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Leonard Lauder’s Vision

The keynote speaker at WWD's Beauty Summit talked about lessons he learned in his storied career building the Estée Lauder Cos. Inc.

A baton was passed Tuesday evening as Leonard A. Lauder talked about lessons he learned in his storied career building the Estée Lauder Cos. Inc., while giving pointers to a roomful of new leaders about the need to read the future.

“You have to have a vision of where you want to be,” he said. “You can’t get anywhere by saying, ‘Oh I’ll see how it goes.’ You have to have a passion to do what you think is right. A business without a vision isn’t a business, it’s just a pastime.”

He was giving the keynote address for the first full WWD Beauty Summit to be held in New York. More than 250 industry executives attended — many of them ex-Lauder employees. The speech, bracketed in beginning and end by standing ovations, hit several emotional and substantive high points. “You’ve all helped me — my alumni, current executives and my competitors — because, ladies and gentlemen, you don’t know how much I’ve learned from each one of you. So my vision and my dream has been to stand here in front of you and say thank you all for making this such a wealthy industry because of you. God bless you all.” That note brought the crowd to its feet again, followed by 30 seconds of applause.

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Lauder clearly relished the occasion, ribbing about his nonsalaried status as chairman emeritus of the company (his “per diem” gig). But he told Rose Marie Bravo, a board member who is on the compensation committee, “I would pay to have this job.” Lauder reminisced about the early days in the late Fifties and Sixties when he was helping his mother, Estée, and father, Joseph, establish the company.

He noted that his parents had struggled to start the company because they had no credit rating and often had to pay cash up front to obtain components. Lauder learned a lesson when accompanying his father to get some boxes delivered. “The lesson there was when a person with money meets a person with experience, pretty soon the person with the experience has the money and the person with the money has the experience,” he said as the crowd broke into laughter.

Perhaps a more crucial lesson came from a meeting with a Neiman Marcus buyer, who told the young Lauder that whenever the store sampled his Youth Dew Bath Oil, almost all the customers returned to buy. Lauder took what money was available and made 50,000 Youth Dew samples. Soon the fragrance was generating 80 percent of the fledgling company’s sales. ‘The lesson I learned there was: Listen to your customer. Sometimes they know more than you know.” He later added, “There are opportunities everywhere you go, if you just listen.”

He painted an almost idyllic picture of midcentury America, where there was a family-run, high-end specialty store in every city and they supported the Lauder business. “Every time I went somewhere, they would meet me at the airport and allow me to sleep in their home,” he recalled. He then called out to Macy’s executive vice president Muriel Gonzalez seated at one of the tables: “Muriel, do you think you can put me up?”

Lauder reminisced about how department stores then ruled as citadels of consumer culture, partly because they gave credit. But then the growth of the interstate highway system enabled an urban migration to the suburbs and things began to unravel. “Specialty stores couldn’t afford to go out to the suburbs, in many cases, and the downtown department stores slowly but surely started to fail.” The changes affected not only the U.S. specialty stores but also “the global village” of independent perfumeries in Europe. “Things started to change, and it’s that change that I wanted to talk to you about. How you can see change happening and recognize the future. You’ve seen consolidation. Those independent perfumeries have gone. All those great specialty stores, every one, they’re all gone. And those two or three that still exist are owned by larger groups.”

The final nail in the coffin was the advent of credit cards that broke the department store’s monopoly on credit and allowed consumers to just as easily shop in the Limited or Gap in the mall. “No one at the time realized what was happening and what they saw,” he noted. “The things that are happening today inform us for the future and where we are going.”

And now change is afoot on a global basis. Noting how manufacturers once were reluctant to sell in Brazil out of fear of diversion and distaste of high duties, he said, “Those people have an exploding middle class. They are traveling and they are buying — and they are buying luxury. At the rate they are growing, in the United States we will be dwarfed.” Turning to Europe, he said, “In 2009, 60 percent of the VAT forms filled out in France were by Mainland Chinese. For those of you who want to see tomorrow, go to Galeries Lafayette, and go to see the duty-free cosmetics area on the main floor and look and see what’s going on. If you really want to see tomorrow, take a plane and go down to Florida and go to the Aventura shopping mall — you’ll see the Brazilians there. Take a car to the Dadeland Mall and go to Macy’s there and see if you can hear any English being spoken. People are there from every country in South America. Then catch a plane and fly over to London and go to Harrods in August, and see how many Russians there are and how many people from the Middle East. Then take a peek at travel retail in the duty-free shops. The total travel retail business in 2011 in just cosmetics was $14 billion. That compares to the North American department stores sales in cosmetics of $8.1 billion. Remember, the world is shrinking just as our market is expanding.”

The same is happening with e-commerce and the Internet. Quoting a factoid, he said, “It takes 38 years for a radio message to reach 50 million users. It takes 13 years instead for a TV message and one year for a Facebook message. Think about what’s happening to us, how fast things move.”

Despite his theme of change, Lauder pointed out that some things withstand generations. He then laid down his rules of business:

• Number 1: “Beware of the law of unintended consequences. Sometimes what you think is a great idea may not be a great idea.”

• Number 2: “Quality of product always wins; never cut the quality of product.” He cited the seminal men’s fragrance brand Brut by Fabergé and asked, “What happened to Fabergé? They thought it would be a good idea — they could make a lot more money — if they cut the fragrance and manufactured it themselves. And the company that owned the business was no more.” He quoted the late U.S. senator Arlen Specter as saying, “You’re never too far ahead to lose or too far behind to win.”

• Number 3: “Never think you can fool the consumer. The bloggers will always catch you.”

• Number 4: “Overdistribution will get you into trouble all the time.”

• Number 5: “You’re only as good as the people in your company want you to be.”

• Number 6: “The wealth of a company is its people.”

Lauder returned to his theme: “You have to see the future. Remember what I said — tomorrow is today and today is tomorrow. If you see the future, you will get there.” He used the metaphor of an extra-point kicker in football who visualizes the ball sailing through the uprights before he even kicks.

During a question-and-answer period, Katia Beauchamp, cofounder and co-chief executive officer of Birchbox, asked how to penetrate the industry as a newcomer.

Lauder replied, “Start small; become important to one customer. Once you become important to one, you can have a second, a third and a fourth. If you think you can become important to 100 people in 100 different cities, it will never work. If you go into Central Park and see those big, beautiful oak trees, some of them 150 years old, they all started from acorns. Be an acorn and you’ll grow into a great oak.”