International expansion has long been a central facet of the Estée Lauder Cos. Inc.’s business strategy. It began in 1960, 14 years after the company’s birth, and remains a key component today.
“The international ethos really deserves to be credited to Leonard,” said Cedric Prouvé, group president, international at the Estée Lauder Cos., referring to Leonard A. Lauder, today the company’s chairman emeritus.
Prouvé, who has held that role since the end of 2002 and been with the company for almost 30 years, described the Estée Lauder Cos.’ overseas evolution as having had numerous phases. The group began as a small, New York-based entrepreneurial company that expanded throughout the U.S. and morphed into a big American cosmetics player exporting to the rest of the world.
Its first step abroad came in 1960, when the Estée Lauder brand launched in Holt Renfrew in Toronto. Very soon thereafter it went into Harrods in London, which Prouvé described as “the first beachhead to Europe,” with a huge draw for local and international clients. There was a foray into Puerto Rico, too.
“When Leonard went international, he had a lot of patience,” said Prouvé. “His goal was not to generate the biggest business necessarily. At the beginning, he was really working toward enhancing the reputation, prestige and equity of the brand.”
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Crucial to that was securing the best in-store location.
“Leonard was very passionate very early on about location, location, location,” said Prouvé. “So he had to fight other competitors. You wanted to be in the nerve center of the store, to be seen and to shine.
“That’s a mindset we still keep, even when we go online. It’s all about visibility, location and awareness first,” he continued.
The 1960s saw other international pushes for the group: in Sweden, Hong Kong, Australia, France and Japan — all by the year 1968.
“He was picking places that would enhance the awareness and international visibility of the brand,” said Prouvé, adding: “Leonard didn’t choose the easy path.”
That’s to say, the executive eschewed hiring a distributor or a representative in those countries abroad. Instead, Lauder signed on people he trusted to take care of the brand and build up its worldwide reputation. (Prouvé called them “the cosmetics barons.”) This strategy, in turn, created staying power: Many of those people remained with the group for decades. Peter Kurtz, for instance, remained with the Estée Lauder Cos. in Austria for more than 35 years.
“These people really lived and breathed Estée Lauder and the expansion of the group,” said Prouvé. “It was an investment in people and in local entities — in the local retailers and local consumers. It was an interesting way to go international.
“One of the keys to our success is this investment in people,” he maintained.
And the company’s international strategy kept evolving from there.
New markets were entered. In 1973, business contacts were started up in the then-Soviet Union, where the Estée Lauder products became available in hard-currency shops. In 1989, the group opened its first freestanding shop in Budapest and an Estée Lauder perfumery in Moscow. Four years later, the company opened the doors to the Estée Lauder Perfumery in Warsaw.
Also in 1993, the group entered China with corners for the Estée Lauder and Clinique brands at the Isetan Department Store in Shanghai. That helped set the expansion in the country — and elsewhere in Asia — in motion.
The next year, the group unveiled its first freestanding store in Prague, and in 1995 it established an in-store boutique, selling Estée Lauder and Aramis products, in Kiev.
Prouvé highlighted that when he joined the Estée Lauder Cos. in 1994, each brand the group owned had been nurtured by the Lauder family. He called that approach unique vis-à-vis the competitions’ strategy.
“We went public in ’95, and decided to be a growth company,” said Prouvé, describing that as a “turning point.”
Another way to expand reach abroad was by investing in and acquiring beauty brands outside of the U.S. That started by the Estée Lauder Cos. taking a minority stake in Canada-based MAC Cosmetics in 1994, followed by a full-out acquisition of the makeup brand in 1998, and the purchase of Jo Malone London in 1999.
The group then kept snapping up brands abroad. In the first decade of the 2000s, the company acquired Darphin in France and took a minority stake in Forest Essentials in India.
Another prong in Lauder’s international expansion was its establishment of regional innovation centers in Asia and Europe to work in tandem with the company’s research and development team in North America. That way, innovation processes could be put in action in a specific market to create the most relevant product to that place.
“We transformed the company from this kind of export mentality to really more of an integrative globalized company, where innovation can come from anywhere, and [there’s] a lot more local relevance,” according to Prouvé. So the idea was to target what’s best in a market and then bring it to the rest of the world.
“The whole international expansion took a different turn,” said Prouvé, explaining it became about establishing the right capabilities around the world, in all regions. That included decentralizing processes and making sure the group’s products were relevant in the geographies, building capabilities, and expanding and optimizing the portfolio.
In the 2010s, the Estée Lauder Cos. acquired Éditions de Parfums Frédéric Malle, Kilian Paris, Dr. Jart+ (in 2019, four years after an initial investment) and took a first stake in the Deciem family of brands, which then was purchased outright by the company this year.
The Estée Lauder Cos.’ geographic mix evolved rapidly, and it’s already been more than 15 years since the business abroad became larger than at home for the group.
In its fiscal year 2020, the Americas represented 26 percent of total net sales; Europe, the Middle East and Africa, 44 percent, and the Asia-Pacific region, 30 percent.
“Our heritage market is the U.K.,” said Prouvé. “We were the first really big international company to step foot in the U.K. and expand and invest in our structure.”
Today, the Estée Lauder Cos. is the largest prestige beauty player in that country. Harrods remains the heritage retailer there, and it’s now carrying practically every brand the Estée Lauder Cos. retails in the U.K.
China is an important, fast-growing market for the group, which opened an affiliate in the mainland in 2002.
“It was a tiny business,” recalled Prouvé.
Fast-forward less than two decades, and in fiscal-year 2020, the company’s net sales in mainland China, including those from travel retail there, generated about 24 percent of the Estée Lauder Cos.’ consolidated net sales. To give a sense of the rapidity of growth: That compares to approximately 17 percent in fiscal 2019 and about 13 percent in fiscal 2018.
“I remember we went through the first $100 million, $500 million and now today it’s a multibillion-dollar business,” said Prouvé. “China has grown super, super fast.”
The executive has instigated numerous strategies while building the company’s international activity. “What we’ve done is build regional platforms with talent and services, and capabilities that can service our affiliates,” he said. “Our affiliates are focused on giving us consumer insights and executing with excellence.
“The second thing I really focused on was emerging markets,” Prouvé continued.
India and Brazil were two major ones he opened.
An editor tipped him off that India was ready for a brand like MAC.
“Everybody was cautioning us about going to India, [saying] it’s very difficult to do business [there], you have to be patient and take a distributor,” he said. “One of the first decisions we made was no distributor. We went our own way with our own retail stores.”
Two vectors of development were chosen: Bollywood and weddings.
“MAC took off like a rocket,” he said, recounting attending the brand’s first door opening in the Mumbai suburb of Jehu. “We had 500 people in front of the store at 8 o’clock in the morning. We were stunned.
“To this day, MAC is a love brand in India,” continued Prouvé. “The departure in Brazil was very similar.”
The Estée Lauder brand was just launched this year in Brazil, the last major market in Latin America where it was not yet present, exclusively with Sephora in-store and online “phenomenal success,” he said.
“It really starts with the consumer,” Prouvé said of the strategy overall.
Those consumers differ in terms of cultural preferences. The consumer in China, for instance, has the most aspirational mindset brand-wise. So the brands that have always done best there are the most luxurious.
“The first task is looking at the road map for all of our brands,” said Prouvé. “Then we look at which categories dominate the market in terms of consumption.”
In the early years in China, 90 percent or more of the group’s business came from skin care, then makeup gained a lot of traction. At first in India and Brazil, the focus was on makeup, and Europe was primarily a fragrance market.
Big shifts have taken place since.
“We actually see fragrance and luxury fragrance doing really well in China. We just launched Frédéric Malle and Killian in China this year for the first time, and the early results are super encouraging,” said Prouvé.
The third big criterion for international expansion is securing the right distribution, and whether it can create the proper awareness, desirability and experience.
“One factor that’s really helping us right now in emerging markets is online,” said Prouvé. “Online is a game changer.”
That’s because it brings full consumer coverage. “Opening physical distribution city by city — in the biggest tier cities first, then the midtier cities and the low-tier cities takes a lot of time, capital and investment, etcetera,” he said. “Online gives you access to everything.”
In India, the Estée Lauder Cos. began working with Nykaa, which is the country’s largest omnichannel beauty destination. “We started reaching consumers in 950 cities,” said Prouvé.
The Estée Lauder brand — the most distributed brand from the group — has a physical presence in about 130 cities in the country, but through Tmall, it has transactions being made in 750 Chinese cities.
Another big piece of being a globally integrated company is the travel-retail channel, which for the Estée Lauder Cos. spans more than 100 countries and territories worldwide. The group claims to be the leader in travel retail, which represents approximately 25 percent of its overall sales.
“The way we expand in emerging markets is thinking not just about the business we’re going to do in these countries, but also the business we’re going to do with our consumers when they travel,” said Prouvé.
When the Russian economy does well and travel is fluid, the Russian corridor includes countries such as Paris, Dubai and Turkey.
“So we are looking at all that, and this is what’s driving our investment into new markets,” said Prouvé.
Other important emerging markets for the group include Russia, the Middle East, Mexico, Turkey and South Africa.
“What we’re focusing on increasingly is the emerging middle class around the world,” continued Prouvé. “That is going to be the future growth of the company.”
He called the group’s expansion abroad “a really fascinating journey” and his time at the company a privilege. Prouvé lauded the Lauder family’s attitude toward internationalization and investments, which William Lauder, executive chairman of the company, calls “patient capital.”
“Even though we’re a publicly listed company, we behave like a luxury company,” said Prouvé. “We’re not going to sacrifice the long-term health of our brands and our organization for the quarter. So first and foremost for us is this idea of sustainability, values and long-term. I think that’s why we’ve been around for 75 years.
“Leonard always told me that his dream is that we’ll still be around 75 years from now,” he said.
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