Estée Lauder Lays Out Its Growth Strategy

Results for Estée Lauder were very good in the recently concluded fiscal year, as sales rose 10% to $9.7 billion. Now, the company wants more and CEO and president Fabrizio Freda explained how Estée Lauder will get there during an investor event in Hong Kong today. The company’s long-term plans include:
• Expand geographic presence;
• Pursue high-growth channels;
• Lead in skin care and makeup, and expand luxury brands;
• Grow more profitably in hair care and fragrance;
• Create innovative products and high-touch services, both locally and globally;
• Develop capabilities, modernize systems to improve efficiencies.


Strategic goals through 2015 include:
• Grow share by increasing sales at least 1% ahead of global prestige beauty;
• Derive more than 60% of sales outside the US (last year 42% of sales were derived from the Americas, compared to 21% in Asia Pacific and 37% in EMEA);
• Achieve operating margin of 15.5-16%;
• Generate 1% of sales growth through acquisitions;
• Reduce costs by $760 to $785 million (through FY2013);
• Lower inventory to 155 to 160 days.


In FY2013, the company expects sales to rise 6-8% in local currency, grow operating margin 70-90 basis points; boost EPS to 18% (excluding the effects of currency fluctuations) and derive $1.2 billion in cash from operations.

To achieve these goals, Freda is counting on skin care, emerging markets, travel retail, e-commerce, specialty retail and the global demand for luxury to provide a lift.

In Asia, where sales reached $2 billion last year, Estée Lauder launched Osiao, a new luxury brand developed and manufactured in Asia for Asian women. Estée Lauder says it was inspired by traditional Chinese medicine and Western dermatology. The company even went so far as to create The Osiao Asian Skin Care Institute.

Demand for cosmetics is surging in emerging markets such as China, Russia and especially Brazil, according to Freda.Meanwhile travel retail sales have posted CAGR growth of 16% since 2008. During that time, e-commerce sales have a 27% CAGR and accounted for 4.4% of total sales in 2012.

To leverage the next stage of growth, Freda told investors that Estée Lauder will continue to grow sales ahead of the competition, will exploit high-growth channels, leverage strategic pricing; enable new cost savings from SMI/SAP systems and organizational efficiency.