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Lauder’s Global Perspective

EVIAN, France — The blistering heat during the first few days of the WWD Beauty CEO Summit here may have wilted some spirits, but it gave keynote speaker Leonard Lauder other ideas. <br><br>"This may be my last speech here because I have decided...

EVIAN, France — The blistering heat during the first few days of the WWD Beauty CEO Summit here may have wilted some spirits, but it gave keynote speaker Leonard Lauder other ideas.

“This may be my last speech here because I have decided to change careers. I’m going to go into the air conditioning business and sell air conditioners to the French hotels,” he said, to laughter from the group — all of whom were staying in the (unairconditioned) hotel complex at the resort here. “It may be better than the fragrance business.”

Lauder, after 44 years with The Estée Lauder Cos., has certainly proven over the years that he’s never been one to miss an opportunity. Now its chairman, Lauder — who joined in 1958 the company his mother had founded 12 years earlier — was one of the driving forces behind the company’s international expansion in 1960, and he hasn’t slowed down since. To that end, Lauder focused on international issues affecting the beauty industry, explaining that he chose to do so in light of the fact that this conference marked the first time that WWD has held the Summit meeting outside of the U.S.

“Economies vary,” Lauder noted, “and as we stand here today, we have a situation where the U.K. is going along fantastically — the lowest level of unemployment in years, and the best retail in years. Just across the Channel you have Germany, with the highest level of unemployment in years — depending on how you account, over 10 percent unemployment — and retail is very, very soft. So unlike the U.S., where you basically see softness of retail across the nation, and one must adjust one’s plans accordingly.”

Value-added tax, or VAT, varies as well, he noted. “It’s higher on one country, lower in another. How are we going to be able to harmonize our prices?” he asked. “Before we had the euro, it was easy to quote things in francs and deutsche marks. Now there are euros, and why should a lipstick be 20 euros in one country, 18 in another and 15 in a third? What that does is create disorder in the market and uncertainty on the part of the consumer.”

Language also presents a problem for many aspects of the beauty business in Europe — most particularly packaging, Lauder noted. “Today, there are 11 languages in the European Union. In 2004, when the EU expands, there will be 21 languages. What language are we going to be printed in?”

He pointed to French legislation that mandates advertising, packaging and other collateral 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 then other countries could join the fray, forcing the printing of packaging in many other languages.

He noted that Americans are deeply involved in the lobbying process and suggested that European beauty executives work together as a group for a common goal. “In Europe, things are happening without your input,” he said. “If you don’t give your input today, you’ll cry tomorrow.”

Turning the topic to cosmetics, Lauder addressed the fragrance industry — and its current challenges. “Although the U.S. has a huge fragrance business, 46.8 percent of the European business today is done in fragrance. And that business is in trouble. There is a consumer malaise and boredom. There have been too many launches — launches on top of launches on top of launches. And every name is more outrageous than the other. They’re coming much too fast, and the consumer has finally said, ‘enough.’ Secondly, I believe we are falling a bit out of love with designer names. That doesn’t mean that designer fragrances are over; I mean that that is not the only way to build a business.”

A third problem, Lauder noted, is that the European retail perfumery chains “have adopted the same selling techniques that the mass record companies have used. “New, new, new —?if you’re top 10 you’re there, if you’re not, you are not. If you don’t make it this month, sorry guys, you’re off that key position. It’s going to lead to the only way you can sell fragrance is to buy a huge amount of advertising.

“Now, I keep on talking about new. You can’t fly on one wing. You need two — newness, as well as classic fragrances,” he continued. Lauder illustrated his point with statistics from several markets, including the U.K.: “The U.K. is a department store market, and 8 out of the 10 top fragrances in the year 2001 were over four years old, 7 out of the 10 were over five years old, and one of those, Chanel No. 5, was 80 years old.”

Consolidation is also a concern. “We’ve seen a lot of it in both manufacturing and retailing. I believe that the buying spree of independent companies that was sort of started by ourselves [The Estée Lauder Cos.] is not over, but it’s slowing down dramatically. Secondly, it ain’t that easy. Rollout is easier said than done. For example, makeup artist lines are having difficulty moving into the European perfumery market. That has caused them a greater dependence on the more broadly distributed brands, like the Cliniques, Clarinses and Lancômes. The niche brands, which have been launched so successfully in the department store market, just can’t get a foothold in those perfumery markets…for those of you who own niche brands, you have to manage your own expectations. It takes a long time to build a brand.”

He used his own MAC Cosmetics as an example.”It is just barely getting known in 90 percent of the world and it’s been around for 18 1/2 years. Don’t think that just because you are hot in one store or one country that the world is waiting for you, because it isn’t.”

Next, he addressed retailers. “There will continue to be consolidation amongst retailers. What’s happening there is the minute that perfumery gets sold, a whole new parameter comes in. A sort of economic Darwinism comes in. What happens is they therefore have to depend again on a few of the bigger companies. There’s no way that a little company can get in there, so there’s no balance.”

And Lauder noted that he was “standing on his soapbox” to speak about service. “One company says, ‘If you want to train our people, you must pay us to teach our people what your products are all about.’ That makes sense, doesn’t it?” he asked sarcastically. “Company number two says, ‘Fine, we would like to do more business with you, but if you want to do more business with us and want to send someone in to do a promotion, you have to give us a fee to allow the person that you’re sending in to stand in our store.’ The big get bigger, and the little guys struggle.

“My fear is that the short-term thinking of, ‘Let’s do something new today, let’s pile it in there and let the customer sort it out,’ is going to be trouble,” he concluded. “Longevity is the modern parameter, and the future is yours to decide. If you want to have a long-term vision, don’t let tomorrow slip out of our hands.””