The Estée Lauder Cos. has unveiled a new restructuring initiative called Leading Beauty Forward designed to free up resources to invest in new training, development and organizational models. The three-year plan will result in a net reduction of between 900 and 1,200 positions globally – about 2.5 percent of the current workforce.
“We’re going to invest in a lot of new training and development in areas where our current employees need to retrain and develop,” said Lauder chief executive officer Fabrizio Freda. “An example would be digital media or retail activities, depending on the groups of people. The second area of Leading Beauty Forward is about building new organizational models for agility, fast decision making.” The idea is that if a digital asset for one of Lauder’s brands – say MAC – were developed in New York, it would be available to the team in Australia quickly, in about a half hour, Freda said.
Lauder is also considering creating a global business services segment, made up of human resources, finance and supply chain offerings that could serve its businesses, Freda said. “The end result of all this … is that we will develop more funds to invest in our growth … these extra funds will be invested in more advertising, will be invested in more freestanding stores and will be invested in better in-store activities across department store and specialty,” Freda said.
The Leading Beauty Forward initiative started in Lauder’s fiscal 2016 fourth quarter and should yield $200 million to $300 million in annual net benefits, which will be reinvested. The program was revealed at the same time as Lauder’s fiscal third quarter earnings, where the company said it increased net sales by 3 percent to $2.66 billion from $2.58 billion for the prior-year period.
Net earnings for the quarter were $265.6 million, compared with $272.1 million for the prior-year period. Diluted earnings per common share were 71 cents, on par with the year-ago period. Lauder said that negative impacts from foreign currency translation on diluted earnings per common share were 3 cents – excluding FX impacts, net sales increased 6 percent and diluted net earnings per common share gained four percent.
By segment, skin care net sales were down 3 percent, to $1.07 billion from $1.1 billion in the prior year period, negatively impacted by foreign currency translation. Lauder grew online skin-care sales by double digits. The category was helped by sales from La Mer, which launched new products including Genaissance de La Mer the Serum Essence, plus growth from Origins. Lower sales from the Estée Lauder and Clinique brands offset gains from other brands. Those brands had a particularly tough him in Hong Kong, the company said.
Following the success of its Origins and Estée Lauder Power Foil Mask, the business plans to keep innovating, according to Freda, who said face masks are one of the more successful subcategories within skincare. “Masks are becoming a delivery system … there are different kinds of masks … then there are different forms, and within each form there are different benefits, so mask forms and mask benefits are going to be the base of pretty intense innovation in the years to come,” he said.
Makeup sales for the quarter grew 7 percent to $1.61 billion from $1.08 billion, driven by strong sales from MAC, Smashbox, Tom Ford and Bobbi Brown. Asian women are wearing more makeup, Freda said, and it’s helping to drive cosmetics sales. “It’s a huge opportunity for us,” Freda said. “The brands which are focused on makeup like MAC, Bobbi Brown, are accelerating and taking advantage of this – keeping in mind that MAC is our biggest brand in Brazil or in the United States, etc. where makeup is very well developed – it was not at all the biggest brand in Asia,” Freda said. “On the contrary, with this new trend, these brands are growing at double digits.”
Fragrance net sales gained 5 percent, bringing in $275.2 million, up from $263.2 million in the year ago period. Sales from Jo Malone London and Tom Ford drove gains in the category.
Lauder has made a handful of luxury artisanal fragrance acquisitions recently, and is planning to focus on developing those brands, according to Freda. “It’s time to make this part of the industry the fastest-growing and the winning part of the industry,” he said. “Jo Malone alone … is now the No. 2 fragrance in the U.K., for example. I just came back from Korea, and it’s the No. 2 fragrance in Korea with only eight doors.”
“It’s about the handmade, super high-quality experiential world of fragrances, where the ingredients have been chosen, where there is the taste of a maker, where there is a perfumer point of view,” Freda said. “[It’s] giving new life to the consumer experience of the world of fragrances … we want to make this come back.”