Mass beauty firms beware: The Estee Lauder Cos. Inc. aims to use beefed-up advertising to reverse the recession-driven trend of consumers trading down. It’s a bold move intended to recruit new customers, mass market shoppers included.
And Lauder has already gotten started.
In 2010, the bulk of the company’s ad spending occurred in the second half, with the beauty firm increasing fourth-quarter spending by 35 percent. For the year, Lauder’s advertising spending was up 7 percent to $1.8 billion.
The investment is part of what president and chief executive officer Fabrizio Freda referred to as the company’s new advertising model. “It focuses on fewer, bigger, winning initiatives in each of our key brands,” he told WWD, citing the spring launch of Clinique Even Better Clinical Dark Spot Corrector, which was supported by a campaign comprised of print, digital, TV and public relations efforts. “That attracts new consumers to our counters, where they get a high-touch experience and are introduced to more than that one product. That does not happen at mass.”
The company also said it is able to measure the number of new customers buying Lauder’s products. Citing competitive reasons, Freda declined to share specifics but said, “We’ve increased traffic in department stores and specialty stores, and part of this traffic was previously shopping at mass.”
During the company’s earnings call Thursday, Freda told analysts, “We have gained share against prestige competitors in every region for the last two years. However, in some markets and categories, mass brands have grown faster than prestige behind heavy advertising, broad distribution and lower prices. We consider all brands, both mass and prestige, to be our competitors, since many consumers buy beauty product across various channels.”
Freda emphasized advertising is the only area where Lauder — which is one year into a four-year restructuring plan — has increased its spending. He noted that in fiscal 2010, Lauder saved $364 million from various cost-saving initiatives, exceeding its original estimate of $175 million to $200 million.
This year, the company plans to increase spending by “high-single digits” behind advertising, merchandising and sampling for major initiatives.
In the fourth quarter, profits attributable to the company totaled $23.9 million, or 12 cents a diluted share, compared with year-ago losses of $17.9 million, or 9 cents a share. Excluding special items, including restructuring expenses, earnings per share would have been 29 cents, 1 cent lower than analysts’ estimates of 30 cents. Sales for the quarter ended June 30 rose 9.3 percent to $1.84 billion from $1.68 billion.
The company’s shares ended trading Thursday at $58.80, down $1.55, or 2.6 percent.
For the year, profits attributable to the company more than doubled to $478.3 million, or $2.38 a share, from $218.4 million, or $1.10 a share. Sales gained 6.4 percent to $7.8 billion from $7.32 billion.
During the quarter, the company saw sales growth across all geographic regions and in all product categories, with the exception of fragrance.
By category, the company’s skin care sales gained 12.1 percent on a reported basis to $771.2 million; makeup increased 10.3 percent to $733.8 million, and hair care grew 5.2 percent to $109.9 million. Fragrance sales, on the other hand, dipped 0.6 percent to $219.1 million. The company reaffirmed that, by product category, skin care is its principal area of focus, particularly in Asia. It is Lauder’s largest contributor of sales and profits.
By region, Lauder’s sales in the Americas gained 3.9 percent on a reported basis to $803.8 million. In Europe, the Middle East and Africa, sales increased 12.2 percent to $699.9 million, and sales in Asia-Pacific rose 15.7 percent to $338.8 million. International now accounts for 62 percent of the company’s revenues.
The fourth quarter also marked Freda’s first year as ceo. Stifel Nicolaus analyst Mark Astrachan gave him high marks, saying, “It’s been an impressive year. The initiatives that he has implemented, including the cost-savings program, have been well executed.” Referring to Lauder’s accelerated ad spending, Astrachan said, “He’s doing the right thing by reinvesting in brands’ health.”
This year, the firm expects constant currency sales to rise between 6 and 8 percent.
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews