By  on September 23, 1994

PRAGUE -- The Estee Lauder Cos. opened its first boutique in the Czech Republic here this week, bringing along some new ideas about marketing to East Europeans.

Smart move, since Lauder is coming late to a city that is already chockablock with prestige cosmetics shops. And despite an advertising blitz heralding Lauder's arrival, local beauty editors say it won't be easy to match the name recognition Christian Dior enjoys in the Czech Republic.

Dior has had a retail presence in the region for 30 years. It opened its own boutique in 1986, three years before the Communists were forced to step aside. Elizabeth Arden, Lancôme, Nina Ricci and Guerlain all have shops now in the same neighborhood.

Lauder's competitors, including the pace-setting Dior, have an advantage beyond being first to land here: They have developed wider distribution patterns in the Republic, while the new Lauder store represents that company's first step into this market.

The nearly 2,500-square-foot Lauder store, which carries the Lauder and Aramis brands in a landmark building just off the heavily trafficked Old Town Square, rang up $4,342 in sales on Wednesday, its first day, according to company executives.

That's higher than opening day at its stores in Budapest, Moscow and Warsaw. Because entry prices are unusually low for Lauder, the average sale per customer in Prague was only $20.

For the first time in any of its doors worldwide, Lauder is offering miniature fragrances for $10 (280 crowns) and accessories, including a lipstick pin, for $3.60 (100 crowns), a pouch with three samples for $5.35 (150 crowns) and a mirror for $1.80 (50 crowns).

"We think this will be one of the slowest places to take off. We'll have things available at lower entry prices here than anywhere else in the world," said Leonard Lauder, president and chief executive officer of the cosmetics group.

Lauder, his brother, Ronald, and Ronald's wife and two daughters traveled to Prague for the opening. Leonard Lauder noted that, as a group, Czechs were less style-conscious than Hungarians and Poles and explained that the company had set a sales goal of $500,000 for the first full year, only half the target of the Warsaw store that opened in November 1993.Besides Budapest and Warsaw, the cosmetics group has two Lauder shops in Moscow, one in the GUM department store and the other currently closed because of a legal dispute with city authorities. Clinique stores also operate in Moscow and Budapest.

In late 1994 and early 1995, the company plans to open Lauder shops in far-flung locations: one in St. Petersburg in Russia, another in Las Vegas, a corporate store carrying all of the group's brands in Budapest and a new concept of a Clinique kiosk in Australia.

The Prague shop features other innovations: a classroom to be used for customer seminars and a children's corner with toys, similar to one in the group's new Clinique boutique in Budapest, designed to occupy tots while their mothers shop.

Lauder has positioned its prices to be in line overall with those in its other East European stores while undercutting competitors on key items such as treatment products. Executives said they are focusing on skin care because they believe there is huge potential for the category in the Czech Republic and because treatment products are best for building brand loyalty.

Lauder's Advanced Night Repair, priced at $59 (1650 crowns) for 50 ml and $40 (1120 crowns) for 30 ml, was the bestseller on the first day. Store officials reported that most buyers chose the larger size because they perceived better value.

While the shop is Lauder's only door in the Czech Republic, other Western brands are sold in the so-called prestige distribution channel that includes upscale perfumeries and department store cosmetics floors like the one at Kotva. Mom-and-pop shops also sell Western brands, but often alongside Czech mass-market brands.

Jeanette Wagner, president of Estée Lauder International Inc., said friendly service is how Lauder will distinguish itself from the other, firmly entrenched prestige brands.

Still, Dior and the other Western brands must be doing something right. Josef Seda, Dior's general manager for the Czech Republic, said Dior sales have tripled since 1991, when the firm set up a separate company called Midio to run its business here. He declined to give volume figures.

Seda attributed the growth to the burgeoning class of about 100,000 affluent Czechs in Prague, whose population is 1.2 million. Brand recognition built over 30 years is also responsible, he said."For years, when Czechs thought of French cosmetics, they thought of Dior," he said. "It will take Lauder years to achieve that."

In addition to its own shop, Dior is carried in 72 doors in the Czech Republic, mostly perfumeries. In Slovakia, Dior has a shop in the capital city of Bratislava and 18 other doors.

Dior historically has been the most active brand in the region constituting the former Czechoslovakia. In the 1970s, Dior began a joint manufacturing operation with a local company called Astrid to produce a small range of products, including Miss Dior and Diorella. In exchange, said Seda, Dior was given access to some 1,000 state-owned stores, a wider circuit than was available to other Western brands. Seda was then working for the state agency that promoted the Western products.

That agreement ended in 1987 because there was not enough hard currency to buy raw materials. A year earlier, Dior opened its boutique on Parizska Street, staffed with saleswomen on the state payroll. Following the revolution in November 1989, Dior took control of the shop, renovated it in 1992 and set up a local subsidiary.

Elizabeth Arden opened a shop in August 1992. Hana Wagenhofer, Arden's agent for the Czech Republic and Slovakia, said she expects sales to increase as much as 30 percent this year over last, but would not reveal specific figures.

The average salary in the Czech Republic is $262 a month, but Wagenhofer said, "We operate knowing that purchasing power here is five times lower than in the West, but purchasing power is going up in my customer group."

Arden and its designer fragrance brands are distributed in about 100 doors in the Czech Republic and Slovakia. Wagenhofer said that one of the biggest problems she faces is helping perfumery owners understand the difference between established quality brands and local imitators sold at bargain-basement prices.

"I've found that the best way to teach them this is to give them a copy of the Douglas [perfumery chain] catalog and tell them, 'If you don't see it in here, it's not worth selling,"' said Wagenhofer, whose company also publishes the local edition of Playboy.Lauder announced its arrival with ads in the Czech daily newspaper Lidove Noviny and in the English-language weekly paper the Prague Post. As do other Western brands, Lauder is also advertising in women's monthlies, including Czech Elle, which is widely considered the most cutting-edge of the local fashion magazines.

The company says it reached 1,000 people via presentations to various women's groups and that by the end of December, it will have distributed 100,000 mailers.

The gala ribbon-cutting ceremony Tuesday night, attended by first lady Olga Havel, U.S. Ambassador Adrian Basora and Lucia Koukal, the wife of the Lord Mayor of Prague, was well publicized.

Although the city owns the 18 Zelezna St. building where the shop is located, Lauder spent close to $1 million renovating the ground floor and restoring the facade under the supervision of city preservation authorities.

Architect Otto Dvorak, who has offices in Prague and Cambridge, Mass., described the restoration as an arduous exercise in bureaucracy, noting that the company had been obliged to make concessions in its original store design. He said, for example, that Lauder abandoned its plan to put awnings over the store windows after officials resisted.

Several shoppers leaving the store Wednesday said they came because they had seen a report on the store opening and the restoration of the pink baroque building on the Nova TV channel. Ronald Lauder is a principal in the TV station.

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