The cosmetics and personal care industry may be undergoing some tough times lately but "the good news is that there will be a next five years," said Leonard A. Lauder, chairman of The Estée Lauder Cos., whose speech entitled "A View from the Top:...

The cosmetics and personal care industry may be undergoing some tough times lately but “the good news is that there will be a next five years,” said Leonard A. Lauder, chairman of The Estée Lauder Cos., whose speech entitled “A View from the Top: The Next Five Years” will open the 10th annual HBA Global Expo.

This story first appeared in the September 27, 2002 issue of WWD.  Subscribe Today.

The Expo, which features the latest offerings from formulators, contract fillers, ingredient suppliers and private label manufacturers, as well as packaging, dispensing and labeling companies — is being held at the Jacob K. Javits Center in Manhattan. Last year, the Expo attracted more than 16,000 attendees and 500 exhibitors. This year, for the first time, the Expo is being held during the fall, from Oct. 14-16, as opposed to summer. Expo officials explained that holding the show in the fall is better since that is traditionally the time for formulating plans for holiday 2003.

Lauder’s plenary address will be given at 9 a.m. on Monday, Oct. 14.

In a recent interview, Lauder said that the future will bring market trends that will affect all aspects of the industry — particularly packaging and ingredients — and are likely to change the beauty landscape.

“We are truly in a global economy, where packaging is sourced on a worldwide basis,” said Lauder. Speaking of his own firm, he noted: “We buy glass from France, boxes from Germany, plastics from Asia and lipstick cases from the U.S., and it is hard to find one single source that can service us. The sooner that we realize that there is a global economy that is changing the landscape of packaging, the better off we’ll be.”

The worldwide scope of the packaging industry means that the next five years are likely to be kinder to larger companies, noted Lauder, who also addressed the packaging issue in speeches at the Cosmetic, Toiletry and Fragrance Association (CTFA) annual meeting in March and at the WWD Beauty CEO Summit in Evian, France, in June.

“Independent brands don’t have the global sourcing reach that larger companies like Lauder [have],” he said. “Therefore, smaller companies are at risk, in terms of having their cost of goods become noncompetitive, or having the quality of their packaging become noncompetitive. So it is urgent that American suppliers find ways of being more competitive, on both a quality and a price basis.”

Packaging itself is not the only concern. Language is another global issue presenting problems for packaging, particularly in Europe. As Lauder noted at WWD’s Evian summit: “Today, there are 11 languages in the European Union. In 2004, when the EU expands, there will be 21 languages. Are anyone’s eyes good enough to read the multilingual instructions on packaging, especially on treatment products, in that many languages? What language are we going to be printed in?

“If that’s not bad enough, France, Switzerland, Germany and six other countries are considering legislation to preserve their national tongues. But if you have this polyglot and everyone wants to have their own tongue, what’s next?” He pointed to French legislation that mandates advertising, packaging and other collateral materials to be printed in French, but pointed out that this differs from laws in Canada, which also mandate packaging in English and French —and noted that, subsequently, other countries could join the fray, forcing the printing of packaging in many other languages. “That’s fine, if you’re an Estée Lauder, Clinique, Lancôme or Clarins, because you have enough volume, but is that OK if you are Stila or BeneFit or MAC? The only way that we can keep a sense of order in the market is to try to prevent this from happening.”

In fact, Lauder said, “generally speaking, the golden years of the independents may be waning.” There are few major avenues in the U.S. that are open to independent brands these days, he believes. “Saks Fifth Avenue, Nordstrom, Neiman Marcus, Sephora and a few freestanding beauty boutiques are really the only ones,” he said. “When being an independent was a novel thing, that was one thing, but it is no longer a novel thing. And many independent brands don’t have the resources to go international, or else their brand doesn’t translate in some of the countries that they want to move into.” While some indie brands can move seamlessly to, say, the U.K., they have to undergo adjustment to move into a market like Asia, he noted, and that may require resources they simply don’t have.

“In the next five years, there will be fewer independents and they will probably be looking for bigger companies to buy them,” he said. “When Estée and Joseph Lauder [his parents] started this company, it was because they wanted to run a company. These days, there are brands being started with the idea that they want larger companies to buy them out. It changes the dynamic.”

Regarding ingredient market trends, Lauder noted: “The larger companies that have large, comprehensive research and development departments are starting to patent more and more ingredients. In some cases, they are taking old ingredients, giving them a new twist, and patenting them. The U.S. Patent [and Trademark] Office is going to be the protector of some of the larger cosmetics companies. These are a few of the subtle trends within trends, which are showing us that the smaller independent companies have either got to hook up with a larger company or risk the future of their business.”