Estee Lauder Expects Department Stores Slip

Estee Lauder Cos. Inc. expects department store sales to account for a smaller portion of its revenues as it focuses more on free-standing stores and Internet commerce. The New York-based company, whose brands include Clinique and others in addition to Estee Lauder, expects department store sales to decline to 60 to 70 percent of revenues in the next three to five years, down from 80 percent of revenues currently, Chief Financial Officer Richard Kunes said in a presentation to analysts on Wednesday.

Although the increased focus on retail and Internet businesses will result in operating expenses trending upward in 2001, Estee Lauder sees diversification of its distribution channels as a key growth driver, and plans to offset the higher expenses with gross margin improvements fueled by an emphasis on new, higher-margin products.

The company plans to open more free-standing MAC, Aveda, and Origins stores, and will relaunch the beauty e-commerce site Gloss.com this year. In addition to Gloss.com, which is a joint venture with competitors including Chanel and Clarins , Estee Lauder plans to develop sites with e-commerce capability for its individual brands, and to provide sites within sites for its retail partners, according to Patrick Bousquet-Chavanne, president of Estee Lauder International.