Estée Lauder has booked itself in for a major makeover in a bid to boost profits.
Last week the company completed its biggest management shake-up since the mid-Eighties. The management structure has been slimmed down from 22 global brand leaders to four group presidents with responsibility for the company’s core brands.
The move is designed to reflect the cosmetic giant’s decision to operate globally with a “single vision and a unified marketing strategy”, claims the company (MW May 31).
One city analyst says: “Reorganisation with a strategic emphasis on core brands and products is a key theme in cosmetics and toiletries, and a strategy very much in vogue among major players – especially at a time when they are not only focusing on new launches but particularly on acquisitions.”
Ever since Estée Lauder transformed itself from a family-owned business to a public company in November 1995, it has been building its stable of brands through various acquisitions.
In 1997, Estée Lauder acquired the Bobbi Brown line of cosmetics, developed by a US professional make-up artist; bought botanical beauty company Aveda for $300m (&£180m) ; and entered the teen market with its purchase of Jane cosmetics. The following year, it signed a deal to make and market cosmetics and fragrances for Donna Karan International. Then, in 1999, it bought Stila Cosmetics and Jo Malone, a London-based seller of some 200 skincare and fragrance products.
Last year competitor Revlon also created a global management structure to streamline its business model and transform itself from a multinational to a global company.
Laura Kiernan, investor relations director at Revlon, US, says a shortfall in the company’s earnings triggered the reorganisation which was seen as a way to drive profitability. The company’s chief executive, George Fellows, resigned in 1999 and was replaced by Jeff Nugent, former president of Neutrogena.
Kiernan says: “With the new structure we are setting the strategies globally but executing the same locally to meet customers’ needs and preferences.”
But industry insiders say Estée Lauder, with its vast portfolio of 16 brands, is in a different league to its competitors and has been raking in profits for several years.
The company recently reported net sales for the third fiscal quarter of $1.10bn (&£0.8bn), a six per cent increase on the same period last year.
Nic Sochovsky, consumer analyst at Lehman Brothers, says: “To me, the best consumer goods businesses are those that are family run. In order to create brand equities, you have to think long term, and family-run companies such as Estée Lauder can afford to do that.”
The founding Lauder family owns 57 per cent of the company, according to its most recent annual report.
Claire Briney, research manager at Euromonitor, says the company’s management restructure is more likely to be a response to the slump in the US economy and falling department-store sales.
She predicts the company will turn its focus to “swiping away customers from other brands rather than flooding its own customers with more of their products”.
“Companies such as Estée Lauder, with varied brands, now have to come with new ideas to attract customers. It might focus on diversifying more into their standalone stores,” says Briney.
The company refuses to reveal any details of how the changes will affect the marketing or its marketing and advertising budgets.
Janet Bartucci, Estée Lauder’s global communications vice-pres ident, says: “The restructure is about doing away with the false divide between domestic and global markets. We will now e speaking globally with one voice, but that does not necessarily mean any shift in our emphasis towards marketing or advertising.”
She adds at this point there are no redundancies planned, as staff are being reassigned, and denies the company is considering a global shake-up of its estimated &£700m creative and media business, following the management reshuffle (MW May 31).
The global creative account for the Estée Lauder brand is held by US agency A/R. UK media, worth an estimated &£8.5m is handled by CDP. Advertising for the company’s other brands is created in house.
The Euromonitor cosmetics and toiletries IMIS database puts Estée Lauder sixth on the list of top ten companies in terms of share of retail value of total sales, with a 3.5 per cent of the world market. The top three places are held by Unilever, L’Oréal and Procter & Gamble, and Lauder’s closest competitor is L’Oreal with an eight per cent share.
An industry insider says the recent management changes at Estée Lauder are an indication that the company is growing into its role as a public company: “With the number of brands it has – from mass market such as Jane to high-end like Estée Lauder and Clinique – it has to grapple with the fact it could get very arduous operating all those brands through different markets,” says the insider.
A leaner and revitalised Estée Lauder may well find it produces enough sales to take on its closest competitor L’Oreal.