Fabrizio Freda, president and chief executive officer of the Estée Lauder Cos. Inc., kicked off the WWD Beauty CEO Summit held May 10 – 12 at The Breakers hotel in Palm Beach, Fla., with a history lesson rooted in the title of the conference itself: A Fresh Start.
Showing a slide of The Breakers, Freda noted that the hotel has twice burned down, in 1903 and again in 1925. Both times, however, it was able to rebuild and reestablish itself as a bastion of luxury.
“As our sector emerges from recession, our job as leaders is preserving the best of our past as we make the needed changes toward a brighter future,” he said. “How do we do that? How do we turn change into progress?”
That question has been top of mind for Freda for the past two years, since he joined the company as president and chief operating officer from Procter & Gamble Co. Despite the impact of the recession, the fundamentals of the beauty business are “strong and getting stronger,” Freda noted, ticking off inherent consumer demand, growing consumer wealth, longer life spans and women’s needs for some “me time” as examples of why he’s bullish on beauty.
At the same time, though, the recession has fundamentally changed consumer behavior, which, coupled with a younger, more multiethnic consumer base and the continued evolution of distribution channels, has companies like Lauder reassessing every aspect of its business. “History shows that the first 24 months of a recovery are when 80 percent of the most successful new ideas take root. The next two to three years are when we should be creating the future we want to see,” he said.
Freda, detailed four ideas. “Creativity will drive our success — today, tomorrow, forever,” he said. What is new, however, is deepening the connection between creativity and consumer insight. “By using more in-depth consumer insights to inspire our intuition, we can focus our talents on the greatest opportunities and produce greater breakthroughs.”
Freda also emphasized Lauder’s commitment to fostering innovation around the world, not just in its home market. “We want to get closer to our most demanding consumers wherever they happen to be, ” he said. “We call this being creatively driven, consumer inspired. It’s about capturing what consumers can’t imagine today, but cannot live without tomorrow.”
Creativity goes beyond just product development, however. It extends to service as well, leading to Freda’s second tenant: high touch. Noting that the 50 percent of women want to be educated about product benefits but not in a pushy manner, while another 45 percent shop mainly to replenish, Freda said that the traditional “push” models in department stores, particularly the U.S., must evolve into one that “pulls and adds value.” “We have pushed the push model too far,” he said.
For its part, Lauder is creating new multitiered retail formats, as with its Clinique counters at Bloomingdale’s in New York and Selfridges in London, where consumers can replenish at an express counter, receive a full consultation with a sales associate, use a computer for DIY diagnosis or browse uninterrupted.
Still, the industry needs to do a better job of communicating the value of service, and using it as a key differentiator from different channels, Freda said. “Have we all been so focused on battling over products and promotions that we’ve overlooked the treasure inherent in the experience prestige cosmetics offer?” he asked.
The third pillar of Lauder’s strategy focuses on localizing its global business, particularly as emerging markets mature. “To develop our sector worldwide, we need to listen and learn, so we can customize and tailor our global brands’ offerings and make them locally relevant,” said Freda, noting that prestige sales in China soared to more than $22 billion last year and in 10 years could equal those of the U.S.
“For too long, globalization meant standardization,” he said. “This approach was misguided a decade ago. It’s dangerously myopic today.” He referenced the well-known fact that Asian women’s primary skin concern is clarity and whitening, but then revealed that in China, local research showed women are actually more concerned with a dull, dry appearance to their skin.
Another high-growth area for Lauder is the e-commerce sector, which Freda said grew 25 percent last year. He said that since 2007, average monthly visits to beauty related Web sites grew 94 percent and topped 60 million per month. “The digital world means storytelling, allowing consumers to add their own storylines and illustrations,” Freda said. “It requires different skills and much greater understanding of consumer dreams and aspirations,” he continued, “so that we can make the emotional connection on which loyalty and trust depend.”