After 16 months of anticipation, Fabrizio Freda has been named president and chief executive officer of the Estée Lauder Cos. Inc., effective July 1, following a board vote on Wednesday.
As expected, he will succeed William P. Lauder, 48, who will move up to executive chairman, taking the place vacated by his father Leonard A. Lauder, 75, who will become chairman emeritus.
Freda, the 51-year-old former president of Global Snacks for Procter & Gamble Co., was named Lauder’s president and chief operating officer in November 2007, and joined the company in March of last year. Upon arriving at Lauder, Freda embarked on a global listening tour to all the $7.9 billion company’s far-flung operations and then set out to draft a plan to restructure the business for a needed resurgence of profitable growth.
Recently, during an exclusive interview with WWD, Freda prefaced his analysis of the 63-year-old beauty firm. “The landscape I found is a great company with great brands, very strong people and an amazing relationship with their channel — their core channel — and a great ability to execute in store. Most importantly, amazing creativity and entrepreneurship are really in the genes of the company,” said Freda. On the other hand, he said, “I found a company with little ability to exploit scale, little ability to leverage the strengths across the opportunities and across the markets internationally.”
In early February, he started to outline the broad strokes of the restructuring plan to resize the company. The four-year restructuring effort, when completed, is expected to wring out $450 million to $550 million in costs. The first steps of that effort include trimming its workforce by 6 percent, or 2,000 employees, over the next 18 to 24 months.
As a result of the plan, the firm expects to achieve an operating margin of 12 to 13 percent. Longer term, Freda forecasts the company has potential to achieve a 15 percent operating margin with a very solid growth plan. He acknowledged because of the recession’s grip, Lauder is now operating in the 7 to 8 percent arena.
Turning to the need for increased efficiencies, Freda has framed a plan to consolidate brand infrastructure globally. Freda noted that over the decades, Lauder amassed 29 brands, each which has their own support structures and global strategies.
Freda said, “Every country is like its own little kingdom with its own organization, its own rules, its own distribution center, even its own buying office….There was little coordination and a lot of duplication.”
Earlier this week, BMO Capital Markets analyst Connie Maneaty said of Freda’s ability to succeed at Lauder, “The family’s stock interest speaks volumes. But Freda is coming to a company where the brands were run independently and had little coordination. So there’s lots of duplication. It’s an opportunity to drive out costs.”
Freda’s remedy is to reorganize operations into continentalwide groups, such as North America, Europe, Middle East, Asia, Latin America and travel retail.
Freda said the company-wide mission is to remain the global specialist in prestige beauty. “If you imagine a company which is about, first of all, a global prestige beauty leader, well diversified brand powerhouse pivoting on creative innovation — that’s the heart of the company. That’s what we have confirmed because it has been like this for a long time. That’s what we want to be.”
Freda repeatedly made the distinction between top-line gains and sustainable, profitable growth. He is clearly intent on achieving the latter.
Freda said the company’s goal — even in this recession period — is to grow one percent ahead of the global markets.
“If it is a recession, the markets will be flat, so we expect to grow at least one percent. If one day the markets go back to growing 5 percent a year, we expect to grow a minimum 6 percent a year.”
Freda appears to work on the concept of portfolios of brands. He noted, “We want to have more brands above $1 billion and we want to have more brands above half a billion dollars. However, we can have brands which are smaller and very profitable.”
He pointed out, Lauder’s long-standing belief that a brand’s productivity by door is more important than its total size. He said he prefers a small brand with very selective distribution, meaning that it is very important to those retailers, rather than widely distributed brands that have low sales per door. “They are not very profitable,” he said.
Under Freda’s plan, Lauder’s 29 brands have been sorted into three groups. The top $1 billion dollar club includes Clinique, the Lauder brand and MAC Cosmetics. Then there is the middle half-billion tier, followed by the smallest brands in the range $100 million and up.
There’s also a list of underperforming brands in need of improvement.
“We have finished the review of the brands and we have identified which brands we want to invest in, which brands we want to build and accelerate growth, and which brands are today underperforming by our standards,” said Freda. “For each of the underperforming brands, we have put a specific plan in place for the next 18 to 24 months.”
If the company is not successful in turning around these brands, Freda said, “We will make different decisions.”
In all the talk of sweeping restructuring, Freda very deliberately pointed out that the essential brand dominated character of the company will not be tampered with.
Although the structure will be simplified, he said, “The concept of being a brand-led organization will not change.”
One of the more eye-opening departures involves compensation as a carrot for managers to work toward the same leadership mission outlined by Freda.
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