Byline: Kerry Diamond / With contributions from Pete Born

NEW YORK — With the flick of a pen, Estee Lauder Cos. has changed the landscape of cyberspace for the beauty industry.
On Wednesday, Lauder unveiled its long-awaited Internet strategy by announcing its intention to purchase Gloss.com and to turn the beauty e-tailer into a multibrand site featuring all the Lauder brands — and possibly Lauder’s competitors.
Lauder has not had any conversations with its competitors yet, but Clinique president William Lauder, who has been overseeing Lauder’s Internet effort for the past 18 months, said it’s a strong possibility.
“We want to be the dominant prestige beauty site on the Internet,” said Lauder. “We would like to believe that all a customer needs are our brands, but the reality is that we’ve got some very good competitors out there. I would liken us to LVMH with Sephora or DFS. They sell their competitors’ brands.”
The new Gloss.com will launch in early 2001 and operate as a hub that provides access to all the Lauder brands. Potential customers will be able to go directly to Gloss.com or they can enter through one of the Lauder brand Web sites.
“This is going to be very powerful in terms of expanding the universe for our brands,” said Fred Langhammer, president and chief executive officer of Estee Lauder Cos.
One of the brands Gloss now sells is Calvin Klein. Paulanne Mancuso, president and ceo of Unilever Cosmetics International, parent of Klein’s fragrance division, seemed unfazed by the idea of dealing with Lauder. “I have no problem doing business with Estee Lauder, as long as they treat me like every other resource and all resources are treated equitably,” Mancuso said, adding, “I’m doing business with LVMH.”
Another familiar brand on Gloss is Escada, which is distributed by AdiPar.
Nicholas Ratut, executive vice president and chief operating officer, noted, “We are always willing to discuss opportunities for special lines or promotional items that are complementary and not in competition with our traditional department store business.”
“We work with Sephora,” Ratut said of the LVMH-owned retailer, “so why wouldn’t we work with retail outlets owned by another competitor?”
Langhammer, meanwhile, would not disclose the purchase price. “Financially, it was a nonevent,” he noted. Industry sources, however, speculated that it cost around $20 million to acquire Gloss, which went live in November and has 50 employees.
Langhammer also announced that the online distribution of Lauder brands would be restricted to their individual sites, Gloss.com and the sites of Lauder’s retail partners. Lauder, he added, would not sell its brands on any of the other pure-play sites. Although many industry observers expected Lauder to make such an announcement, it no doubt comes as a blow to the beauty e-tailers who were counting on the addition of well-known brands to catapult their sites above the fray. Dozens of beauty e-tail sites are scratching out an existence online, and most of them carry the same brands, the majority of which are little-known cult or independent names like Kusco-Murphy, Burt’s Bees, Bloom, Cellex-C and Zirh.
“This is going to be a wake-up call for the pure plays,” said Lauder. “Certainly, for some of them, it may mean a revisitation of their overall strategies.”
Before deciding on Gloss.com, Estee Lauder considered other pure plays in the field.
“I met with every beauty site out there,” said Angela Kapp, vice president and general manager of Estee Lauder Cos. Online. “There was just a dramatic difference in the quality of the management of Gloss.com. The Gloss.com team understands our strategy and embraces our strategy, and that’s what made us feel we could work together.”
Many of the key members of the Gloss.com team have experience in the world of prestige beauty.
Chief executive officer and founder Sarah Kugelman worked for Bath & Body Works and Banana Republic. Vice president of marketing and founder Deanna Kangas spent time at Bijan. Vice president of merchandising Richard Dickson is well-known in the industry among the major manufacturers and the indie brands alike from his days at Bloomingdale’s. And editor in chief and publishing director Dorothy Schefer spent time at Vogue, Harper’s Bazaar and Mirabella.
Lauder has taken its time embracing e-commerce for its 15 brands. Today, only three have their own e-tail sites — Clinique, Bobbi Brown and Origins. Aveda and Jane have Web sites, but without commerce components. The Estee Lauder brand site is set to launch this week, but e-commerce won’t be added until this summer, and the MAC site with e-commerce will launch in May.
“I wouldn’t say we’ve been slow to jump on this. Clinique was the first of its kind,” said Lauder, of the site that launched in 1996. “E-commerce is not like putting product in a box and shipping it to a store. It’s a lot more work than that. People who make great lipsticks don’t necessarily have great expertise in that area.”
Part of the reason this move has taken so long is that Lauder doesn’t need the Internet as badly as the Internet needs Lauder. The company dominates the department store arena and has not only the top-selling brands in the country — Clinique, Estee Lauder and Tommy Hilfiger — but some of the hottest cult brands around — like Stila, MAC and Jo Malone.
Lauder executives had expressed concern in the past about channel conflict. But Lauder will include its retail partners in its Internet strategy and already has had meetings with many of them to discuss implementation of its plans.
“We will have brand modules, which we’ll give to our accounts if they meet our criteria,” said Langhammer. “Their sites have to be brand driven.”
The modules, he explained, will exist as “stores-within-stores” on the department and specialty stores’ Web sites, much like the Lauder brand counters at retail.
Langhammer stressed that the Gloss announcement was not solely about e-commerce. “I really look at this as a marketing strategy,” he said. “This is a vehicle to communicate and market directly to the end user. With the Internet, you can learn, measure and act.”
Lauder learned this first-hand with its Clinique.com Web site, which today has 850,000 members, all of whom had to fill out an extensive survey to register. According to Kapp, Clinique communicates with 650,000 of them on a regular basis via e-mail, which helps sell products online, but also helps drive customers to Clinique counters around the country.
The existing Lauder Web sites combined have more than 1,000,000 registered users and Lauder plans to develop an even bigger database by interacting with consumers through Gloss and its individual sites.
The talks with Gloss started only last month, but the timing couldn’t have been better. Pure-play sites were all the rage last year, but they have been called into question this year as venture capital has become harder to secure and sales have been mediocre compared with those in the real world. Certainly, the current Nasdaq fluctuations haven’t helped.
Gloss wasted no time trumpeting its good fortune. Visitors to the site on Wednesday were greeted with a home page that read, “A brand new look, coming soon!” with the logos for Clinique, Estee Lauder, MAC and Bobbi Brown.
Reaction from the Internet world was mixed. Some e-tailers were completely stunned, while others played down the startling announcement — even though it could be a death knell for the pure plays.
“We’re excited about this,” said Ed La Hood, chairman and ceo of Beautyjungle.com, which has shifted its strategy to include a business-to-business component that builds sites and develops Internet strategies for other companies. “We see this as a great opportunity for us on our business-to-business side because it’s a catalyst for other vendors and retailers.”
So far, six-month-old Beautyjungle has only signed one company, Bolt.com, for its business-to-business services. Other deals, noted La Hood, are in the works. As for its business-to-consumer side, La Hood said it was “still evolving. In many ways, it is almost a showcase of what we can do on the business-to-business side.”
Roger Barnett, founder and ceo of Beauty.com, which was bought by Drugstore.com in January, said the Lauder announcement just confirmed his prediction that no independent pure plays would be left standing by this summer.
“They can’t compete,” he said. “I think they’re going to run out of money. Venture capital people aren’t going to want to put more money in the beauty space after our announcement and Lauder’s announcement.”