Estée Lauder Careful Investment Selections Pay Off As A Growth Strategy

The Italians have a saying, “Chi vá piano, vá lontano. (He who goes slow, goes far.) It is a policy that Fabrizio Freda, CEO of Estée Lauder, has taught his company as they acquire more beauty companies

The company has to grow – but plans to do so at a measured pace. Instead of buying companies outright, management now invests in them, acquiring a minority interest that will let them learn about the company, its products, and its culture. An Estée Lauder minority investment is like an engagement period before marriage – the perfect opportunity to confirm there is a good, sustainable fit.

A minority investment was recently made by Estée Lauder in beauty brand Haeckels, a UK brand. This will leave the company with more autonomy in the first stages of the partnership, very much like a budding a romance. Haeckels is said to plan international expansion and looks to Estée Lauder for guidance. The company will benefit from Estée experience. At the same time, Estée Lauder can meet the company’s management and assess its key people.

Proctor and Gamble has taken the same steps; they recently invested in beauty brands Quai Tula and Farmacy. L’Occitane, on the other hand, bought the skincare brand Sol de Janeiro outright for $450 million.

Unilever also uses the same strategy as Estée Lauder. Through its Unilever Ventures, it offers smaller investments to young brands such as skincare company True Botanicals and participated in Saie’s seed. Similarly, Coty took a 20% investment in the Kim Kardashian West brand. Earlier it invested in KKW Beauty.

Clearly, the Estée Lauder strategy to generate growth through investment in companies that have a global appeal works well for this giant enterprise. And we see others across the beauty industry adopting a similar plan.

The pandemic caused by COVID-19 contributed to a change of pace – for both Lauder and the entire beauty industry. When L’Oréal’s CEO, Nicolas Hieronimus, reviewed the pandemic, he saw a huge appetite for beauty and noted that “beauty is essential for humans”. The global beauty market grew by +8% last year, after declining by 8% in 2020. He pointed out that the global beauty market growth was driven by skincare and fragrances, while makeup is recovering more slowly. According to Nicolas Hieronimus, “apart from makeup, all categories are nearly back to their 2019 levels”.

Since Estée Lauder’s fiscal year does not match L’Oréal’s annual year (the Lauder company’s fiscal year ends June 30,} it is hard to compare experiences.

In the annual report Estée Lauder reported the following results. One must keep in mind that these figures do not match the annual global figures cited by L’Oréal and do not include the recent strong Christmas sales. However, they do indicate the strength of skin care and make-up. In the fiscal year 2019 (ended June 30) skin care was 44% of total sales, in 2020 it was 52% and in 2021 it was 58%. Make-up in the three years went from 26% to 33% to 39%. Fragrance went from 12% to 11% and then returned to 12%. Hair-care was steady at 4% for the three periods.

As the Lauder company emerges from the pandemic, it will benefit from customers worldwide returning to their favorite beauty brand as they did this past holiday season. The current high inflation has customers veering to beauty brands they know and like in order to feel good. After all, jar of skincare or a new lipstick can continue to enhance looks for weeks, and that makes the purchase worthwhile.

POSTSCRIPT: In fiscal 2021 that ended June 30, 2021, Estée Lauder reported net sales of $16, 215 million (an increase of +13%). It is the home of many popular brands, including Estee Lauder, aramis, Clinique, Lab Series, Origins, M.A.C., Bobby Brown, La Mer, Aveda, Jo Malone, Bumble and bumble, Darphin, Tom Ford Beauty, smashbox, Aerin, Le Labo, Edition de Parfums Frederic Malle, GlamGlow, Kilian, Too Faced, Dr. Jart+, and The Abnormal Beauty Company (DECIEM). The company also has exclusive global license agreements with Tommy Hilfiger and Donna Karen New York. For DKNY., Michael Kors, Ermenegildo Zegna, the company currently manages a diversified designer fragrance portfolio.