LAUDER’S $200M QUEST

Byline: Catherine Curan

NEW YORK — Despite controlling 44 percent of the market in U.S. department stores’ prestige beauty business, Estee Lauder is on the acquisition trail.
However, Lauder is keeping mum about the rumored deal for the beauty business of Donna Karan International.
In a presentation at a three-day conference held by Robertson Stephens here, Fred H. Langhammer, president and chief operating officer of The Estee Lauder Cos. Inc., indicated his firm is on the lookout for further deals to follow its successful acquisition of Bobbi Brown Essentials, investment in MAC Cosmetics and licensing arrangement with Tommy Hilfiger. Any acquisition for Lauder would have to show sales of at least $200 million.
Regarding speculation that Estee Lauder’s next big venture will be with Donna Karan International, a spokeswoman for Lauder said the company does not comment on rumors.
A Donna Karan spokeswoman said that as reported, the company plans to complete a transaction for its beauty business, such as a license, sale or joint venture, during the third quarter ending September 30. She declined to elaborate.
Langhammer said the criteria for an acquisition include entrepreneurial management, high growth opportunity and a unique point of difference, in addition to the minimum volume.
Langhammer said the company expects to continue outpacing the industry as a whole, which is growing at 4 to 5 percent.
Asked if Lauder would consider entering the lower tier, he said: “At this junction we see a great opportunity to grow in the segment we’re in,” the $15 billion-to-$16 billion prestige chunk of the overall $75 billion global beauty market including hair care and body care items.
“Forty-four percent market share doesn’t scare us,” said Langhammer in response to a question from the audience about the possibility of the growth rate slowing down. Langhammer added that Estee Lauder sees opportunities to gain customers from other distribution channels “if we have the brand variety that attracts them.”
After more than 40 consecutive years of sales growth, Estee Lauder also plans to keep the positive momentum going by accelerating new launches, creating new concepts such as Web sites, and expanding international distribution.
Langhammer noted that products launched over the last three years generated over 30 percent of its $3.29 billion sales last year, and said the company plans to step up introductions. Lauder also expects to spur growth with new selling formats and concepts such as its recently launched Clinique web site.
Langhammer noted the site receives 100,000 visits per month, and though the firm does not sell directly on the net, 35,000 of the visits translate into new customers who are registered and can be targeted with mailings.
The company also continues to roll out existing products. Pleasures for Men, the follow-up to Estee Lauder Pleasures, is “trending along the lines of Tommy,” said Langhammer, adding that the degree of success has been “a bit of a surprise to all of us.” The scent will probably be rolled out internationally next year.
The Tommy fragrance has been rolled out to over 30 countries since September and has more than doubled its distribution in the last year. The fragrance will be in five more European markets — Germany, Italy, Austria, Switzerland and Belgium — during the next eight months. International distribution for Tommy Girl is also under way.
Happy, the first new scent from Clinique in nine years, will be launched domestically during the next four weeks, and in the UK in mid-October.
Among the brands Langhammer called the rule breakers as opposed to rule makers, Origins’ distribution will expand to Japan and the U.K.; MAC will be introduced in Switzerland, Italy and Japan this year and expanded in the U.K., and Bobbi Brown Essentials will expand into Japan and the U.K.
Lauder is also seeking to maximize inventory management and has a new proprietary system that allows it to read inventory in all locations worldwide.
The company expects to spend between 28 to 30 percent of sales on advertising, as it has in the past, said Robert Bigler, chief financial officer, adding that there will be a slight shift towards advertising from in-store promotions.

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