruder, itior Ccrptrrilte
YP
I:abrieio Frer'll, CEO ancl Pi:eside:rt
S.rr:r
lloss,
Gregorl
Polcer',
Ri.-hard Krtnc.s,
F.xecutive YP anil
i:recutive VP anci (ieiieiai Couuscl
Executive YP. Glub.ri Suppit Clrain
ci:o
Developnrent
Exhibit 2. belorv each -uroup vice president are fbur tlivisions: skin cale. rnakeup. ti'aglance,
hair care.
Financial Position
ancl
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 disappointing 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 haircare. 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 of less than I percent or total sales of 53.4 billion. U.S. sales accountecl for irpplclxiuratell'S2.9
Et's Worldwide Facilities
Facility
\{urrutircturins. I 3 Factones
I{cse arclt itucl Developntetlt Olleratiolls. -175 Scir'tttists
Location
Belgiurlt. Srt'itzc-rllttttl. Lrttitetl Kingtlom. anrl Citttitrht -lokt'tl. t,lclr ille. Neu York: Oc'r'el. Belsititti: Jitpan: \Iarkhitttt. Orltttt'it'r: Bllrittc- I'litlllesotil:
Urtitr--rl Stittes.
Shungluri. China: I(obe. Business Oftices.
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Jui-r;.ttt
\\krrltln
icle
North .\rtrerica. South Autericlt. Cetttt'al AnrL'rica. Asia. Eiurope. I'lirldle Eltst.,{ttstrttliit.
Neu Zculancl. Afl'icii
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32
SHARYNN M. TOMLIN
Consolidated Statements of Earnings (in millions, except per share data)
Year Ended June 30,
201 0
2009
$7,323.8
2008
$7,910"8
I
Net Snles
Ct-rst
$7,795.8 i.819.-f
tlf sule s Gross Profit
O1;erati ng
e.\ Iren se.s
_
_
r
.881.6
.996.8
*
5,966.4 5.067.0
5.412,2 4.883.9 76.8
I -r..3
5,914.0 5.088.9 0.4
Sellir']g. gellentl itttd atitrtittistt'lttive
Restntcturing atttl otlter si)ecial chalges
Gtrorlu'
iI
6l.l
1(r.6
I i ntpai rttrett t
Iinllairnrettt ol' otitet' intitttgitrle itrttt Iong-Iiveti
a\sets
31.8
-+8.8
1-1.0
_
0perating Incollte
Interest exltrltse. ttet Interest exlleltse ott tlebt extitt-gttisltttteilt
r. I 76.5
789.9
7-1. 3
5.0?3.8 418.4 5 .1
1
5.103.3 810.7 66.8
)1 ,3 688.3 312.7
7 43.9
Iiarnirtgs llefot'e Ittcottre Tbxes
Provisiort t'oL ittct-rttte tttxe
s
_l0l
e
_-_llil
22(t.8
(
___-_l]2,9
484.0
(
Net Larnings
Net eunriuqs attributable to n()rlc()ntrol1iug irtiet'ests
-_
482..1
(!1
I
8..i
)_
i0.2)
Net Earnings
Net earnings attributalrle to'l-hc' l:stee Llttttlet' Contltatties ]ttc. per c()lttitt()tt shltt'e:
Basic
_ _
$+zs.J
$21.8.4
_$473.8_
s2.42
Dilutetl
\\rcightet[ itvet'age colt'lttttltt sltat'es otttstatrtling:
B asic
sr l8
t97 .7
si.ll . ! l:lo
r
_
_ _
s_1.4+
s2.1L
r
96.3 s.55
93.9 s.55
Diluterl
Cash tlivirlentis rieclltt'etl per c()llllll()ll sitat'c
EI -Conrllutt i cs.cottt.
t00.7
5.ff
tL)7.7
197.1
Consolidated Balance Sheets (000 omitted)
201 0
2009
ASSE'I'S
Currertt Assets
Caslt aitti citslt c'tlttivitlettts
s
r.l2a.7
716.?
s86-1.5
ti5 3.3
Accotrnts receir lrlrle . l'lc.t Inventorv attrl pt'tttttotional tttet"citatttlise. ttet Prellnitl e\l)eltses utttl otltet' cttt't'ettt assets
lll(r.6
795.t)
Total (ltrrrent,\ssets
Plopert\'. Plattt artd h,c;ttilltttcttt. ttet Other ilsscts
Inve stittettts. ltt cost ot'ttLtt'ket vitlttc
C
_ 3.nl.q
r
Jr7
5
ig?7_
.013.6
--
l.e
1
ill
-
.426,7
__
I
12.2
tl7
otlrirt'ill Otlier irrtungitrlc it:sets. ttet
Other"irssets
_ 751.5
()9.5
I 6._8
_
_
7ry?
l 5t). I
__
.
_3
_
3l
-1.7
Total othet'itssets
r .19_!:0
| .237 .,+ _
lotal
assets
J5,335.6
*_$5.176.6
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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
sl3 + J-)i -)
5.6
s3 3.8
3:9.
I
j___
33.2
Other lccrue(l liabilities
i. i I 8:0
1,572:2 .105.(i
163.3 -t29.7
_ilII
Total Current Liabilities Noncttrrent Liallilities
I-ong-tet'ttt cleht Accmett ittcottre taxes Other noncun'ent Iiabilitics
1..159.2 .*_
i .3 87.6
I
:5e.
I
Total littttcut'retrt Liabilities
_J2q{_
-_ 3.r0?__
2.7
_
-!06
I __
2,0*53.4
fbfal Liabilities
Equit3' Coninton stock. S.01 piir vitltre :650.0(X).00()
shares Class A atrthorizeti:
sitltre s isstreti:
3.512.6
l.(i
*)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 atrthorizecl: shitres issttetl atttl otitstanclirtg: 77.081.0-l I irt .Iurte :10. l010. ancl 78.067 .)61 at Jtttre 30' 1009 Puicl-in caltital
1.-118.7
3 .5
si
t. i45.6
3.195.0
)
Retitinetl eitt'tt i ttss
r\c ctttntr 1 ate tt otltet' collll)rehett
6J.0
7
ve I oss
(196.7
( 1 17.
i
I
)
+.798
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
-i.ll6.
{
1.fi50.3 1.984.-l
}
t1.586. i 1.640.{) 14.{)
t
'['otal Stockholtlers' I!qtritl' Noncontrollitrg Interests Total Eqtritl' Total Liabilities antl Ecluitl'
_ ll .0_
l.e(t-l
$5,335.6
_
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-
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
.
.
1rrr,e sgppor.tecl the activities ancl grou'th
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)
Skin Cltt'e I'lakeulr [jnigntttce
53.117.
I
1009
l00B
s2.e96.8 3.000.-i 1.-i32.0
s2.886.0
1.83{).9 1.150.9
-101.4
61 .7
l.e78.l
r
.136.9
-{ r 3,9
Hirir Care
Othe r
ll7,
I
55.+
$7.81 1.5
5-i.5 $7.910.8
Tirtitl
$7,331.9
l0l0
Skin Citt'e
J-'.411
Operating Inconle t009
s29-i.
I
1008 s-f05.6 359.+
3fr.2
5+J+.i
-il 6.8
16.3
I Iakeulr
FrirgLattce
179.8 r60.8
tl ll l.l
r
Hiiil
Cat'e
(6.1t
_').+
1l
I r.5
)
C)ther'
(-1.1
{ 1,6)
'[otal
sllT{.6
$5 I 0.1
$811.1
(ieographic Reventtes Anal)'sis l0 r0
Asiit/Pucific
Eurolte ltr litltllrFiast/Atl'icir ,.\tncricits
l(x)9
1008
s
1.5
10.i
s
1.19e.-+
S
l.l9l.(r
-1.006.7
1.859.3
l.6l
lJll
I .3
i.-l+1.
-)
i
3.7 I 1.5
Totnl
5'r,r
$7,811.5
$7,331.9
$7,91().8
tlt'r': F.LCortrplttt i es.cottt'
Est6e Lltrclel beiieves that the longterm success of the cotporation is dependelrt on its i'ter-actiol 11,itl.r tire hunuur ancl ecologicai ertvironments. At Estie Lauder'. envit'ottt.uetttal ancl e'rplo.vee saf'ety pefbnrrauce is et'ely employee's lespousibility. The anunal pertbt'mance t'evie$'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'ollilelltal. health. ancl salety zel'o \\,aste anci zero acciclents goals. The mallagelnent systems at ail Estde the Laucler manptactur.in-u opelatiorrs ale cerlitiecl by an iuclepenclent thircl parl,y to confbrm to to cotrtinnotts and ISO l-1001 stanclartls. All operations ancl tacilities at'e cleclicated to excellence iprproyentent through inrpleurentation of envit'ottlrental ancl sat-ety initiatives'
Marketing
Product
Estde Laucler ltar.kets nrore than 9.000 products tln(le1' ttratry brantl nttlnes. such as: Estde Kiton. Laucler'. Aramis. Clinique. Prescliptives. Lab Series Skincare tbr N4en. Origirls. M'A'C. 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 tiaglance shaclorvs. nail polishes ancl porvclersl plus cornpacts. brttshes. ancl other makettp tools), on parbased (eau cle- per.tirpre spralis. colognes. perfirmes. lotions. porvclet's, creal'tls. aucl soaps (sllatnpoos, conditionticuiat. lragr.ancesr plus trath ancl arorrathet'apy proclucts). atlcl hair cale ers. st-vli1g gels ancl ct'elnes. hail coloring ploclttcts. ancl hairspra-vs). Estde Lauder places high provide r.alue ou cousuller conrnrunication iurcl awareltess. Ntttlerotls systellls ale in place to
CASE
4.
ESTEE LAUDER COMPANIES, lNC, __ 2A11
35
Est6e Lauder Brands
Brand Name
Estu<e
Year Acquired
l9-16 196-l
r
Laucler
Anturis Cliniclue
Prescriptive
s
968
L)
197 I
1
I-ub Serie s Skin Care for I'lerr Origins
e87 990 994 e95
\'l-r\-C
La X'ler
l
I
'-
Bobbi
Kiton
-fomurv
Bt'ou'n
Hiltrger'
19r)5 1r)93
I
995 997 999
Douna Kitrarr
Ave c1a
T9L)7
I
1
Jo \'lalone Bunrl'rle arttl buurble ' tr,Iichaei Kols
1000 1003 1003 1003 100-l 100-l 2001 100-t
Darphin
Rodau + Fielcls
Americlin Beauiv
,eood skin
Flirt
!
Donalcl Trunrll. Thc Flagrirrice
gl'ilssl'()0ts Sean Jolin Fragrances
t0t)5
1005
T,IIS.SO]\I L)itis)'
F uc-tttes
l()05
1006
Oion
S
St
:007
tttaslthor
t
t't' t'
l0 r0
rv n'. e
i
tt
:
h
tt
p
:
l/u
cont pit
rt i e's.
etr111l.
customer ser'\'ice ancl open clialogue on hehalf of the colltpall\, 'uld its lrrands. sen'ice lrntl indivichralized attention is oflereci tu custorners via brancl u,ebsites. toll-ti'ee phorte numtlers. artcl six global Consunler Care Centers.
Place
The company sells its proclucts principally through selectir.e clistribution channels to coruplerurent fhe inrages associatecl rvith its brancls. The channels consist primarily of upscale department stores. specialty retailefs. upscale perfumeries and pharmacies. anrl professional hair salons. 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 offer shopping via the Internet. De1:artrnent stores relrain the best venue fbl hi_qh sel'r,ice and -great brancls. Currentll,. ciistribution of its ploclucts are as iblion,s: 27 percent 1}om U.S. depafitnent stores, 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 trom
otheL sottrces. Online sales increased by 23 percellt in fiscal 2010. lvith manl,Estde Lauder brancls launchin-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 a 4,8 out tlf -5 ranking. using Tu'itter as art eft'ecti\/e nteans of providing service' to its -generafed
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 to llrochlct iltlrl froru brancl to brand, but tend to be in the rriicl-high to high faltse of the inclttstt'1'. Prestige priciilg itplleal's to be an effective strateglr .-ui\retl
their tat'get lllilrkets.
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 million people 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'relative 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 indusit'f is the plojection that clisposable personal inconre increased 3.2 percent'in l0 10. One often gr'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 position. tvith the personal cilre sector erperiencing an increase in the nurnber of gt'eeIr products.
CASE
:
4
.
ESTEE LAUDER COMPANIES, lNC.
-
2011
37
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-sastores snch as Wal-Nlart. courpanies l.1a)/ be challen-uecl to continue their pattelns of innovative aninlal r.esearch. Aclditionalll,. there have been consur.ner conlplaints and incluiries into the trse of of tbmr this al'e clropping product cotnllanies personal care nany products. ancl ue1r, testiug f<xplocluct 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 statel'Wa.nin-s-the sat'ety of this procluct has uot been detelrniued."J Hou'ever. these issues at'e ,1ent rx)t ne$'. havin-s afl-ected the indtistry fbr mol'e than 100 yeals.
Competitors
All 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'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. rvofkpiace 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.
L'0real
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
Procter & Gamble (P&G)
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 toothbrancls inclucle Colgate Total ancl Col-uate Max Fresh toothpastes. Col-cate 360 degree tnanttal t'loss clental also includes brushes. ancl Colgate and Col_uate Plax orai rinses. The orirl cale business include pl'odttcts persoual care ancl phat-maceutical proclucts tilr oral health prot-essiortals. Colgate's
38
SHARYNN
M
TOMLIN
Summary of Competitors-2010 (in millions; amounts in U.5. $ unless denoted otherwise)
Net
Compa ny Ar.on Procluct r
Col gute - Pa Ittro
Reve
I
n u es
.13
EB
ITDA
Income
606.30
Tota Assets
I
Tota
I
Liabilities
PE Ratio
I 8. I 0 1L).13
0.861
1.r63.7
3.506.0
l.t),+ 1.7
1.813,72 I 1.112,4 5.335.6 31.180.+
Iivr'
I 5.5(r-1.0
l.103 .0
J78.3 r.99
7
Estie l-autier'
7.795
)
I
I
'Oi'e al ( r-Lll'()s
l(r.091.6
78.93 8.0
4.277 .t)
.5
Prtlcter & Garnlrle I{r-i'lott
S t, 1 1,'r' r'
19.i0i.0
577.7
t)
^7
36.0 9-t.6
ll8.172.o
I .(r16.3
1.167.0
It-'l'gC
.2 8.-+97.0 3.387.1 12,188.3 67.057.0 3.087.6
6.217
19.50
NIA
17.3-l
N/A
:\
ilttl
tt I i tte. c()
lll,
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 that has increased rvith the iltroduction of treu' clental pt'oelttcts. the plof-essional ancl tlacle
-rroups 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 lalgest direct 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. Avon continues 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 conrpally's net income rvas 59-1.6 nriliion in 1010.
Conclusion
Estie Laucler has initiated a fbur-yeal stateg)/. Pertbrrnance objectives incltide itrcreasitrg market 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 inverttory tul'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 Laudel expects 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
39
For that thircl qnarter oti 2011. Est6e Lauder poste{l sales -rains in each of its _ceographic regions and ntaiol proclttct categories. Stroug sales -grou'th caure fl'om the company's intelnational businesses. particularlf in tlavel rc'tail. Asia/Pircifrc. and ernelging markets. For the tull year fiscal 20 ll. net sales at'e expectecl to gro\\,atrout 10.5 pel'ceut. The companl/ expects t() While gross protit tbr the cluat'ter lose 19 perceut )/ear ovel'year to S1683.1 million. operatiu-c ittcome 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 sales rose 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 sales surgecl 4 percent to 5232.0 Inillion. By region. the companl"s sales in the Anrericas rose l2 pel'cc-nt to S928.9 ntilliou: in Europe. the Nliddlc' East and Atrica sales surgecl 20 pelcent to 5794.7 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. aucl even Mar'y Kay Cosmetics ale u,olking halcl ever'1, clat, to take malket share flom Estie l,autler. Prepale a clear'. three-]'ear strategic plan tbr CEO Fablizio
tuassively increitse -global aclvertisin-u spencling rvith nerv initiatives anrl major proch-tct launches.
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www.el.com
In lvlay 201 I . CEO Fabrizio Freda of Estde Laucler nracle the follon,ins conrnrettts clurittg tlte conlpiutli"* scheclttlecl confereuce call: 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 Oligins Plantscription. 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 fiont the 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 initiative in 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. 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.
I
History
Beautl'. 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 proclucts, 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 Saks Filih Arenue in Neu' York. in better stores in the United u,ere prodncts selectir,ell'distributed During the next l51.ears fhe rvith the introdttction of Estde Laucler its opelations States. and in 1960 the companl,globalized the follorving "vear' The opening rvith Kong urarket the Hong London. prgclucts at Harrocls in Oil. and Skin Cleansing Cretne Pack. Purpose Creme. Rich All *'ere Supel iir-st pr.oclucts solcl (a and presti-ee fiagrance line of such as Ararnis tbllou'ecl. Lotiol. Aclclitiolerl brancls -erooming pr.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. Estde Laucler established its
filst clepaltment store account with
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 professional 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 of the 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 manufhctur.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
, Yi1 Glallal Flutnart Re.rources
Arrrr lliGcsq
F,xecutive
F{i}rvev Uedeoti, Lxectrtive YI1 (lit'btii i{t'sc.trcli antl Det'eiont€llt. Corpor.tt.' Prcrdttct In n(]\'.1tiort. ;n,.1 Package
I'.r-elvn
Se
l iruder, itior Ccrptrrilte
YP
I:abrieio Frer'll, CEO ancl Pi:eside:rt
S.rr:r
lloss,
Gregorl
Polcer',
Ri.-hard Krtnc.s,
F.xecutive YP anil
i:recutive VP anci (ieiieiai Couuscl
Executive YP. Glub.ri Suppit Clrain
ci:o
Developnrent
Exhibit 2. belorv each -uroup vice president are fbur tlivisions: skin cale. rnakeup. ti'aglance,
hair care.
Financial Position
ancl
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 disappointing 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 haircare. 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 of less than I percent or total sales of 53.4 billion. U.S. sales accountecl for irpplclxiuratell'S2.9
Et's Worldwide Facilities
Facility
\{urrutircturins. I 3 Factones
I{cse arclt itucl Developntetlt Olleratiolls. -175 Scir'tttists
Location
Belgiurlt. Srt'itzc-rllttttl. Lrttitetl Kingtlom. anrl Citttitrht -lokt'tl. t,lclr ille. Neu York: Oc'r'el. Belsititti: Jitpan: \Iarkhitttt. Orltttt'it'r: Bllrittc- I'litlllesotil:
Urtitr--rl Stittes.
Shungluri. China: I(obe. Business Oftices.
-13
Jui-r;.ttt
\\krrltln
icle
North .\rtrerica. South Autericlt. Cetttt'al AnrL'rica. Asia. Eiurope. I'lirldle Eltst.,{ttstrttliit.
Neu Zculancl. Afl'icii
.,\'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'} /.
32
SHARYNN M. TOMLIN
Consolidated Statements of Earnings (in millions, except per share data)
Year Ended June 30,
201 0
2009
$7,323.8
2008
$7,910"8
I
Net Snles
Ct-rst
$7,795.8 i.819.-f
tlf sule s Gross Profit
O1;erati ng
e.\ Iren se.s
_
_
r
.881.6
.996.8
*
5,966.4 5.067.0
5.412,2 4.883.9 76.8
I -r..3
5,914.0 5.088.9 0.4
Sellir']g. gellentl itttd atitrtittistt'lttive
Restntcturing atttl otlter si)ecial chalges
Gtrorlu'
iI
6l.l
1(r.6
I i ntpai rttrett t
Iinllairnrettt ol' otitet' intitttgitrle itrttt Iong-Iiveti
a\sets
31.8
-+8.8
1-1.0
_
0perating Incollte
Interest exltrltse. ttet Interest exlleltse ott tlebt extitt-gttisltttteilt
r. I 76.5
789.9
7-1. 3
5.0?3.8 418.4 5 .1
1
5.103.3 810.7 66.8
)1 ,3 688.3 312.7
7 43.9
Iiarnirtgs llefot'e Ittcottre Tbxes
Provisiort t'oL ittct-rttte tttxe
s
_l0l
e
_-_llil
22(t.8
(
___-_l]2,9
484.0
(
Net Larnings
Net eunriuqs attributable to n()rlc()ntrol1iug irtiet'ests
-_
482..1
(!1
I
8..i
)_
i0.2)
Net Earnings
Net earnings attributalrle to'l-hc' l:stee Llttttlet' Contltatties ]ttc. per c()lttitt()tt shltt'e:
Basic
_ _
$+zs.J
$21.8.4
_$473.8_
s2.42
Dilutetl
\\rcightet[ itvet'age colt'lttttltt sltat'es otttstatrtling:
B asic
sr l8
t97 .7
si.ll . ! l:lo
r
_
_ _
s_1.4+
s2.1L
r
96.3 s.55
93.9 s.55
Diluterl
Cash tlivirlentis rieclltt'etl per c()llllll()ll sitat'c
EI -Conrllutt i cs.cottt.
t00.7
5.ff
tL)7.7
197.1
Consolidated Balance Sheets (000 omitted)
201 0
2009
ASSE'I'S
Currertt Assets
Caslt aitti citslt c'tlttivitlettts
s
r.l2a.7
716.?
s86-1.5
ti5 3.3
Accotrnts receir lrlrle . l'lc.t Inventorv attrl pt'tttttotional tttet"citatttlise. ttet Prellnitl e\l)eltses utttl otltet' cttt't'ettt assets
lll(r.6
795.t)
Total (ltrrrent,\ssets
Plopert\'. Plattt artd h,c;ttilltttcttt. ttet Other ilsscts
Inve stittettts. ltt cost ot'ttLtt'ket vitlttc
C
_ 3.nl.q
r
Jr7
5
ig?7_
.013.6
--
l.e
1
ill
-
.426,7
__
I
12.2
tl7
otlrirt'ill Otlier irrtungitrlc it:sets. ttet
Other"irssets
_ 751.5
()9.5
I 6._8
_
_
7ry?
l 5t). I
__
.
_3
_
3l
-1.7
Total othet'itssets
r .19_!:0
| .237 .,+ _
lotal
assets
J5,335.6
*_$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
sl3 + J-)i -)
5.6
s3 3.8
3:9.
I
j___
33.2
Other lccrue(l liabilities
i. i I 8:0
1,572:2 .105.(i
163.3 -t29.7
_ilII
Total Current Liabilities Noncttrrent Liallilities
I-ong-tet'ttt cleht Accmett ittcottre taxes Other noncun'ent Iiabilitics
1..159.2 .*_
i .3 87.6
I
:5e.
I
Total littttcut'retrt Liabilities
_J2q{_
-_ 3.r0?__
2.7
_
-!06
I __
2,0*53.4
fbfal Liabilities
Equit3' Coninton stock. S.01 piir vitltre :650.0(X).00()
shares Class A atrthorizeti:
sitltre s isstreti:
3.512.6
l.(i
*)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 atrthorizecl: shitres issttetl atttl otitstanclirtg: 77.081.0-l I irt .Iurte :10. l010. ancl 78.067 .)61 at Jtttre 30' 1009 Puicl-in caltital
1.-118.7
3 .5
si
t. i45.6
3.195.0
)
Retitinetl eitt'tt i ttss
r\c ctttntr 1 ate tt otltet' collll)rehett
6J.0
7
ve I oss
(196.7
( 1 17.
i
I
)
+.798
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
-i.ll6.
{
1.fi50.3 1.984.-l
}
t1.586. i 1.640.{) 14.{)
t
'['otal Stockholtlers' I!qtritl' Noncontrollitrg Interests Total Eqtritl' Total Liabilities antl Ecluitl'
_ ll .0_
l.e(t-l
$5,335.6
_
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-
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
.
.
1rrr,e sgppor.tecl the activities ancl grou'th
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)
Skin Cltt'e I'lakeulr [jnigntttce
53.117.
I
1009
l00B
s2.e96.8 3.000.-i 1.-i32.0
s2.886.0
1.83{).9 1.150.9
-101.4
61 .7
l.e78.l
r
.136.9
-{ r 3,9
Hirir Care
Othe r
ll7,
I
55.+
$7.81 1.5
5-i.5 $7.910.8
Tirtitl
$7,331.9
l0l0
Skin Citt'e
J-'.411
Operating Inconle t009
s29-i.
I
1008 s-f05.6 359.+
3fr.2
5+J+.i
-il 6.8
16.3
I Iakeulr
FrirgLattce
179.8 r60.8
tl ll l.l
r
Hiiil
Cat'e
(6.1t
_').+
1l
I r.5
)
C)ther'
(-1.1
{ 1,6)
'[otal
sllT{.6
$5 I 0.1
$811.1
(ieographic Reventtes Anal)'sis l0 r0
Asiit/Pucific
Eurolte ltr litltllrFiast/Atl'icir ,.\tncricits
l(x)9
1008
s
1.5
10.i
s
1.19e.-+
S
l.l9l.(r
-1.006.7
1.859.3
l.6l
lJll
I .3
i.-l+1.
-)
i
3.7 I 1.5
Totnl
5'r,r
$7,811.5
$7,331.9
$7,91().8
tlt'r': F.LCortrplttt i es.cottt'
Est6e Lltrclel beiieves that the longterm success of the cotporation is dependelrt on its i'ter-actiol 11,itl.r tire hunuur ancl ecologicai ertvironments. At Estie Lauder'. envit'ottt.uetttal ancl e'rplo.vee saf'ety pefbnrrauce is et'ely employee's lespousibility. The anunal pertbt'mance t'evie$'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'ollilelltal. health. ancl salety zel'o \\,aste anci zero acciclents goals. The mallagelnent systems at ail Estde the Laucler manptactur.in-u opelatiorrs ale cerlitiecl by an iuclepenclent thircl parl,y to confbrm to to cotrtinnotts and ISO l-1001 stanclartls. All operations ancl tacilities at'e cleclicated to excellence iprproyentent through inrpleurentation of envit'ottlrental ancl sat-ety initiatives'
Marketing
Product
Estde Laucler ltar.kets nrore than 9.000 products tln(le1' ttratry brantl nttlnes. such as: Estde Kiton. Laucler'. Aramis. Clinique. Prescliptives. Lab Series Skincare tbr N4en. Origirls. M'A'C. 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 tiaglance shaclorvs. nail polishes ancl porvclersl plus cornpacts. brttshes. ancl other makettp tools), on parbased (eau cle- per.tirpre spralis. colognes. perfirmes. lotions. porvclet's, creal'tls. aucl soaps (sllatnpoos, conditionticuiat. lragr.ancesr plus trath ancl arorrathet'apy proclucts). atlcl hair cale ers. st-vli1g gels ancl ct'elnes. hail coloring ploclttcts. ancl hairspra-vs). Estde Lauder places high provide r.alue ou cousuller conrnrunication iurcl awareltess. Ntttlerotls systellls ale in place to
CASE
4.
ESTEE LAUDER COMPANIES, lNC, __ 2A11
35
Est6e Lauder Brands
Brand Name
Estu<e
Year Acquired
l9-16 196-l
r
Laucler
Anturis Cliniclue
Prescriptive
s
968
L)
197 I
1
I-ub Serie s Skin Care for I'lerr Origins
e87 990 994 e95
\'l-r\-C
La X'ler
l
I
'-
Bobbi
Kiton
-fomurv
Bt'ou'n
Hiltrger'
19r)5 1r)93
I
995 997 999
Douna Kitrarr
Ave c1a
T9L)7
I
1
Jo \'lalone Bunrl'rle arttl buurble ' tr,Iichaei Kols
1000 1003 1003 1003 100-l 100-l 2001 100-t
Darphin
Rodau + Fielcls
Americlin Beauiv
,eood skin
Flirt
!
Donalcl Trunrll. Thc Flagrirrice
gl'ilssl'()0ts Sean Jolin Fragrances
t0t)5
1005
T,IIS.SO]\I L)itis)'
F uc-tttes
l()05
1006
Oion
S
St
:007
tttaslthor
t
t't' t'
l0 r0
rv n'. e
i
tt
:
h
tt
p
:
l/u
cont pit
rt i e's.
etr111l.
customer ser'\'ice ancl open clialogue on hehalf of the colltpall\, 'uld its lrrands. sen'ice lrntl indivichralized attention is oflereci tu custorners via brancl u,ebsites. toll-ti'ee phorte numtlers. artcl six global Consunler Care Centers.
Place
The company sells its proclucts principally through selectir.e clistribution channels to coruplerurent fhe inrages associatecl rvith its brancls. The channels consist primarily of upscale department stores. specialty retailefs. upscale perfumeries and pharmacies. anrl professional hair salons. 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 offer shopping via the Internet. De1:artrnent stores relrain the best venue fbl hi_qh sel'r,ice and -great brancls. Currentll,. ciistribution of its ploclucts are as iblion,s: 27 percent 1}om U.S. depafitnent stores, 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 trom
otheL sottrces. Online sales increased by 23 percellt in fiscal 2010. lvith manl,Estde Lauder brancls launchin-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 a 4,8 out tlf -5 ranking. using Tu'itter as art eft'ecti\/e nteans of providing service' to its -generafed
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 to llrochlct iltlrl froru brancl to brand, but tend to be in the rriicl-high to high faltse of the inclttstt'1'. Prestige priciilg itplleal's to be an effective strateglr .-ui\retl
their tat'get lllilrkets.
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 million people 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'relative 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 indusit'f is the plojection that clisposable personal inconre increased 3.2 percent'in l0 10. One often gr'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 position. tvith the personal cilre sector erperiencing an increase in the nurnber of gt'eeIr products.
CASE
:
4
.
ESTEE LAUDER COMPANIES, lNC.
-
2011
37
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-sastores snch as Wal-Nlart. courpanies l.1a)/ be challen-uecl to continue their pattelns of innovative aninlal r.esearch. Aclditionalll,. there have been consur.ner conlplaints and incluiries into the trse of of tbmr this al'e clropping product cotnllanies personal care nany products. ancl ue1r, testiug f<xplocluct 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 statel'Wa.nin-s-the sat'ety of this procluct has uot been detelrniued."J Hou'ever. these issues at'e ,1ent rx)t ne$'. havin-s afl-ected the indtistry fbr mol'e than 100 yeals.
Competitors
All 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'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. rvofkpiace 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.
L'0real
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
Procter & Gamble (P&G)
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 toothbrancls inclucle Colgate Total ancl Col-uate Max Fresh toothpastes. Col-cate 360 degree tnanttal t'loss clental also includes brushes. ancl Colgate and Col_uate Plax orai rinses. The orirl cale business include pl'odttcts persoual care ancl phat-maceutical proclucts tilr oral health prot-essiortals. Colgate's
38
SHARYNN
M
TOMLIN
Summary of Competitors-2010 (in millions; amounts in U.5. $ unless denoted otherwise)
Net
Compa ny Ar.on Procluct r
Col gute - Pa Ittro
Reve
I
n u es
.13
EB
ITDA
Income
606.30
Tota Assets
I
Tota
I
Liabilities
PE Ratio
I 8. I 0 1L).13
0.861
1.r63.7
3.506.0
l.t),+ 1.7
1.813,72 I 1.112,4 5.335.6 31.180.+
Iivr'
I 5.5(r-1.0
l.103 .0
J78.3 r.99
7
Estie l-autier'
7.795
)
I
I
'Oi'e al ( r-Lll'()s
l(r.091.6
78.93 8.0
4.277 .t)
.5
Prtlcter & Garnlrle I{r-i'lott
S t, 1 1,'r' r'
19.i0i.0
577.7
t)
^7
36.0 9-t.6
ll8.172.o
I .(r16.3
1.167.0
It-'l'gC
.2 8.-+97.0 3.387.1 12,188.3 67.057.0 3.087.6
6.217
19.50
NIA
17.3-l
N/A
:\
ilttl
tt I i tte. c()
lll,
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 that has increased rvith the iltroduction of treu' clental pt'oelttcts. the plof-essional ancl tlacle
-rroups 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 lalgest direct 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. Avon continues 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 conrpally's net income rvas 59-1.6 nriliion in 1010.
Conclusion
Estie Laucler has initiated a fbur-yeal stateg)/. Pertbrrnance objectives incltide itrcreasitrg market 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 inverttory tul'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 Laudel expects 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
39
For that thircl qnarter oti 2011. Est6e Lauder poste{l sales -rains in each of its _ceographic regions and ntaiol proclttct categories. Stroug sales -grou'th caure fl'om the company's intelnational businesses. particularlf in tlavel rc'tail. Asia/Pircifrc. and ernelging markets. For the tull year fiscal 20 ll. net sales at'e expectecl to gro\\,atrout 10.5 pel'ceut. The companl/ expects t() While gross protit tbr the cluat'ter lose 19 perceut )/ear ovel'year to S1683.1 million. operatiu-c ittcome 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 sales rose 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 sales surgecl 4 percent to 5232.0 Inillion. By region. the companl"s sales in the Anrericas rose l2 pel'cc-nt to S928.9 ntilliou: in Europe. the Nliddlc' East and Atrica sales surgecl 20 pelcent to 5794.7 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. aucl even Mar'y Kay Cosmetics ale u,olking halcl ever'1, clat, to take malket share flom Estie l,autler. Prepale a clear'. three-]'ear strategic plan tbr CEO Fablizio
tuassively increitse -global aclvertisin-u spencling rvith nerv initiatives anrl major proch-tct launches.
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"lbiletries antl Cosnretics."
