EsteeLauder Internal Analysis
Financialperformance and analysis
ELhas been able to achieve more than average growth compared tothemselves and the rest of the industry. The company has derived anaverage revenue increase of 9.76 percent since fiscal year 2009(Ganesan, 2015). Revenue was 7.8 billion U.S. dollars in 2010 andposted a growth of 12.95 percent to hit 8.81 billion in 2011. Revenuestill grew significantly in fiscal years 2013 and 2014, hitting U.S.$10.18 and 10.97 billion respectively. Furthermore, in 2010 revenuegrew by 6.5 percent from the U.S. $7.32 billion in the previous year(Ganesan, 2015). Additionally, Estee Lauder’s return on assets(ROA) has continually grown due to the company’s acquisitions ofsmaller businesses. The ROA was 16.34 percent in 2011 up from 12.9percent the previous fiscal year. Indeed, the ROA had nearly doubledin 2010 from the 6.62 percent ROA recorded in 2009(Claver-Cortéset al, 2015). This resulted from a combination of both company wideexpansion and revenue growth.
ELhas also recorded a much greater return on equity (ROE) compared tothe Personal Product industry. The average ROE for this category was23.5 percent in 2011, but Estee Lauder was able to record more than15 percent greater than this as the company recorded an ROE of 39percent in the same year (Ganesan, 2015). This was a significantincrease from the 20.9 percent ROE recorded in 2009 and 35.33 percentin 2010. As revenue continues in an upward trend, and the companyrationalizes its production as well as marketing processes, EL hasalmost doubled the net income from 2009. Importantly, the growth innet income has been achieved without having to lay off employees.Indeed, the number of employees has increased from 31,300 in 2009 to32,300 in 2010 and 42,000 in 2014. Net income grew by 46.5 percent in2011 from $478,300,000 in 2010 to hit $700,800,000 (Ganesan, 2015).EL has recorded a significant increase in net income in the last twoyears, recording a net income of $1, 827,600,000 and $1,019,800,000in 2014 and 2013 respectively. This was an 8 percent growth of ELrevenues in 2014 from 2013, which was attributed to an expandedglobal distribution, greater sales of products and the introductionof new products (Claver-Cortés et al, 2015). The latest net incomeof 2014 is over 800 percent increase from 2009 when a net income of$218,400,000 was recorded. The company’s net income grew by 18percent in fiscal year 2014 majorly because the portrayed higherrevenues as well as lack of interest expenses on the extinguishmentof debt. The operating cash flow of EL increased by 25 percent to hit1.5 billion U.S dollars in 2014, largely facilitated by a netearnings ‘growth in net as well as income taxes that are highlyaccrued (due to the timing and level of taxing) as well as a rise inpayable accounts mainly because of the payments that are alwaystimed.
WhenEstee Lauder is compared to closest competitors, that is L’Orealand Proctor & Gamble, the ROA of the three companies isrelatively good, but EL is seen to get the most from their assetswith a ROA of 16.34 percent experienced in 2011. This was animprovement from 2010 when EL still got the most from its assets,recording ROA of 12.90 percent while L’Oreal managed 12.11 percentand P&G got ROA of 11.74 percent (Claver-Cortés et al, 2015). Infact, EL is not only dominating its closest challengers, but it hastaken over the entire industry. This is attributable to the company’shuge investment to R & D and its vast market appeal to variedconsumer segments. With almost double the number of brands than thebusiness rivals, it is fair to say that Estee Lauder controls thebeauty industry.
EsteeLauder physical resources
Thebeauty and cosmetics company Estee Lauder Companies is based atGeneral Motors Building, New York City in the United States. EsteeLauder Companies (EL) comprises of four key business segments namelyhair care, fragrance, makes up and skin care. In the fiscal year2011, hair care accounted for 5 percent of net sales, fragranceaccounted for 14 percent, make up accounted for 38 percent, and skincare represented the largest share 42 percent of the net sales (Kanget al, 2014). Moreover, the company has a geographical presencespanning in a hundred and forty countries globally. The largestmarket is the Americas contributing forty seven percent of the totalnet sales of the company in 2010. Middle East, Africa, and Europecontributed approximately 39 percent of net sales, while the rest 14percent is captured in Asia/Pacific (Łopaciuk&Łoboda, 2013).
Themain business of Estee Lauder is manufacturing as well as marketingall the company’s products and licenses. Distribution of ELproducts is done through various channels that are appropriate forthe targeted clientele base of the products as well as the marketposition. Some of these channels comprise departmental stores,pharmacies, salons, and specialty retailers (Kang et al, 2014).Presently, EL operates in excess of 600 single branded free-standingstores as well as more than 100 multi-brand stores across the globe.In addition, EL also sells their offerings through e-commerce inFrance, Germany, the UK, the U.S., Australia, japan, Korea andCanada. EL manufactures their own products in Canada and in the U.S.However, the company also has manufacturing plants in the UK,Switzerland and Belgium (Łopaciuk&Łoboda, 2013).
EsteeLauder technological resources
Importantly,the company has aligned its organization better with the stratagem ofbeing innovative, ethical and entrepreneurial company. The greaterrevenues recorded in the recent fiscal years is because the companyis more ready as far as costs saving expenditures are concerned. Withthe implementation of various initiatives that have modern strategyin addressing the needs for operations that are sustainable, thecompany has continued to do several deliveries on infrastructure andnew processes with an aim of supporting and strengthening corporatestrategies (Łopaciuk&Łoboda, 2013).
Theaim of these initiatives is to discard non-value-adding costs so asto increase investments toward activities which result to the biggestreturns such as digital sales as well as products in emergingmarkets.
Theoverall strategy of EL also comprises of investing in research anddevelopment (R&D) in an enormous manner. The company’s in-houseR&D has made it possible for the company to have highlysophisticated and the industry’s most advanced productsthatconsumers desire and feel that they are a necessary expense.Furthermore, Estee Lauder does not undertake animal testing andneither does the company contract anyone to do so for them. Thecompany tests each product on a panel prior to releasing andlaunching it for public use. At the beginning of June 2011, thecompany had roughly 550 employees working in the research anddevelopment department and costing about 85.7 million U.S. dollars(Kang et al, 2014).
EsteeLauder human resources
Aninclusive methodology in recruitment has made Estee Lauder advancefrom strength to strength. Diversity in EL human resources is morethan just skin deep.
WhenEL founder Josephine Esther Lauder started selling cosmetics in 1946in New York, she only had four products: skin lotion, Cleansing Oil,Crème Pack, and Super-Rich All Purpose Crème. Fast forward andnearly 70 years later, her company has grown to become a globalcosmetics giant carrying 30 brands, selling in more than 150countries.
Thecompany has 42,000 employees across the globe with a vastly femaleworkforce, especially in leadership. Diversity in the company isevident in the gender, ethnicity and age of the employees. Thecompany’s diversity in workforce gives it a competitive advantage,driving innovation and creativity as the company applies astrengths-based approach towards human resources. Recruitment at ELis strengths based, as opposed to competency based, and managers aretrained on how not to recruit in their personal image.
Thecompany has centered on coming up with fewer products, but moresuccessful ones. The company is motivated by being “consumerinspired and creativity driven.” They focus on the consumer, andthey proceed to create beauty products, which consumers wouldn’thave imagined of needing. The company is innovative in several waysthat give it a competitive advantage over competition such as thehigh touch service, enhanced digital capabilities and localrelevance.
ELprides themselves of a high touch personal service enabling thecompany to come up with an important emotional connection withconsumers and thereby inspire even more brand loyalty. The companyimplements a customized educational method that comes from make upartists and beauty advisors. EL has also adapted this educationalapproach for online use, applying self assisted formats and directresponse television as well.
Enhanced digital capabilities
EsteeLauder has immersed itself in the online realm. The company continuesto invest resources in the internet of things and everything digital.Most of the company’s brands can interact with consumers throughTwitter, YouTube, Facebook and other social platforms. EL has alsoestablished worldwide e-commerce portals that create influentialviral marketing campaigns.
ELstrives to have a local relevance to consumers wherever they live.This is done by creating specific products for the specific marketsas well as altering the company’s marketing basing on the regionbeing targeted. This enables EL to speak to the targeted audience ina more natural and culturally relevant way.
Thecompany’s brand name, “Estee Lauder” is itself an importantstrength. Customers and the general public connect this name withquality and luxurious products and services. Estee Lauder is also aworldwide licensee for other well recognized brands such as DonnaKaren, Tommy Hilfiger and others. EL is a market leader in everysegment of the industry, largely because it researches on anddevelops new products, identifies and makes considerations for thepreferences of the consumers, and redesigns the products already inexistence.
Estee Lauder organizational capabilities
Tounderline Estee Lauder’s panache for top quality high touch serviceas well as the company’s growing portfolio of prestige brands, inlate 2014, EL acquired Le Labo, a company specializing in distinctiveFrench top-end fragrance and sensory products, which have earned thecompany a loyal customer base due to its exclusivity as well aspersonalized service. The acquisition of Le Labo was especiallybeneficial to Estee Lauder’s global expansion agenda because it hadoffices in New York and London and freestanding stores in London, NewYork, Paris, Hong Kong, Tokyo, San Francisco and Los Angeles.
Inaddition, Estee Lauder acquired the New York stylist Linda Rodin’sluxury brand for skin care, RODIN olio lusso in 2014. Early in 2015,EL acquired the famed fragrance brand Editions de Perfumes FredericMalle that was founded by respected perfumer Frederic Malle.
Theeconomic recession did take a toll on every industry, including EsteeLauder, but during these hard times, EL was still able to increaseits revenues as well as lead the rest in the prestige beautycategory. Estee Lauder appears to stick with the company’s corebusiness strategy of integrity, entrepreneurship and creativity innearly all parts of the company as it continues to increase profitsas well as take the top spot in the beauty industry for the last 60years and looks set to maintain this position for the next 60 years.
Classichigh touch service
Thehigh touch program of Estee Lauder is an important differentiatorfrom the other companies in the beauty industry. Focusing into thefuture, EL will consider taking their extra-ordinary service, deeppersonal customization and expert knowledge to the next level. Thisway, the company would strengthen its competitive advantage againstother industry players. The company can consider capitalizing on thisoutstanding service via customers’ use of the in store Ipads aswell as through other technologies that will allow customers topersonalize the skin care assessment every time they go to retailers.Estee Lauder can consider re-investing in the touch experiencebrought about by customers, wherever they buy the Estee Lauderproducts.
Nowadays,customers are becoming more digitalized in a quick manner. In thisview, the company has been committed to give its clients firstpriority. EL continues to connect the high touch service with thedigital consumers in order to maintain the strategy of the “Bringingthe Best to Everyone we Touch” wherever and whoever the consumeris.
Succeedingin the online or digital market is crucially vital for the company tomaintain its position and success in the competitive market of beautyproducts. Focusing on the future, more people will be “livingonline” and this is altering how consumers regard, select, purchaseand try beauty products. The company has invested heavily in digitalmarketing and actually made its online services a key competitiveadvantage. Nearly all Estee Lauder brands communicate with theconsumers via social media outlets such as Facebook, Twitter andYouTube. Real time communication with consumers as well as continuedintegration with the company’s high touch system is essential toEstee Lauder going forward.
Continueduse of social media platforms and video in educating andcommunicating with consumers are investments that the company willcarry on to implement. In addition, Estee Lauder has continued todepend on digital marketing and the latest technology instrengthening their apps and mobile presence so as to further connectwith their patrons. Indeed, the company seeks to undertake about 80percent of its advertising on the digital platform as the companyfeels that more and more persons are “living online.” This givesEstee Lauder an advantage in the digitalized world.
Withthe increase in air travel as well as extensive airports upgrades,Estee Lauder aims at investing more in the travel retail sector. Upto 40 percent of travellers peruse through the duty free magazineswhen on airplanes, and up to 15 percent of them are potentialcustomers. The company has invested in catching travelers’attention more by setting up retail outlets in airports and increasedmarketing on the travel sites as well as more presence in duty freemagazines (Guillen&García-Canal, 2012).With the amazinginnovations supported by the high touch system, the company isexpanding advertising to travelers both online and offline, and alsoinside and outside of airports. Estee Lauder considers the traveler’sjourney as an experience and not just opportunity for making a quickimpression on consumers.
Thecompany has implemented a service that rewards travelers with specialoffers. This includes the provision of exclusive products that areonly available in duty free magazines as well as in the airportretailers. This has increased the company’s market to comprise oftravelling consumers as well as those who purchase products fromdepartment stores. Since the travel industry is relatively volatile,the company ought to be closely analyzing the sector and adjusting asneed arises. Estee Lauder considers the travel retail market to be anexcellent platform to launch its global products and the company haswithout a doubt increased its sales from this sector.
EsteeLauder is most definitely a global company with presence in all theimportant global markets. In achieving this goal, the company hasbeen adapting its offerings to fit the wants and needs of eachtargeted regional market. With the company’s advanced R & D,they have been able to effectively understand the preferences andconcerns of the local users to develop products that are locallyrelevant (Ross et al, 2015). This has been the company’s main areaof concern and the company has been able to change how itcommunicates with consumers so that the brands being offered havebeen more inclusive as far as culture is concerned. The companycontinues to achieve this with marketing slogans like, “Every Womancan be Beautiful,” and also in forms of learning as well ascommunication in the language of the countries the products are beingmarketed (Guillen&García-Canal, 2012). The adapting of thecompany’s high touch service to every targeted culture is a crucialpart of Estee Lauder’s global success.
Thepresence of an attuned attitude towards cultural differences hasinspired innovation as well as effective communication with thevarious cultures of the world. This has not only enhanced thecompany’s profits but also increased the global beauty business. Assuch, Estee Lauder feels comfortable in the driving seat ofinnovation as well as the understanding of the needs, wants andpreferences of every culture, and this has definitely paid dividends.
EsteeLauder has taken steps toward a better understanding of the differentcountries preferences. The company already has opened more and morestores in various markets that are emerging like China, Russia, andIndia. China is among the world’s fastest expanding beauty markets,and the country’s wealth quickly increasing, the beauty productsmarket will also continue to expand. In this view, Estee Lauder hasset up its Shanghai Innovation Center, which the company will use forits research & development of its new technologies as well asproduct preferences for consumers in China and the rest of the world(Guillen&García-Canal, 2012).
Brazilis another important emerging market where Estee Lauder has gained afoothold. The country is the world’s third largest beauty marketand the company capitalizing on this fact. Customers and consumers inBrazil spend a sizeable amount of their salary and income on beautyproducts with a huge number of Brazilian consumers having alreadydeveloped a liking for the Estee Lauder brand. The company has morethan 50 free standing stores in Brazil and continues to build brandloyalty among these consumers.
InRussia, Estee Lauder has discovered that the most important thingthat consumers need most id fragrance. The company has actually takenadvantage of the buoyant fragrance market to create a strong brandloyalty with the Russian consumers as the company bridges the gap forthe country’s need for prestige beauty products(Guillen&García-Canal, 2012).With a sturdy infrastructure inRussia and a highly talented organization, Estee Lauder isincreasingly being an important player in the Russian beauty market.
Thecompany has as well positions itself in most other emerging anddeveloping markets like Eastern Europe, Turkey, South Africa, LatinAmerica and the Middle East. Despite the turmoil in the Middle East,the company is still able to record increased revenues.
Creativityand cost savings
ELentrepreneurial talents have made it build from strength to strengthin innovation, creativity, as well as impeccable product quality.This has distinguished EL from their competition as well as enabledthe company be the leader in the world of beauty (Sebenius, 2011).This creativity has been translated into innovative products andservices that are designed to capture the consumers’ imagination,and create enthusiasm in the market for now and for posterity. Theadvantage in creativity is rooted in the company’s understanding ofdesires and needs and of the consumers, which results into variedinnovations in the world of beauty.
Importantly,the company has organized its structure and organization better withthe stratagem of being unique, innovative, ethical andentrepreneurial company. The greater revenues recorded in the recentfiscal years is because the company is now more ready for cost savingexpenditures. With the implementation of the Strategic ModernizationInitiatives in addressing the needs for sustainable operations, thecompany has continued to deliver new processes as well asinfrastructure to support corporate strategies (Guillen&García-Canal,2012).These initiatives are aimed at doing away with non-value-addingcosts so as to increase investments toward activities that result tothe biggest returns such as digital sales as well as products inemerging markets. In the end however, the strength of Estee Lauderstems from the company’s strong brands that they offer toconsumers.
EsteeLauder brand portfolio
Thecost saving initiatives of Estee Lauder are also aimed at theacquisition of new brands for continued strengthening of thecompany’s brand portfolio being offered to consumers. Even with thecompany’s highly selective process, it is able to make one to twoacquisitions every year. This brings more products to the consumersand maintains the company’s position at the apex of the beautyindustry.
Furthermore,Estee Lauder continues to improve the brands that they are alreadyoffering. For instance, the company has already launched differentofferings off the M.A.C and Bobbi Brown products in new regions afterexperiencing success. Estee Lauder is thus keen to launch new skincare products as well as other beauty products that have experiencedsuccess and move them into other regions. The company continuouslybuilds its strong product portfolio and expands it into other regionsfor increased sales and dominance in the beauty market.
Inboundlogistics refer to the activities that enhance receipt of suppliers’materials, the storage of these materials, as well as their handlingwithin the company. Estee Lauder gets all the raw materials used inall its production facilities from a single supplier.
EsteeLauder Companies focuses on product portfolio as well as geographicexpansion and the enhancement of the company’s distributionprocesses. EL is also pushing sales and brand awareness through theexpansion of its digital presence, i.e. digital & social media,e-commerce and m-commerce. The company continues to expand its makeup product category via the launching of new product offerings, whichcomprises of make up artist brands and new launches as well asinnovations in the fragrance category. EL has as well continued toexpand the hair care products targeted for salons as well as otherretail channels.
Thestrategy of Estee Lauder is currently changing the company’sproduct portfolio to include products that yield a much higher marginand that have potential for global growth. The company is thus muchmore focused on its most lucrative and cost-effective category, theskin care products (Ross et al, 2015). EL has also been signinglicensing agreements in a bid boost its brand as well as expand itsreach. The company teamed up with AFESIP and Somaly Mam Foundation in2013 to launch Cambodia’s Somali Mam Beauty Salon. In 2014, EsteeLauder introduced the Jo Malone London brand to the Chinese market inBeijing’s Mitsukoshi store.
Outboundlogistics are activities connected with the distribution of the finalproduct or service to consumers. EL sells its products via limiteddistribution channels like upscale department stores, prestige salons& spas, upscale pharmacies and perfumeries, and specialtymulti-brand retailers. Also, Estee Lauder products are sold in thecompany’s authorized retailer sites, freestanding stores, duty-freeand in-flight shops, stores in cruise ships, as well as directresponse television.
Someof Estee Lauder brands are sold directly to the customers online viathe company’s e-commerce & m-commerce sites in many countriesacross the world including China, Korea, Japan, Italy, Denmark,Russia, Brazil, Austria, UK, France, Canada, Australia, and the U.S.
Withthe strategic modernization initiative (SMI), the company hasminimized paperwork and enhanced its global inventory management. Thecompany continually benchmarks its supply chain’s performance andadjusts its manufacturing footprint and distribution networks basedon the ever changing needs of business.
Marketing and sales
Thisfunctional area deals with the analysis of customers’ wants andneeds and is charged with the creation of awareness among thetargeted audience of EL and EL products and services. the company hashad robust advertising, promotions and sales drives over the yearsthat have kept the business ahead of competitors in crucial times aswell as made the company to record increased profits even duringcrunchy times (Guillen&García-Canal, 2012).
Promotionsand advertising are key in the present day ultra competitive marketfor personal care products. Estee Lauder’s marketing creed isoffering “high touch” service to enhance customer loyalty. Thecompany advertises on TV, newspapers & magazines, through directmail, on billboards, as well as on social media platforms. EsteeLauder’s biggest customer is the departmental store operator Macy’sthat accounted for roughly 10 percent of the sales in fiscal year2014.
EsteeLauder Companies has a huge retail network. Without a doubt, thisbrings the company and its products much nearer to the target marketand raises the probabilities and opportunities for the company tosurvive and thrive. EL is the home of several innovations likeproviding the first cosmetic shopping on the Internet. EL was thefirst ever mainstream cosmetic company to have provided onlineshopping.
Despiteits market share and ranking, EL and the Lauder family as a wholecontinue working to breathe a new life into the company’s flagshipbrands competition continues to heat up. While L’Oreal, ElizabethArden, and Coty have enlisted celebrities to help give credibility totheir brands and elevate them, Estee Lauder is adamant fashion wouldboost its brand rejuvenation efforts. With the Clinique and M.A.Ccosmetic lines, Estee Lauder has essentially expanded itself toattract nearly all the customer segmentation spectrum including theyounger shoppers.
Thegeographic growth and expansion of Estee Lauder is focused on theemerging markets like China, Brazil, the Middle East, South Africaand Eastern Europe, as well as on consumers who buy from travelretail channels, in stores present at the travellers’ destinationsand/or when they get back to their home markets.
Thecompany products are sold in over 150countries across the globe. TheUnited States and the rest of the Americas make up the company’sbiggest market share, which accounts for more than 40 percent ofsales. Africa, the Middle East and Europe makes up more than a thirdof the company’s sales.
EsteeLauder Companies has been keenly working on strengthening thedepartmental store channel since it’s a fundamental part of thecompany’s business. During the fiscal year 2011, the company hadthe best year in ten years in North America. This was largelyachieved through the creation of highly innovative products that weresupported by more effective combination of advertising, thusincreasing the department store turn over.
Onceconsumers got into the department store, they would leverage theirsignature high touch experience in personalizing product selection,educating themselves and building an emotional connection forreinforcing brand loyalty. EL created powerful new counter designsfor enhancing the company’s merchandising and further improve storetraffic as well as drive sales.
EsteeLauder support activities include:
Theprocurement support function is accountable for the purchase ofmaterials that are necessary for EL to run its operations smoothly.The company boasts of an efficient procurement department that hasmade it able to get top quality goods at industry’s best prices.
Human resource management
TheEL human resource management function is charged with the recruiting,motivating, rewarding and training of the company’s workforce.Human resources are understandably important in the personal productbusiness like the beauty industry. The top talents of EL have madethe company achieve sustainable competitive advantage overcompetition.
Technologicalinnovation, training and development have been key to Estee Lauder’sphenomenal success. The long term strategy of EL is to achievegreater levels of sustainable as well as profitable growth, whichwill enable the company to remain as the global leader in thisindustry. EL is committed to continued innovation in all the variousaspects of business. The company has put an immense emphasis onconsumer insights as well as integrated its brands, functions andregions to leverage efficiencies and scales.
ELis a company infused with creativity throughout all aspects ofbusiness, ranging from product development, sampling to packaging tomarketing and selling the products. EL encourages members of theworkforce to innovate, to create, to be entrepreneurs as well as toalways strive to be the best. Even as the company continues to evolveand command an even greater global presence, it can depend on itstalent to continue improving performance. The company definitely hasmore strength that competition will find nearly impossible to bridgein the foreseeable future. With Estee Lauder’s capacity to combineresources and accomplish acquisitions, the company will continue togain foothold in Europe, America and in emerging markets in Asia,Africa and the Middle East.Estee Lauder is the undisputable globalleader in prestige beauty and is set to hold this position in manymore years.
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