Estée Lauder is falling behind rivals like L’Oréal, even on its home turf
The American beauty brand warned net sales would decrease by up to 12 per cent in the current quarter compared to last year
To reach new customers across Asia, Estée Lauder has spent the past two years beefing up its global supply chain. Executives have heralded these investments as positioning the company for accelerated growth in a crucial region.
While analysts applaud the build-out — a manufacturing plant in Japan, an innovation centre in China, and a distribution facility in Switzerland for its duty-free business — they bemoan that it’s years overdue.
The too-little, too-late approach helps explain why Estée Lauder executives have cut their annual outlook in each of the last three quarters. The company is grappling with sluggish revenue in Asia, supply-chain missteps and product miscues that have left it trailing behind French beauty giant L’Oréal.
On Friday morning, the company forecast profit for the fiscal year that was below what analysts had been expecting. Estée Lauder warned net sales would decrease 10 per cent to 12 per cent in the current quarter from a year earlier and that travel retail woes would weigh on revenue for months.
Estée Lauder has lost market share in the US to competitors like L’Oréal, which has been quicker to seize on the now-booming market for dermatological beauty products, with brands such as CeraVe and SkinCeuticals. Estée Lauder has also underinvested in advertising, forfeiting a chance to bolster sales, some analysts say.
Estée Lauder’s pivot away from struggling department stores to popular retailers like Ulta Beauty and LVMH’s Sephora hasn’t been enough to stave off its declining market share.
Adding to the tumult, hackers last month infiltrated Estée Lauder’s computer network, forcing the company to shut down its email for several days, delaying some online orders. The incident will lower earnings by seven cents a share in the current fiscal year, the company said Friday.
The slow supply-chain revamp, meanwhile, left Estée Lauder ill-prepared for China’s tumultuous reopening earlier this year. Sales tanked in its Asia-focused travel retail business, which represented nearly one-third of revenue in the most recent fiscal year.
An Estée Lauder spokeswoman declined to comment for this article. “We are focused on driving momentum in markets that are thriving,” Estée Lauder Chief Executive Officer Fabrizio Freda said in a statement Friday. “We also intend to set the stage for a stronger fiscal year 2025 acceleration.”
Estée Lauder’s challenges have raised the question inside and outside of the company about a successor for the 65-year-old Freda, who has been in the post since 2009.
Freda has an incentive to stay through at least June 30, 2024, when he will be awarded stock payouts. At a December conference he affirmed that he’s “completely committed to continue leading this company for the foreseeable future”.
While it’s too early for a frontrunner to have emerged in the succession talks, some of the internal candidates who have been discussed in recent months include Jane Lauder, chief data officer and a granddaughter of the founder; Stéphane de la Faverie, one of two executive group presidents; and Tracey Travis, chief financial officer since 2012, according to people close to the company who asked not to be named.
The three executives didn’t respond to requests for comment. In May, Executive Chairman William Lauder sent a memo to employees lauding Freda: “Under Fabrizio’s leadership, the company is executing a successful long-term strategy.”
Whether the company’s board would prefer an external candidate remains unclear. Jane Lauder’s inclusion on the short list adds a dose of intrigue. The Lauder family controls about 86 per cent of the voting power at one of America’s largest family-run companies, but investors and analysts credit Freda, as an outsider from Procter & Gamble Co., with instilling financial and professional discipline and more than doubling its revenue from $7.8 billion (€7.2 billion) in 2010 to $17.7 billion (€16.3 billion) in 2022.
Estée Lauder founded the company in 1946, becoming an iconic American entrepreneur who transformed the way cosmetics and skin-care products were sold. Despite its storied history in the US, the company has been flailing in its home market.
Its share of the beauty and personal-care market in the US fell by nearly one-fifth to 6.2 per cent in 2022 from five years earlier, according to Euromonitor, a data research company. L’Oréal saw its market share increase by a tenth to 13.7 per cent over that period, cementing its position as the leading beauty and personal-care company in the US.
L’Oréal also enjoys a narrow edge over Estée Lauder in the so-called prestige category of US beauty and personal care, Euromonitor says — a tough setback for Estée Lauder, which specialises in more high-end products than L’Oréal. The French company has more mass-market brands like Maybelline and Garnier.