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During an interview with WWD in June 1995, Leonard A. Lauder got up and reached into his ofﬁce closet to ﬁnd two musty old loan certiﬁcates from 1960, totaling $25,000. That paltry sum was needed to sustain his family’s ﬂedgling cosmetics company and bankroll Estée Lauder International, allowing it to expand overseas into Canada. Lauder, who was then 27 and running the ﬂedgling ﬁrm’s daily operations as executive vice president, argued with his mother Estée and father Joseph, who had founded the company in 1946, that there was a major opportunity beyond the U.S. borders. “They refused to sign the note because they said, ‘We don’t borrow money.’ So I had to sign it,” Lauder recalled then with a smile. “But they gave me their savings bank books as collateral.”
That tiny company grew into the global leader of the prestige market that now does business in more than 150 countries and territories, with 62 percent of the company’s $7.8 billion business done overseas.
Through his various incarnations as president, chief executive ofﬁcer, chairman and now chairman emeritus—or as he put it during a recent one-hour interview, chief teaching ofﬁcer—Lauder not only was among the ﬁrst to grasp the power of globalization, but he built his mother’s idea of a company into a behemoth with an unquenchable desire to set an industry gold standard. He was in the forefront of those deﬁning and establishing the doctrine of the modern global prestige beauty business, particularly in department and specialty stores—innovative new products, a purity of distribution strategy, an unshakable grasp of the consumer and aggressive in-store promotion with gift-with-purchase giveaways and holiday blockbusters.
While those beliefs may be criticized by some today as old religion at a time when competing fragrance companies talk of triple-tier distribution and celebrities hawk their products on TV, Lauder’s tenacity of vision and surety of spirit has been called Zen-like over the decades by friends and foes alike, and his passion still fuels the vitality of the business.
Through his long career, the 77-year-old Lauder has been as highly respected for his prized mentoring skills as for his global marketing insights. He has shaped the development of at least a generation of industry executives. Now, as he settles into the role of elder statesman, Lauder is teaching brand-equity classes inside the company as part of his enduring legacy.
P.B.: You are receiving the ﬁrst ever WWD Beauty Biz Visionary Award. What is your deﬁnition of a visionary?
L.L.: A visionary is someone who can see the future, or thinks he sees the future. In my case, I use it and it comes out right. That doesn’t come from daydreams or dreams, but it comes from knowing the market and knowing the world and knowing people really well and knowing where they’re going to be tomorrow. Great ballplayers know where the ball is going to be. That’s how they catch it. I know where the ball is going to be.
P.B.: What is your vision of the beauty business and of Estée Lauder the company?
L.L.: In the early Sixties, I had the vision for Estée Lauder of being a multinational and multibranded company. Here we are 50-some odd years later, and it’s still in place. The vision is to continue to expand our brand portfolio and our offering in our ﬁeld, in our space, and to continue to try to take advantage of the changing world scene.
P.B.: You recently bought Smashbox, which some people saw as a bit of a departure since it’s so heavily steeped in TV and direct selling. Is that a new direction for the company, a variation on your vision?
L.L.: No. I mentioned a moment ago that a great ballplayer knows where the ball is going to be. In the time that I’ve been in the industry, I’ve seen the shopping patterns change—for us—from a focus on department stores only to a far broader array of where people buy. In order to be alive for the next 50 years, you have to know where the ball is going. Where are they shopping? If they’re shopping in places such as Sephora, that’s where we’ll be. If they’re shopping in places such as where Smashbox sells today, that’s where we’ll be. There are places where we will not be. We will not be at mass. We will not be in chain drug. There are things that we won’t do, but in our space I consider Smashbox the perfect ﬁt for us.
P.B.: The Lauder corporation was the fourth of the great American entrepreneurial beauty giants, along with Helena Rubinstein, Elizabeth Arden and Revlon. It remains the premier prestige leader of the world. What enabled you to pull away from that pack?
L.L.: A couple of things. Firstly, consistency of vision and consistency of ownership. When you think about it, all three of those companies have changed owners too often. When Helena Rubinstein died, there was no heir, and the company fell into the hands of Colgate and from there went into bankruptcy and from there into L’Oréal’s hands. Arden has had three or four owners. Revlon has had two or three owners, but the ownership, each one of them took a different view. Lastly, each one of them abandoned their core constituency or their core distribution that made them important and strong and tried to broaden it beyond the ability of their customers, the consumers, to deal with it.
P.B.: Speaking of internationalization, back in ’61 nobody was thinking about Hungary or Russia or Belgium. If you were to start over today, where would you plant your ﬂag ﬁrst?
L.L.: I’d buy a one-way ticket to Asia. A rising tide lifts all the boats in the basin. That’s where the tide is rising and that’s where I would put my ﬂag.
P.B.: Leaders today talk about creating beauty looks that represent all of the cultures of the world. Where is this beauty pluralism taking us?
L.L.: There are two answers to that: Number one is you advertise the right products with the right models in the right country, so Liu Wen, who is our new Chinese model, is someone we’ll use not just in China but elsewhere. If you notice the ad we had in your WWD 100 anniversary magazine, she looked good. However, I can also point to the recent WWD article about the Chinese shoppers in Paris. This pluralism that you mention is something we never had before, where you have the Chinese, a Chinese wave. At Galeries Lafayette, 45 percent of their cosmetics turnover today is Chinese. The Chinese are going there. They are not just going to PRC, they are going to Macau. The Russians are coming to London. The people from the Middle East are coming to London also. The Brazilians are coming here. It is incredible. We just opened a new MAC store in Times Square and something like 40 percent of our business is Brazilian. We never had that before. This pluralism is not just how to advertise and how to deal with the local populace. It’s to understand where they’re going, where they’re shopping and what they’re buying.
P.B.: When you started out, the American beauty business was centered in specialty and department stores. What shape do you think the beauty retailing scene will look like in the future?
L.L.: What shape will it take? It depends on where we’re talking about. In the U.S., department stores will probably hold their own with a slight decrease in share. You will see growth in specialty chains like Sephora and Bluemercury and Space NK. Those chains will continue to grow. You will see enormous growth in e-commerce. The fastest growth will be in e-commerce; even though it’s still a small percentage, it’s growing very rapidly. I believe you will not see too much new growth in QVC and HSN, but it will be there, but not that big. And you will see continued steady growth—not big, but steady growth—in freestanding stores, such as the MAC stores. All in all, the beauty business in the prestige segment will continue to be better than mass. Mass, I’m not very conﬁdent in the long run in mass.
P.B.: Meaning drugstore chains and discounters?
P.B.: Do you feel that television home shopping channels are not going to grow that much because they’ve reached their natural capacity?
L.L.: I don’t see the growth there like I see in e-commerce.
P.B.: People love to hear stories about the old days 40 or 50 years ago, all these bare-knuckles anecdotes as the young entrepreneurs scrapped it out looking for turf. In that anniversary issue, we have Stanley Kohlenberg quoted as saying it wasn’t business, it was a war. Implicit in that is that there seemed to be an intensity on the part of the participants, and a feeling of fragility almost, that they were ﬁghting so hard they had something precious to protect and it may disappear on them. Do you think, compared to that, there is something missing from the way business is done today, or is it a matter of evolution?
L.L.: I miss the old days. I miss the intensity, I miss the hostility. I miss the competition. I miss the love of product. In the old days, earlier on, you had Elizabeth Arden competing with Helena Rubinstein. Then you had Elizabeth Arden competing with Charles Revson. Then you had Charles Revson competing with Estée Lauder. Then you had Leonard Lauder competing against L’Oréal in some areas. It was a battle really of founders. As those founders have moved on, you now have professional companies, and the passion between an owner and a founder and a professional manager, as much as one would like to pump that passion in, that passion for competition is different. However, that doesn’t mean that things aren’t better, because there is far more professionalism in the products today—no product can come to market until it’s been tested and retested and retested again and again and again. I see a great beneﬁt to professional management, but that doesn’t mean I don’t miss the scrappiness of the old days.
P.B.: Are you happy with the present course of the company?
L.L.: Two answers. Number one: Yes, I’m delighted. Answer number two: At the same time, if you recall from Snow White and the Seven Dwarfs, the wicked queen says, “Mirror, mirror on the wall, who is fairest of them all? Mirror, mirror on the wall, I am my mother after all.” And the answer is, I’m delighted but I’m never happy, and I will never be happy until I’m 10 feet under.
P.B.: Speaking of competition, the beauty industry has seen the ascendancy of consumer-goods conglomerates. What are the implications for the prestige industry? In the past, we’ve talked about the fear of channel shift. How are you feeling now? Do you see these players posing a threat to prestige or a stimulus that will expand the pie for everybody?
L.L.: I see a threat everywhere. No matter where it is, I see a threat, and there is a war. The war is whose channel will win. Will it be our channel or will it be their channel? Each of these channels presents a totally different story. What is really interesting is that the people who stand the most to beneﬁt by protecting the selective distribution or prestige channel have for the longest time played as if they were a mass channel, and every time they continue to throw a mass product against a prestige product and think nothing of it, they perhaps move closer to digging their own grave. They do not understand the war they are in. I wish they did, but they don’t.
P.B.: Some are trying to blur. P&G has ﬁnally decided they are interested in prestige, and has started to make little pokes, like the Dolce & Gabbana color line. Do you ever see a union between the two companies? That rumor has come up again.
L.L.: The rumor has been around for 25 years, and it will be around for another 25. I love rumors. It gives me something to think about and enjoy.
P.B.: Nothing more than a rumor?
L.L.: Nothing more.
P.B.: Your two great passions are art and the business. What are the similarities between building a valuable art collection and assembling a great portfolio of brands?
L.L.: Interesting question. I’m building my art collection not to possess it but to conserve it, because it’s all going to go to a museum. Everything I buy, the question is where will it ﬁt into in my collection and into a museum, but I don’t know where yet. My passion for this business is not to make more money, because I have more than enough money for the next ﬁve lifetimes. The passion is to build something great that can be conserved also. There is a parallel in my view as to what I do with my art and what happens with our company.
P.B.: You’ve been lauded as a mentor to young executives. What are the most important qualities a leader needs?
L.L.: To be a great leader, you ﬁrstly have to like people. If you don’t like people, at the end of the day they will ﬁgure this out and you can’t lead them too well. Number two: You have to recognize them. People don’t work for money alone. They work for recognition, and time and time and time again, someone will complain to me, “I did this great thing and no one noticed it.” Recognition will always get you anywhere. And everywhere. You want to be a great leader—recognize and love.
P.B.: When you’re teaching, what is the favorite lesson you like to give young executives. What is the one lesson you think they have to learn?
L.L.: How to say, “Thank you. You did well.”
P.B.: You once said that as a matter of course you tried to learn something from every encounter you have. Where did you acquire this great appetite for learning?
L.L.: I don’t really know. It’s not like the appetite for learning is something you can go into a store and take off a shelf and buy. When I was a kid, I had an enormous appetite for learning. I went to a boarding school down in Miami, Florida, and what they had was all of the New York City textbooks for history, for all of the grades that were still to come for me. So all I did was sit and read all of the textbooks of what I would get the next year or the year after that or the year after that. I had a tremendous appetite for learning, so it’s easy to translate that appetite for learning from one thing to another. If I don’t learn something every single day, it’s a wasted day.
P.B.: You’ve been a great mentor. What advice do you give people starting out and what have you learned from young people?
L.L.: The advice I give to a young executive is come in early and leave late. Say “thank you” and “please,” and recognize and don’t yell. And then to study. I learned this business because in the ﬁrst six months to a year I was here I spent my time reading all of the correspondence. The Venetians have a great phrase: Before you speak, be silent. Don’t open up your mouth until you have something to say and have something meaningful to say.
P.B.: Have you learned anything from them?
L.L.: Yes. There isn’t a single young executive that I deal with that I haven’t learned a lot from, because they see things through different glasses. Their lenses are different from mine. As long as they’re willing to learn from me, I stand more than ready and anxious to learn from them.
P.B.: You were the ﬁrst senior executive or founder I know of who started classes. What is it about teaching that you like so much?
L.L.: In another life, I would be a gardener. Gardeners love to watch things grow and help them grow. I’m really a gardener in drag.
P.B.: Who is the best teacher you ever had?
L.L.: In truth—and I didn’t realize it at the time but I realize it now—the best teacher I ever had was my mother. It is very hard for a son or a child of a very powerful parent to accept the tutelage of that parent. The more the parent is trying to teach you, the more you’re saying, “Let me do it all by myself.” But as time goes on, every time something happens, I dig into my memory bank and I pick out one of these pearls of wisdom that have stood me in very good stead. One of the things she had told me and put into her book is, if you have something wonderful to say to someone, yes, you can put it into writing, but say it in a way that others can hear you. However, if you have something bad to say to someone, never put it in writing. Never. Because they’ll look at that e-mail or letter and they will get angrier and angrier and angrier. And never put your disappointment or anger in writing.
P.B.: Executives always love to talk about how they’ve learned from their mistakes. What was your biggest blunder and what did you learn from it?
L.L.: Probably the biggest blunder that I can see at long-range implications is this: Early on, when we ﬁrst started to come up with different brands, I came under a lot of pressure from some of our customers to give [them] brands that we had just bought or created. They said, “You owe it to us,” “We’ve supported you for all the years,” etc. That decision from time to time to expand distribution beyond its natural boundaries, in my view, has hurt enormously. For example, in the United States, the May Company, which is now long since gone, kept on buying our most prestigious stores, be it the Denver Dry Goods or JG Robinson. When they bought it, we let some of the Estée Lauder brand go with them to the new store label, the new store nameplate. In retrospect, that moved some of our brands beyond their natural distribution arena and put those brands at risk.
P.B.: Somewhat similarly there was the Prescriptives situation, which got out of control because everybody had to have the product because it had Estée Lauder’s name.
L.L.: That is probably the single biggest problem I had. I opened up Harrods in London in 1979, 1980, with a Prescriptives exclusive. The man who at that time was the chief executive ofﬁcer of Selfridges beat me on the head and threatened me with my life. I should have given him my life, but instead I gave him the brand. They opened the brand, and we did not one pound or shilling more business. We simply cut the business right in half in each store. Biggest mistake.
P.B.: Estée revolutionized the American fragrance market, among others. Where do you see the next revolution coming from, the next wave of creative talent coming from? Since you’re going to plant your ﬂag in Asia, will it be coming out of the East?
L.L.: It’s still a little bit early for new creative talent to come out of the East. Maybe in another couple of years, but it’s a tad early now. Where the great creative talent comes from in my view is still Western Europe, because the soil is richer there for creativity.
P.B.: In terms of product category, where will innovation spring up next.
L.L.: I believe that it’s always easier and more productive to innovate in makeup, because everyone wants to look different and look new and be new all the time. You will see more innovation coming from there. As to whether it will have legs or not, I can’t answer. But that’s where the innovation comes from. You’ll see less innovation in fragrance, because the market has been so oversaturated with new fragrance that no matter how great the new idea is, it may not grab the public’s attention. When it comes to skin care, there will always be opportunities for something very new. We are having huge growth right now, both in Clinique and Estée Lauder, from new concepts in skin care and treatment.
P.B.: Is it driven by demographics, the Baby Boom phenomenon, not only here but in Europe and Japan and China?
L.L.: One should always remember to never dismiss demographics. Demographics have been the engine that has pushed not only the entire cosmetics industry but the retail industry and world along the way.
P.B.: What is the toughest decision you ever made and would you make it differently if you had the chance?
L.L.: The toughest decision was to go from a privately held company to a public company. In looking back at it, it had tremendous advantages. I don’t think we would be where we are today if we hadn’t gone public. It also has some disadvantages. There is no perfect answer. There is no silver bullet for anything. That served the purpose very well for us. I feel we made the right decision. However, we have to understand the constraints of being a publicly held company and work within those constraints.
P.B.: Are there any regrets about that?
P.B.: What is your opinion of the state of the global beauty business today?
L.L.: There are a few things. Number one: acceleration. Things are changing so fast that you have to be able to tighten your seat belt and have that future vision, because it’s going to come faster than you can ever imagine. Number two: consolidation. Consolidation not only of brands— although I don’t know how much more can be consolidated in the United States—but consolidation of distribution. Whenever there is consolidation of distribution, it’s tough. Number three: You mentioned earlier the war between say, Charles Revson and Estée Lauder, but there’s a new war that we have to understand and that is the war as to who owns the consumer. If the beauty business understands they are in that war, they will be able to thrive. However, if they don’t, that’s curtains, and here’s what I mean by that: If the manufacturers of the products own the consumer, they can then put as much money as they have available into giving great product, great service, great advice, great everything, and the business will thrive. However, if they give up ownership of the consumer to the retailer, such as happened in the Thirties with Sears Roebuck and is happening today with many of the mass retailers both in the United States and in Europe, those mass retailers will demand greater and greater margin from you because they own the consumer, and you will not have the money to invest in the product to make your product worthwhile and worthy for the consumer.
P.B.: Are department stores trying to get control of consumers?
L.L.: No, that is over already. Where the war is, for example, in Europe, the war is between the perfumery chains, which continue to consolidate and grow bigger and demand more margin and what they call conditions, and therefore they are bleeding the product and the ability of the manufacturers to drive customers into their stores. Our key modus operandi is that we use our money to drive consumers into our retail outlets. That is what we do, and we are the masters at that. However, if the retailer takes more and more margin, we don’t have the money to drive the consumers to them to buy product. Then it will only become a war of where can you get the same product for the lowest price. We are living in a very complicated era, and you have to understand where the battle lines are.
P.B.: What form does the retailer taking ownership take?
L.L.: If you own the consumer—and we all must sell you because that’s where the consumer is—you can then ask for rent on the counter, ask your supplier or your vendor to pay for the pleasure of having a promotion. You can ask them for 150 other things, so there will be a transfer of money from the manufacturer to the retailer, but in the long range, will you be able to give that consumer the advice and the quality of product that she needs?
P.B.: So it’s basically the retailer taking the posture as if they own the consumer. They act as if they own the consumer, and if you give in to the demands, they do.
L.L.: In many cases they do. Who owns the beauty consumer in Wal-Mart? Does the manufacturer own it or does Wal-Mart own it?
P.B.: Wal-Mart deﬁnitely owns it.
L.L.: Okay. And then Wal-Mart also owns the racks where magazines are sold. So Wal-Mart has been able to say we will not sell this magazine because it may offend our customers. So at the end of the day, if the retailer owns the consumer, then it is a very difﬁcult new world to live in, a challenging world.
P.B.: What do you think the chances are that the wild card is the consumer?
L.L.: The independent wild card are the bloggers. No one controls the bloggers. They control themselves, and they control an increasing number of consumers. In order to get the support or avoid negative responses from the bloggers, you have to have good product. Good product, good service, good everything. Will the bloggers take off after the manufacturer who may be turning out less-than-quality products, or will they take off after a major chain of discount stores? Probably more the former than the latter.
P.B.: What is the one personal quality you have that has made you most successful?
L.L.: Love of people and love of laughter.
P.B.: What is your role in the company today?
L.L.: I am the CTO, the chief teaching ofﬁcer, and that is what I do a lot of. I continue to have great personal relationships with our senior retailers and with the people who work with us around the world. Estée Lauder is not a family business. It is a family in business. This is a phrase, by the way, coined by William, Aerin and Jane. The family values become very important in many areas. As I can’t believe what I’m saying, but I’m the patriarch and I’m the upholder of the family-value syndrome.
P.B.: What gives you the greatest pleasure?
L.L.: Seeing young people in our company grow and thrive and be successful and love what they’re doing. We are a company of lovers and almost everyone in our company loves what they’re doing and they have a passion for it.
P.B.: What do you want to devote yourself to for the next ﬁve years?
P.B.: How do you recharge your batteries?
L.L.: The thing that gives me the greatest pleasure and recharge is teaching. I’m teaching this brand-equity course and have changed the whole agenda to make it into something far deeper than I’ve ever done. The thought process of putting together this whole curriculum has given me the greatest sense of new energy and recharging. The other thing is that a lot of the people who were low-level merchants a long time ago when I was more deeply involved with individual buyers and merchandise managers are now store principals, and what gives me pleasure is meeting with them and understanding them and talking to them. I give them my advice whether they like it or not.
P.B.: When you look back on your long career, what do you consider its deﬁning moments, the pivotal moments?
L.L.: We’ve been through a lot of pivotal moments. There is no one deﬁning moment, but if I had to choose one, it was probably about 1962, when the Estée Lauder brand started to really take off. To see our business go ahead 45 or 50 percent per month per year was incredible. It was exhausting but incredible. That was the ﬁrst major pivotal moment. The second was seeing the success of our international expansion and ventures. The third was seeing the success of our multibrand strategy. Fourth was being able to acquire such exciting brands as MAC and Bobbi Brown and seeing them hit a new stride and a new era of growth. Each one of these was a conﬁrmation of the strategy that we had and that it was working. Understand this. Today’s strategies don’t show their success instantly. It sometimes takes a few years, even longer than that, for a long-range strategy to show its success or failure. Starting, for example, in the late Eighties, early Nineties, I kept on demanding a new Asian strategy and spent far more time in Asia than ever before. We were there early and we understood it.
P.B.: Of all your achievements, what makes you the proudest?
L.L.: I consider myself like a great painter, a great artist. I was presented with a wonderful canvas, a wonderful frame, and given the freedom, which I relished, by my parents, to do what was right for this business. That freedom is something I will always be grateful for. With that canvas, I was able to paint what I consider to be a great masterpiece, with brands here and the world there and retailers here and freestanding stores there and great people and a great team. I tell the people who I’m teaching now that Estée Lauder is a mosaic. If you’ve seen some great mosaics in Europe, you see that there are little chips of gold and silver and green and blue and other colors. To see that ﬁnished mosaic, which is really still a work in progress today, that’s my greatest achievement.
P.B.: What is it that attracted you to the beauty business and what is it about the business that you love?
L.L.: The act of creation. I don’t think I would have been happy in the steel business.
P.B.: What drives you?
L.L.: Money doesn’t drive me. Money has never driven me. I have often stated that I wanted to create the greatest company in the world. What drives me is to see that this great company continues its inexorable march to becoming the greatest company in the world. Not the largest, but the greatest.
P.B.: How do you deﬁne “greatest”?
LL: Ahhh [laughs]. That’s for the next interview!