The Estée Lauder brand may be 51 years old, but with an estimated retail business close to $4 billion worldwide, it's no fading dowager. And its parent company is aiming to prove it, with a multifaceted strategy designed to renew the brand's relevance for today's shoppers and to turn the sluggish sales trend of the last few years into growth.
The two-tier strategy, drafted by group president John Demsey and backed by Estée Lauder Cos. president and chief executive officer William Lauder, involves separate plans for the brand's department store and its high-end specialty store accounts. The high-end business will be headlined by Aerin Lauder's Private Collection (see sidebar) and a renewed emphasis on premium skin care products globally, like its high-powered Re-Nutriv franchise. The company also is adding firepower to some of its strongest franchises with more luxurious packaging and stockkeeping units.
"The brand has to establish itself with its core aspirational consumer, who [ranges in age from] 25 to 45 or 50," said Lauder. "She's middle-class, she demands quality and shops across all categories. She's comfortable in jeans as well as dressing nicely. She has high principles and values and feels good about herself. She is smart and attracted to the idea of a lifestyle, rather than a more scientific positioning."
In Lauder's department store doors, color cosmetics packaging will include a return this fall to the gold-fluted lipstick tubes — dubbed Signature Lipstick — designed by the firm's founder. All doors across both channels of distribution will see rebranded counters and a much more targeted use of the brand's various spokesmodels.
"I could make the argument that the day that Estée Lauder behaves completely like a consumer-product company is the day that Estée Lauder stops being Estée Lauder," said Demsey. "We are a company that sells products to consumers, yet positions itself as aspirational, accessible luxury, which behaves more like a fashion brand. And being able to reconcile those two things is what we've done. We know there is a top-door department store universe, and a specialty universe."
After a great deal of consumer research, executives decided to play to the brand's historic strengths, in particular, 40-year-old women looking for antiaging products, rather than 19-year-old new fragrance users. The final conclusion: reinforce the aspirational character of the brand."At the time of Estée's passing, we felt collectively, the family and myself, that we needed to do something to send a signal to the overall marketplace that there was a differentiation in terms of how we were thinking about this brand, and to rediscover a piece of the brand," said Demsey. In the short term, that was accomplished by signing a deal with Tom Ford to do two Tom Ford Estée Lauder seasonal collections.
"I know that the word 'heritage' gets misused a lot," Demsey continued. "But I do believe that every brand…has a genetic code or a DNA. And those brands that lose sight of that — that's where the trouble starts."
The consumer research not only gave Lauder high marks for its heritage, scientific acumen and longevity, but revealed a family connection in the consumer mind, according to Demsey, which led to the decision to portray Aerin Lauder as the modern-day incarnation of her grandmother's brand on the specialty store side. She will be the face of the brand's upcoming Private Collection, marking the first time a Lauder family member has appeared in an ad for any of its products.
"Aerin gives a voice to the brand that's contemporary and modern," said Demsey. "She's a working young mother, she lives a glamorous life and she's friendly with the very kind of people that her grandmother might have been friendly with if she'd been living today."
There also will be a greater emphasis on the premium-priced Re-Nutriv franchise in specialty store doors. Originally formulated by the brand's namesake, the line has always been a repository for leading-edge technology, noted Thia Breen, the newly named president of Estée Lauder Worldwide, adding that Re-Nutriv's manifesto is to find the most effective antiaging ingredients available, without cost concerns. The products range in price from $39 for a cleanser to $900 for a day cream and night cream duo.
On the department store side, the brand will use its stable of high-profile spokeswomen to highlight differing franchises within the brand, with Gwyneth Paltrow as the face of Pure Linen Pleasures; Elizabeth Hurley for Resilience Lift Extreme; Hilary Rhoda for the Blue Line (department store) skin care and makeup; Liya Kebede for foundation, and Anja Rubik for the Beautiful fragrance franchise."The faces of Estée Lauder's Blue [department store] line on a go-forward basis are Hilary Rhoda and Elizabeth Hurley — Hilary on the younger side and Elizabeth on the more mature side," said Demsey. "They look like they could be related, yet one is speaking about products that are sort of under 35 and the other is speaking about products that are sort of geared over 35."
Like other prestige companies, Lauder has been buffeted by the Federated-May Co. merger and the resulting door closures and skittering promotional schedules. The real litmus test for everyone will come on Sept. 9, when accurate comparisons can be made and the playing field flattens out. Demsey indicated that is when he had to start generating comp-store gains. Sources say the Lauder brand has been running at plus or minus 1 percent in American department store doors.
The reality of present-day U.S. distribution, said Demsey, is that the bulk of the brand's business in this country is in department stores. "They still remain, from a service perspective, the category killer in our business, and to me that's actually a better place to be than not to be," he said.
While generally, a more mature consumer shops that channel, that doesn't bother Demsey. "The Estée Lauder brand today, in the U.S., should not be spending the lion's share of its effort trying to get 18-year-olds on the brand," he said. "Our channel of distribution is primarily more mature. The strength of the business is in the antiaging category and I'm not going to shift the channel dynamics."
That strategy applies even more outside the U.S., which accounts for about 62 percent of the brand's overall sales, said Demsey, adding that strategies vary widely in Europe. "Depending on the market, there is a position of the brand relative to the aspirational scale. Estée Lauder in Italy is a very aspirational, Re-Nutriv market, so that is building a healthy perfumery business there. Our business in Spain, which is quasi-demonstrated for El Corte Inglés and quasi-perfumery, is a three-legged stool like it is in the U.S. Our business in France is actually perceived as an antiage and a foundation expertise."Added Breen: "When we have a department store, demonstrated market, when we've got the beauty advisers, we can win. And we do win. When we have that taken away from us, which is often the case in Europe, being dominant with perfumeries, we have to work much harder to get our message across, and we have to do that through our merchandising and through print material. And we do education."
While the Lauder brand has freestanding stores in some markets, they really only make sense in places that don't have a strong infrastructure, said Demsey. "There are parts of the world that the customer looks and feels like she does in the Western world, but there's no place for her to go buy the product," he said, adding that Central Europe, Southeast Asia and India are among those markets.
And the importance of India, a subject of interest to virtually every company, is not lost on Lauder. MAC Cosmetics previously opened a store in Mumbai, and Breen indicated that there are plans for other divisions to follow. "The thought at the moment is for Clinique to go into the market first, and with Lauder to follow closely thereafter." She added, however, that after further evaluations, it's possible Lauder and its sister brand, Clinique, would open stores in the market at the same time. Lauder recently opened its first store in March in Hanoi, Vietnam, following Clinique into that country. Lauder's Hanoi store, with an interactive makeup table, crystal fragrance displays and lush seating areas, is clearly designed to highlight the brand's aspirational qualities to the Vietnamese.
That's something that's particularly important in the Asian market, said Demsey.
"The only place in the world that actually is more pure prestige than anywhere else is Asia," he said. "The massified dynamics exist in the marketplace, but because of the concentration of distribution, [the marketplace] actually behaves more like it did in the U.S. in the Seventies than the way that Europe and the U.S. behave today.
"If you go to Russia, to Central Europe or to China, the developing world views Estée Lauder as very aspirational," continued Demsey. "It's very interesting that developing societies, the aspirational access, is very different than the economies and societies that are more developed or more mature, which tend to go a little bit more functional and a little bit more price-oriented. The Estée Lauder in Russia and China is the fastest-growing brand in those markets."Breen noted the conventional thinking is that, in emerging markets, the first products purchased in department stores are moisturizers; however, what she has seen is young people buying skin care products designed for the eye area. "Seven out of 10 of our skin care product sales in emerging markets are eye products," she said, adding that Lauder now features print material for eyes and advertorials for eyes. "We remerchandised our cases and we led with eyes."
Pricing also has been an issue, particularly in the value-oriented department store market. "We've actually lowered strategic price points in makeup, lip, mascara and eye shadow, and we see huge unit movement," said Demsey. "We might not get credit from it in terms of the total, huge growth in terms of the percentage. But if you look at our average price points over the past 10 or 15 years, our average price point probably moved up too high across all categories. I'm not sure how many transactions we dropped off because of not being relevant or accessible or because of the fact that we priced ourselves out of the market."
Another pressing concern is the gift-with-purchase scenario. "We're not looking to grow our gift business, but I can ill afford for it to drop," said Demsey, alluding to the hordes of consumers who just want to know how much they have to buy to get their free bonus. "The customer on the broader market is trained to get a deal, and we trained her. And this brand, even from the very beginning in its most high-end, selective distribution, always had a deal in some way, shape or form. The famous line that Estée Lauder used to have is, 'My customers think they're stealing from me, and that's fantastic.'" Lauder also simplified its gwp advertising so the customer wouldn't get confused, and began working closely with retailers to create a more targeted, appropriate gift.
Although one of the overarching goals is to reinstitute the halo of the Lauder brand identity, rather than the sum of its parts, each piece of the business is being polished so that they all shine in unison.
"In the fall season, you'll see the repositioning of [skin care line] Idealist and the beginning of the repositioning in the whole idea of skin care solutions and how we're positioning the Blue Line [the department store line]. You're going to see Re-Nutriv and the advertising voice and Private Collection in terms of higher and luxury product and distribution. And from a makeup perspective, Estée Lauder flute and classic are coming back into the line architecture with these very strong core franchises in Double Wear and in Resilience [two major product lines]."A powerful weapon in Demsey's arsenal is fragrance, even though "I've actually taken a more conservative, calculated approach than traditionally has taken place in the business. I've taken more of a portfolio approach rather than this blockbuster approach." He cited the bitter experience of Beyond Paradise, which, after its launch in August 2003, ran up huge numbers, "and when the advertising and promotional levels normalized, the business deflated."
When Demsey took over the brand in January 2005, he determined that the White Linen, Beautiful and Pleasures fragrances have positionings that are "global aspirational plays." He hinted that plans for Paltrow in the fall with Pure White Linen involve "taking that whole nautical, outdoor, healthy Americana, Nantucket-meets-Mediterranean idea, and we're using it because that is classic, tried-and-true aspirational Lauder imagery." He noted that the entire White Linen franchise is running a 78 percent increase. Meanwhile, the Beautiful franchise is growing "on a high-single to low-double-digit range."
Robert Mettler, chairman and ceo of Macy's West, said he likes what he sees in parts of the plan that have been emerging. "They absolutely are working on the strategy," he said. "The whole Re-Nutriv story is a big story, taking it as a whole product category rather than an item. As long as they show solution-based product benefits, they will continue to be successful and they are successful. I see them continuing to work hard on the brand structure on showing different faces for different pieces of the business. It is working well."
Mettler allowed that the issue of how to moderate losses from gwp is a tougher nut. "It's not a growth situation, but it doesn't have to be." He indicated it will take a long time to arrive at a solution. Mettler also gave Lauder high marks for improving its testers and its entire counter presentation. As far as progress on the bottom line, he said: "We got some increases, it is moving ahead, and we're quite happy with this."
Added Deborah Walters, senior vice president and general merchandise manager for cosmetics and fragrances at Saks Fifth Avenue: "We are so excited by the way that the brand is evolving, and believe it is a tipping point for dynamic new growth. The most exciting launch for us is Private Collection — Aerin has done such an outstanding job with it, and we believe it's the epitome of the new direction in which Estée Lauder is moving. Also, the Lauder pipeline is full of incredible new initiatives that will launch in the next six to 18 months. It's like launching a new brand."Howard Kreitzman, vice president and divisional merchandise manager of cosmetics and fragrances at Bloomingdale's, added, "In working with the Estée Lauder team over the last few years, it has become apparent that they are very purposefully focusing on the segment of the business that will resonate with the upscale consumer, notably with Re-Nutriv and the upcoming Private Collection initiative. Thia and her team have done a wonderful job in the planning and execution of the activities we are doing together."
"In terms of facial skin care priced at $70 and above, the Estée Lauder brand is the number-one brand in the prestige market," said Karen Grant, senior beauty industry analyst at NPD. "They are distinguishing themselves on the higher end overall, and consumers are responding to that."
And as for Lauder, he knows the journey will be a long one. "This is a marathon," he said when asked about a time line for attaining the goals. "We're somewhere on the Verrazano Bridge," he said, referring to the beginning. "There is a lot of training and organization to do, and the needs will be different region by region. In the U.S. and Asia, we're examining the customer service component, we'll address gwp in U.S. department stores and, in Europe, we're looking at all of the perfumeries and the service aspect there," he said, adding that these neighborhood doors — more than 9,000 in Continental Europe, some as small as 500 square feet — lack sales associates and require a different strategy.
When does he envision the finish line appearing? Lauder doesn't hesitate. "Never," he said. "Branding is a moving target. It never stands still."
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