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On the heels of strong first-half results, Fabrizio Freda made the rounds with media reporters and analysts this week to reinforce his strategy for the Estée Lauder Cos. Inc., which is beginning to crystallize seven months after he took over the helm as president and chief executive officer.
“This recession was a wake-up call for the industry,” he told journalists on Wednesday. Freda forecast a recovery in the U.S. market will likely begin in earnest this July. “In the first 18 months of recovery, the most change happens,” he said. Change is already in motion at Lauder, where Freda has introduced sweeping cultural, financial and organizational changes since last July.
Despite U.S. department stores’ struggles, Freda reiterated the firm’s commitment to the prestige channel. The confident and energized ceo identified “high-touch” service as a primary focus for Lauder to differentiate its brands from other channels, noting that the Clinique counter at Bloomingdale’s 59th Street is, “the first real test of that high-touch direction.” There, Clinique offers a three-pronged approach to service: express replenishment, freedom to browse independently and one-on-one consultation. “We have learned that 45 percent [of shoppers] enter the department store for fast replenishment,” said Freda, explaining the need for the express service option.
He cited digital efforts as a key element of Lauder’s high-touch strategy. The company operates e-commerce platforms in nine of its biggest global markets, including China, as well as mobile phone e-commerce in Japan.
Lauder plans to allocate an undisclosed portion of a $50 million investment from cost savings to leverage its presence online and in other nontraditional channels. The balance of the investment will go toward consumer research, its equity-based rewards program, and research and development, particularly in Europe and Asia.
Freda’s strategy includes a rigorous assessment of Lauder’s underperforming businesses. The brands on his watch list represent $1 billion of the $7.3 billion company’s revenue. As reported, the company is unwinding its Prescriptives business. But, efforts to improve the Aramis and Designer Fragrances business are paying off, said Freda. After shifting to a strategy that supports fewer fragrance launches on a bigger and more global scale, the division is once again profitable.
The company also continues to set its sights abroad. When asked to name his favorite emerging market, Freda quipped, “China is one, two and three.” Freda, who travels to China every three months, said the company continues to make investments in R&D, distribution and e-commerce there. As a result, Estée Lauder has moved from the number-three prestige brand to the leading prestige brand in China, said Freda. Emerging markets represent about 12 percent of Lauder’s revenues.