The Estée Series – 1-How the company got scent off course
What would Estée Lauder, the doyenne of the modern cosmetic industry, say? The Estée Lauder Companies, her namesake multinational, appears to be stuck in a downward spiral. The $41bn group has missed expectations nearly every quarter this year. Then last week, it again cut growth targets. America’s biggest beauty group keeps losing market share to rivals such as France’s L’Oréal and Spain’s Puig. Many of its flagship brands such as Clinique and the Estée Lauder brand are no longer as strong as they once were.
The time has come to brush off the cobwebs, industry insiders say. The Lauder family let them grow in the same way the Ferragamo family refused to touch the Italian shoemaking brand for many years before the arrival of CEO Marco Gobbetti, as Miss Tweed reported last month. It’s the “Ferragamo syndrome.” For the longest time, the descendants of the Ferragamo brand could not find the courage to alter its products and communication. For them, it felt like killing the memory of their grandfather Salvatore, founder of the brand. The same thing has happened to the Lauder family. Revamping brands such as Estée Lauder means destroying the memory and heritage of its beloved founder, who died in 2004 aged 97. The brand is sacrosanct, untouchable. And as a result, it has become irrelevant. It’s seen as for grandmothers, like Ferragamo was before its brutal (and not yet successful) makeover initiated by Gobbetti.
Karl Lagerfeld would often describe Coco Chanel as an old lady who needed to be shaken up from time to time. That way, he explained, he made sure it stayed connected to the Zeitgeist and constantly said new things. The success of a legacy brand depends on finding the right balance between heritage and relevance.
Like the Ferragamo family who control their namesake fashion house, it’s up to the Lauder family, who own about 38% of total common shares, and a whopping 86% of voting power, to drive the change.
The group warned net sales would decrease between 9 and 11 percent in the current quarter to Dec. 31 from a year earlier. The company’s CEO Fabrizio Freda has been blaming the company’s woes on in its all-important travel retail division and weak business in China. Last week, Freda said the conflict in the Middle East was also responsible for the lowered outlook. No wonder. Freda may well feel he needs to pass the blame to justify his bumper pay which reached $65.9m in compensation last year. Freda is the second-most “overpaid” CEO among those at companies on the S&P 500, according to an annual ranking by the world’s biggest shareholder advocacy group As You Sow published in March this year. The company has not replied to Miss Tweed’s requests for comment.
PROFITABILITY
Freda announced a series of measures designed to improve profitability in 2024, 2025 and 2026. That means that even less money will be invested in the image and desirability of the group’s portfolio of brands – which industry insiders underline as its main problem in recent years. Freda is obsessed with financial performance. He’s not interested in storytelling. Those who were, and excelled at building brands – many of them former executives of French group L’Oréal who clashed with the Italian executive – have left the company in the past three to four years. In 2022, Freda sacked John Demsey over an Instagram post which was described by the company as a racist meme.
Demsey was one of Estée group’s greatest assets. He had a talent for developing brands, industry experts say. For example, he helped M.A.C. position itself as the make-up artist brand fashion designers loved to partner with for their shows. Today, M.A.C. is no longer the dominant brand on the podium. Charlotte Tilbury and Pat McGrath Labs are the new go-to make-up providers for catwalks. In recent years, the company has consistently missed out on industry trends. For example, consumers now are into vegan, clean products (with no additives or preservatives) and face creams recommended by dermatologists, a market in which Estée group has not invested much.
L’Oréal with brands such as La Roche-Posay and Cerave is much more present. During lockdowns, there was a boom in demand for shampoo as hairdressers were closed, but Estée failed to seize on the opportunity and boost advertising for Aveda and Bumble and bumble while L’Oréal fired on all cylinders, actively promoting Kérastase and Garnier.
Problems at the Estée Lauder Companies run deep, industry insiders and former executives say. They point to a corporate culture problem, a kind of complacency no-one appears ready to address or acknowledge. Family executives and senior managers, paid millions if not tens of millions of dollars, are said to be socialites, living a high life and spend more time attending glamorous events than reading market intelligence or coming up with disruptive ideas.
Estée group is often cited as the cosmetics player that took a long time to realize consumers no longer bought beauty products at department stores but at specialized boutiques and online. It also started massively investing in Asia more than a decade after its main rivals. The corporate culture is very top-down, people who worked at the company say. “You have to kiss the hand,” said one former Estée manager. “It was not like that when Leonard was in charge.”
Leonard Lauder, 90, the oldest son of Estée and Joseph Lauder who founded the company in 1946, started packaging products. He encouraged anyone to come forth with a good idea or warn about a problem. “That’s no longer the case. You cannot question management’s strategy, you risk losing your job if you do,” the former company manager said. Former staff say there is also a lot of duplication of responsibilities, which means that there are often several people working on the same project who roughly have the same responsibilities and do not take any initiative.
LEONARD LAUDER
Leonard Lauder remains chairman emeritus but is no longer involved in day-to-day operations. He had infused the company with a passion for developing brands and products. That drive has been fading since he retired few years ago, managers say. “It’s complicated now at Estée Lauder since Leonard left,” the founder of one of the company’s brands told Miss Tweed on condition of anonymity. “And it’s not clear who will replace him.” “Leonard was an amazing force who has no voice today because of his age,” said another former Estée manager. Under Leonard’s leadership, the company launched many brands, including Aramis, Clinique, Lab Series and Origins.
Beginning in the mid-1990s,itbegan expanding through acquisitions, including Aveda, Bobbi Brown Cosmetics, Jo Malone London, La Mer and M·A·C. Born Josephine Esther “Esty” Mentzer, Estée was raised in New York’s Queens by her mother Rose and father Max, who immigrated to the United States from Hungary. Her last name was originally Lauter and was changed to Lauder to sound more aristocratic. Her middle name Estée was also changed to tap into the lure of Parisian chic.
One of her first successes was Youth-Dew, a bath oil that doubled as a perfume she released in 1953. Estée Lauder’s Youth-Dew products still exists today. In 1995, Estée’s son Leonard, took over and helped build the company into a global business. His much younger brother Ronald, 79, was less involved with the company. He pursued a career in politics and led many important Jewish associations such as the World Jewish Congress and Jewish National Fund. He worked in defense under President Ronald Regan and in diplomacy afterwards as ambassador. In 1989, he was a contender for Mayor of New York City.
None of the children of Ronald or Leonard appear to be of the corporate stature to take over. None of them has built a strong enough track record at the company and appear ready to meet the challenge of the extensive revamp the flagship beauty brands need if they want to regain traction. Clinique and the other Estée Lauder brands haven’t made a major product breakthrough in recent years. They continue to surf on their best-sellers from decades ago.
Clinique has remained stuck in its “three-step” products and failed to evolve under the leadership of Jane Lauder, daughter of Ronald and billionaire heiress of the Lauder family name. Her poor management of Clinique discredited her as a potential successor to CEO Freda, investors tell Miss Tweed. She is today the company’s executive vice president and chief data officer. She is the only one who stands up to Freda and helps somewhat preserve the Lauder family spirit, industry sources say.
Meanwhile, the Estée Lauder brand has remained focused on its bestselling Double Wear foundation and anti-age serum Advanced Night Repair. The latter was a huge hit in China. But it’s partly because of that success that senior management grew complacent, industry analysts say. “Business was going so well, they did not have to think about tomorrow. It took them time to realize they had to invest in that market. And by the time they really did, the pandemic hit,” one former company senior manager said.
It wasn’t always so complacent. In 2015, Estée Lauder was the first beauty group to invest in niche perfume brands, buying Editions de parfums Frederic Malle and two years later Le Labo and Kilian. L’Oréal, LVMH and Puig would soon follow suit. Many of Estée group’s niche fragrance and make-up brands have been stifled by heavy corporate processes, senior sources tell Miss Tweed. That’s particularly the case with Frederic Malle. It has not grown as much as the company hoped, and in recent years, it appears to have stopped investing in it.
The brand’s concept is publishing the work of “noses”. It allows them to tell their story via a fragrance. The creator of a perfume is usually never advertised. Malle’s idea is great, but it has proven too intellectual to succeed at the company. “Frederic Malle himself invested more money in the brand than Estée group itself,” one person close to the U.S. cosmetics maker said. “Now he’s miserable and exploring options.”
Frederic Malle, the founder of the brand, declined to comment. The company’s other later Californian acquisitions, on which it spent billions, such as make-up brands Too-Faced and Smashbox and the face mask specialist Glamglow have not performed as strongly as expected and have had to lay off staff. Two years ago, the company shut down Australia’s Becca Cosmetics, bought in 2016, and some industry insiders expect it will eventually have to shut down Glamglow.
Another important character in the Lauder drama unfolding is William Lauder, 63, son of Leonard and Evelyn Lauder and executive chairman of the company. He keeps publicly renewing his confidence in the abilities of Fabrizio Freda to lead the company. William does not want to admit that the company, arguably, has lost its way. But the time has come to think about who will replace 66-year-old Freda, who has been in the post since 2009 and accumulated wealth estimated at several hundreds of millions of dollars.
Freda prolonged his term and obtained very lucrative incentives to stay through at least until June 30, 2024, when he will be awarded stock payouts. A year ago, he said he was “completely committed to continue leading this company for the foreseeable future” but the Lauder family needs to think about who will replace him. They need to decide what kind of leader they want and what the company’s strategy is.
