By  on June 14, 2006

William Lauder said good retailers want beauty brands mostly for their consumer connection.

I'm just a humble brand keeper," William Lauder, president and chief executive officer of the Estée Lauder Cos., declared. The simple opening phrase was a response to the assertion of Limited Brands chairman and ceo Leslie Wexner that he is "just a humble shopkeeper."

Lauder continued that he is also a brand buyer and creator. Throughout his talk, he weaved in the obligation of brands to elicit an emotional response, and he challenged his industry peers to view their brands through the lens of the consumer.

"Most of us in this room feel passionately about our brands," he said. "The challenge we have is getting our consumer passionate about our brands."

Lauder talked of the "chicken-and-egg syndrome" between the brand and the store, and of the armwrestling that too often determines what brands go to which retailers. He noted the representation of a brand in a great store is important for success, but that the passion a brand exudes to the consumer is paramount.

But it takes an objective eye to ensure that the consumer will see the creativity in the company's product concept. Borrowing from Billy Crystal's classic character Fernando Llamas from "Saturday Night Live," Lauder said the temptation is to look at a project and say, "You look marvelous, you're such a wonderful lipstick." He cautioned that consumers, bombarded with new products, don't always share the marketer's love affair with the lipstick.

In an industry that offers consumers the same product, such as a lipstick, for a range of between $2 (?1.60/£1.10) and $32, Lauder commented that prestige companies win by offering a "wonderful experience" of full service in a high-end store. He noted the company found that, when it raised Crème de la Mer's luxury price point to $190 from $150, demand for the skin cream actually increased at Saks Fifth Avenue.

"It doesn't make sense," he said. Trying to untangle the consumer's logic, Lauder added that there are price bands within the mass and prestige markets where the shopper feels comfortable. "If the price is too low for what they are getting, they say, 'Something must be wrong.' If it's too high, they say, 'Well, it's just not worth it.' We're in a business that reinforces a consumer's wants, not needs."Lauder's primary retail channel—department stores —also caters to wants, not needs, requiring brands and retailers to work together to foster a luxury experience that the consumer will seek out.

However, one department store business teetering on the edge of commodity is fragrance, warned Lauder.

In the fragrance industry, "we've commoditized our brands, because we've let them out everywhere," he said. "And what do we all wring our hands about? Surprise, surprise: Fragrance over the last five years has been the most challenging segment of our business."

Too often, beauty firms use the mass market as a secondary sales solution, and have trained the consumer that, if she waits, she can find it for less at Wal-Mart or Target, said Lauder. For beauty firms trying to retain a scent's prestige positioning by selling it exclusively through specialty retailers, such as Neiman Marcus, they hit a sales ceiling of $10 million. "The problem is, the development cost was $12 million," said Lauder. "That's not an economic model for success. That's not a formula for success in our business, certainly, but we are all guilty of it. The question is, how can we break that cycle?"

Shifting to the evolving retail landscape, Lauder put the recent consolidation trend in context by taking a look at past decades: "In 1970, the Estée Lauder Cos., which at the time was three brands—Estée Lauder, Clinique and Aramis—did business with 202 different retail nameplates. In 1990, it was 170. In 2006, it's 17." The number of nameplates may have decreased, but Lauder said the amount of business and the door count have both grown dramatically.

Choosing to look at the rampant retail consolidation as "the glass half full," Lauder commented that Federated Department Stores' acquisition of May Co. will result in a national department store chain for the first time in U.S. history. Federated's national reach— under the Macy's banner—will allow companies like the Estée Lauder Cos. to launch a product in every region of the country in one fell swoop.

But he acknowledged the Federated-May merger will also cause some disruption and "discomfort."This article appeared in WWD Beauty Report International, a special publication of WWD.

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