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The Estée Lauder Cos. Inc., the stalwart luxury beauty firm and department stores’ most dominant ally, has linked arms with a surprising new distribution partner — Wal-Mart.
The firm’s Aramis and Designer Fragrances division will take its first direct step into the women’s mass market fragrance category with a trio of scents under the C-Thru moniker. The high-end beauty company plans to launch the scents as a set in Wal-Mart this December, and later roll them out to Kohl’s, Target and other mass retailers in January. At full rollout, the scents will be sold in about 10,000 doors in North America.
This story first appeared in the October 3, 2008 issue of WWD. Subscribe Today.
While executives declined to discuss sales projections, industry sources estimated that C-Thru would do upward of $10 million in retail sales in its first year in North America. Sources estimated that the brand’s advertising and promotional budget will top $4 million.
Decades ago, news of a Wal-Mart tie-up would have rattled the chandeliers in the company’s Fifth Avenue headquarters. But now the move could be interpreted as merely reflecting the broad evolution in the market and at Lauder as prestige and other types of beauty manufacturers jockey for alternative retail channels to stimulate growth. This is especially true of Lauder, which still does more than 70 percent of its business around the world in major department stores, as chief executive officer William P. Lauder pointed out earlier this year. Lauder did not comment on this latest initiative.
After the company sold its mass cosmetics brand, Jane Cosmetics, in 2004, Lauder has repeatedly asserted that the luxury beauty firm is not in the mass market business.
The Estée Lauder Cos. does not have a mass market arm, but the firm continues to dabble in mass retail — at least at its upper end. Four years ago, the company’s BeautyBank division created a host of proprietary brands, which first launched in Kohl’s. One analyst estimated the Kohl’s venture likely generates $50 million to $60 million in retail sales. And, several years ago, the company began distributing its Clinique brand to the upscale beauty boutiques of Shoppers Drug Mart, a Canadian drugstore chain.
Several Wall Street analysts commented the latest mass market venture signals Estée Lauder Cos.’ interest in higher-margin businesses, and is part of the company’s strategy to rev up its performance in the fragrance category. The projected sales volumes, however, are so modest that the C-Thru initiative might be construed as little more than a test for both vendor and retailers.
During an earnings call in May, Lauder said, “We’re taking a number of very aggressive initiatives to find a way to make sure we bring our fragrance category performance at least up to par with our total corporate performance, if not up to par with the performance of our competitors.” At the time, Lauder said the company hired McKinsey & Company to conduct a benchmarking study that looks at the company’s performance metrics as well as those of its competitors, in an effort to operate more effectively and efficiently.
Bill Schmitz, analyst at Deutsche Bank Securities, said he suspects that C-Thru is an outgrowth of the firm’s work with McKinsey. “[Lauder] has a first class cost structure but an economy class gross profit margin, which doesn’t work,” said Schmitz, adding, “My guess is that McKinsey told [the company] that all the money in fragrance is made outside the anchor tenant and the company is adjusting accordingly, taking baby steps…this is likely a first step.”
Caris & Company analyst Linda Bolton Weiser noted the firm’s management has recently expressed concern that they are not able to bring enough of the company’s fragrance portfolio down to the mass and masstige channels. Referring to the C-Thru concept, Weiser said, “It seems Lauder felt that it needed to expand distribution to grow into its current [fragrance] cost structure. To me, that’s not the right answer. It is to cut the cost structure.”
But the firm’s move into mass fragrance is in keeping with its previously announced plans to orient the company to higher-margin businesses, said Weiser.
Like Lauder’s Mustang men’s fragrance — which launched in July 2007 in midtier department stores and later rolled out to mass retailers — C-Thru is being produced in partnership with the Sarantis Group, which is based in Greece and is said to be one of the leading producers of mass market cosmetics and household products in that market. Aramis and Designer Fragrances is responsible for distributing and marketing the brand in North America, while Sarantis is producing the scents.
The brand’s key target? Women in the 15- to 24-year-old age range, also an age group Wal-Mart is increasingly targeting with exclusive fashion brands including L.E.I. and Op. Like many mass retailers, Wal-Mart has struggled with how best to merchandise the fragrance category, focusing primarily on color cosmetics and skin care in its more than 3,600 doors.
“In today’s world, there are so many influences on young women,” said Robin Mason, vice president of global marketing for Aramis and Designer Fragrances. “We want to give them a positive way to express themselves, through the transparency of beautiful jewels. This is intended to be a feel-good brand.”
Each of the fragrances is named for a gem, noted Trudi Loren, vice president of corporate fragrance development worldwide for the Estée Lauder Cos. Ruby, concocted in partnership with International Flavors & Fragrances, is “for someone who’s very passionate, confident and strong,” she said. Its top notes are of melon, peach and bergamot; the heart is of rose, freesia and raspberry, and its drydown includes sandalwood.
Purple Diamond, a spicy oriental developed with Givaudan, is meant to represent “mysterious intrigue.” It has top notes of plum and black currant, a heart of Indian night-blooming jasmine and a drydown of vanilla.
Blue Opal, concocted with Firmenich, “expresses spirituality and balance,” and has top notes of watermelon and red berries, a heart of lilac and rose petal and a drydown of wet skin accord.
Each of the scents will be sold in 1-oz. and 2.5-oz. eau de toilette sprays, retailing for $17 and $25, respectively.
The brand’s spokeswoman is Lady Dawn Russell, a former model who was diagnosed with stage-three cancer at age 25. Now 33, she is cancer-free, but said she wants to encourage young women not to waste time feeling bad about themselves. “So many young women feel separate, like they’re the only ones who are insecure,” said Russell. “I want to help them find their center, their anchor.” In lieu of compensation for her role in this project, Russell is establishing a foundation dedicated to increasing self-esteem for young women.
National advertising for C-Thru has been shot using Caucasian, Asian and Hispanic models. Ads will break in February fashion, beauty and lifestyle magazines. A Web site, cthrufragrances.com, will go live on Dec. 1 and will include interactive features.