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Estée Lauder’s Post-Coronavirus Plan Relies Heavily on E-commerce

"The Lipstick Index has been substituted by the Moisturizer Index."

For fiscal 2021, the Estée Lauder Cos. Inc. plans to step up its e-commerce game. 

Online sales spiked at the company during the coronavirus pandemic, which rendered most stores closed. For the fiscal year, including several pandemic months, online sales were up 7 percent, to 22 percent of total sales. 

“Online basically doubled from last year, and we were able to support and fulfill all of those orders,” Lauder chief financial officer Tracey Travis said in an interview.

“What we did differently, this impacted us a bit earlier because of our China business, we very quickly pivoted to livestreaming, to leveraging some of our sales team to actually sell and consult for online sales. We had some capabilities in virtual try-on and we were able to accelerate some of those capabilities and we also as a team got together and really focused on some of the programming for the fourth quarter online, shifting some of our media dollars to be more online driven in order to capture more growth,” Travis said.

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Going forward, Lauder intends to capitalize on that momentum by re-allocating retail resources around e-commerce.

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The business plans to close between 10 and 15 percent of freestanding doors, mostly in the U.S. and Europe, and will trim its department store offerings, both through the department stores’ own closure plans and shutting certain “less productive” department store counters, also in the U.S. and Europe.

In total, the moves will result in the loss of between 1,500 and 2,000 jobs, about 3 percent of the workforce. Some jobs will be added to support digital plans, Travis said. 

Shopping patterns have been altered because of COVID-19, and footfall is not expected to universally flow back. “We don’t think traffic will get back to a level to make those points of distribution profitable and productive, and therefore we are looking and in discussions and in partnership with our retail partners, to close some of those counters,” she said.

While some Lauder-owned brand counters may close in a given location, others may stay open there, Travis added. “We have a similar situation in Europe, inclusive of the U.K. We’ve already looked at this for Latin America,” she said.

Some of the funds from those closures will be channeled into creating better in-store experiences at the counters that do stay open, she said, though the company has not finalized what the optimal omnichannel experience will look like. The company expects to save between $300 million and $400 million a year, before taxes, and will also invest in manufacturing and fulfillment capabilities.

Lately, online Lauder has seen more shoppers than ever, both on brand web sites and retail partner sites, executives said on a call with Wall Street analysts Thursday morning. In the most recent quarter ended June 30, brand sites were growing 90 percent, and retailer sites were growing 80 percent, said Lauder president and chief executive officer Fabrizio Freda.

“This increase, particularly brand dot-com and the platforms is increasing our direct-to-consumer business, which means increasing our data…and our ability to market [to] these consumers,” Freda said.

Data has allowed Lauder to create a new and effective sampling program, where data dictates what samples go into shipments.

“There are certain samples that drive more conversion than other samples,” Travis added, noting that skin care, moisturizers and foundations all converted well.

Customers are also more engaged online, Freda noted, spending more time on brand web sites. He said the biggest shift as a result of COVID-19 has been the increased engagement in online, which has become more of a luxury shopping experience than before, thanks to technology.

Lauder shifted around marketing dollars to attract consumers, Travis said, and ended up with new customers — especially ones who used to buy in stores. “Particularly with hero products, for the brick-and-mortar customer that would normally go to one of our stores…they came online,” she said.

Customers were particularly interested in buying skin care, which was a bright spot for the company, with fiscal 2020 sales up 13 percent to $7.4 billion. Makeup sales dipped 18 percent, to $4.8 billion; fragrance sales declined 13 percent, to $1.56 billion, and hair-care sales fell 12 percent, to $515 million, in that period.

For the fiscal year, Lauder posted a 4 percent decline in net sales, to $14.3 billion, with reduced net earnings of $696 million. For the quarter ended June 30, sales declined by 32 percent, to $2.43 billion, due to the pandemic and store closures. Net loss for the quarter was $460 million.

Makeup — a category many thought would make a comeback in 2021 — has been a tough business. Lauder has doubled down on eye makeup, like mascara, and tinted moisturizers, Travis said. But she does expect makeup to pick back up, gradually.

“We have seen less of a focus on makeup than we have on skin care and also hair care, but as people start to go back to the new normal, and that does include wearing masks, as people start to go out again we’ll see a pickup in the makeup category,” Travis predicted.

For now at least, Freda has renamed the Lipstick Index — the theory from Lauder chairman emeritus Leonard Lauder that sales of the beauty product increase during tough economic times. People may not be buying lipstick, but they are still buying beauty, Freda noted.

“The Lipstick Index has been substituted by the Moisturizer Index,” the ceo said.

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