A Case Study 2y294d

A Case Study

Jon Hedrec L. Benitez Bachelor of Science in Industrial Engineering - 3C Engr. Dennis Abesamis

Overview • • • • • • • • • • •

Introduction Company History Organizational Chart Our Products SWOT Analysis Mission and Vision Statement PEST analysis Porter’s five forces model Financial Condition Competitors Company Strategic Plan • Issues and their Solution • Conclusion • Recommendation

I. Introduction Company Description As a top company in the Cosmetics and Perfumes industry Estee Lauder specialize in manufacturing and marketing of skin care, cosmetics, perfume and hair care products. The Estée Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in over 150 countries and territories under the following brand names: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M•A•C, Bobbi Brown, Tommy Hilfiger, Kiton, La Mer, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, American Beauty, Flirt!, GoodSkin™ Labs, Grassroots™ Research Labs, Sean John, Missoni, Tom Ford, Coach, Ojon, Smashbox and Ermenegildo Zegna. For fiscal 2011, net sales were $8.8 billion and net earnings were $701 million. Management The company is still controlled by the Lauder family, which controls about 70% of voting shares, and Estée's son Leonard Lauder is Chairman Emeritus of the Board of Directors. William P. Lauder, a grandson, is Chairman of the Board and Executive Chairman. On July 1, 2009, Fabrizio Freda became President and CEO. The Estée Lauder Companies’ annual Breast Cancer Awareness Campaign involves all of the 18 brands that make up The Estée Lauder Companies. They collectively represent The Breast Cancer Research Foundation’s first and largest corporate er. Estée's daughter-in-law created BCRF's signature pink ribbon. Over $10 million was raised for The Breast Cancer Research Foundation between 1993 and summer 2003. Another $1 million was raised from their retail partners between July 2002 and summer 2003.

II. Company History The company began in 1946 when Joseph Lauder and his wife Estée Lauder began producing cosmetics in New York City. They first carried only had four products: Super-Rich All Purpose Creme, Creme Pack, Cleansing Oil and Skin Lotion. Two years later they established their first department store with Saks Fifth Avenue in New York. Over the next fifteen years they expanded the range and continued to sell their products in the United States. In 1960 the company started its first international in the London department store Harrods. The following year it opened an office in Hong Kong. In 1964 they started Aramis Inc., which produced fragrances and grooming products for men. In 1967 Estée Lauder herself was named one of ten Outstanding Women in Business in the United States by business and financial editors. This was followed by a Spirit of Achievement Award from Albert Einstein College of Medicine at Yeshiva University in 1968. In that year the company expanded again, opening Clinique Laboratories, Inc. Clinique was the first dermatologist guided (Dr. Norman Orentreich), allergy tested, fragrance free cosmetic brand created by Estée Lauder. Estée Lauder's Clinique brand became the first women's cosmetic company to introduce a second line for men when, in 1976, they began a separate line called "Skin Supplies for Men". In 1981 the company's products became available in the Soviet Union. In February 2004 the company's teen-oriented jane business was sold; in April 2006, the professional-quality Stila brand, which Estée Lauder purchased in 1999, was sold. The company has had sometimes iconic spokesmodels, sometimes referred to simply as 'faces'. Past 'faces' for Estée Lauder include Karen Graham, Bruce Boxleitner, Shaun Casey, Willow Bay, Paulina Porizkova, Elizabeth Hurley, Carolyn Murphy, Anja Rubik, and actressGwyneth Paltrow. As of 2008 the main spokesmodel for Estée Lauder is supermodel Hilary Rhoda. In 2010, the company added 2 more faces to the roster, Chinese model Liu Wen and French model Constance Jablonski. Their first campaigns will come out June 2010, and will be shot by Craig McDean. As of 2010 Estée Lauder sells its products in department stores across the world and has a chain of freestanding retail outlets. On July 1, 2010, the company acquired Smashbox Beauty Cosmetics, Inc., a brand created in Smashbox Studios in Culver City, California by brothers Dean and Davis Factor (as in Max).

On October 28, 2011, Aramis and Designer Fragrances, a division of The Estée Lauder Companies Inc., and Tory Burch LLC announced the g of a multi-year agreement for the exclusive worldwide license of the Tory Burch fragrance business. This partnership marks Tory Burch's first step into the beauty industry. The first Tory Burch fragrance products are expected to be introduced in 2013.

III. Organizational Chart William P. Lauder

Executive Vice President and Chief Financial Officer

Executive Chairman

Fabrizio Freda President and Chief Executive Officer

John Demsey

Evelyn H. Lauder Senior Corporate Vice President

Group President

Amy DiGeso Executive Vice President, Global Human Resources

Harvey Gedeon Executive Vice President, Research and Development, Product Innovation and Brand Product Development

Richard W. Kunes

Leonard A. Lauder Chairman Emeritus

Ronald S. Lauder Chairman, Clinique Laboratories, LLC

Sara E. Moss Executive Vice President and General Counsel

Gregory F. Polcer Executive Vice President, Global Supply Chain

Cedric Prouvé Group President, International

Alexandra C. Trower Executive Vice President, Global Communications

IV. Our Products The company had its beginning in 1946, when its founder Mrs. Estée Lauder launched the only product (face crème) in that year. Mrs. Estée Lauder focused on "beauty" with a difference. She wanted to bring out the best in every woman through her special formulated cosmetic products. The brand had already won enough accolades by the time innovative fragrance Youth-Dew was introduced to the consumer base in 1953. The well-researched formulations besides effective product line paved way for popularity within a short span of time. Buy Estee Lauder Cosmetics Now Whether it is skincare, makeup or fragrance collections, Estée Lauder products embody the best blend of expertise, knowledge and talent. Acknowledged for providing effective beauty care solutions in over 100 countries, it has not stopped its run for collecting reviews from the various consumer groups across the world. Quality has never been compromised and promises have been kept. This has been the success formula of Estée Lauder.

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Estee Lauder Products product facts: Using advanced technology, the company gained worldwide reputation over the years for its innovative line of simple yet elegant and luxurious products. All the products signify excellent standard in of quality, which is the result of widespread research and rigorous product testing. Estee Lauder Products product line: Make-up- blusher, bronzer, brushes & accessories, concealer, eyeliner, eye shadow, foundation, lip gloss, lip pencils lipstick mascara nails powder Skin care-after sun, body care, cleansers & toners, eye care, masks & refiners, moisturizers, repair, self tan, sensitive skin, sun care SPF

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Estee Lauder Latest Products: Sensuous Sumptuous Bold Volume™ Lifting Mascara Perfectionist [+] Wrinkle Lifting Serum Private Collection Tuberose Gardenia New Pure Color Shades

V. Mission and Vision Statement Our Mission - Bringing the Best to Everyone We Touch and Being the Best in Everything We Do… Our Vision - The global leader in prestige beauty: a well-diversified, brand-building powerhouse of unrivaled creativity and innovation. Our Values • • • • • • • • • • • • •

Strive for excellence - deliver your best. Put your customer first. Know your customers, understand their needs, and sur their expectations Be ionate about what you do! Enthusiasm and energy are contagious. Never stop caring. Show concern and respect for every individual, regardless of position or title. Understand your role in the big picture. We're all part of a larger whole. Look for new and better ways to do things to continually raise our standards. Communicate! Voice your ideas, share your concerns, on what you know, and be honest. Be a team player. We're stronger when we work together. Listen when others speak. Good ideas can come from anywhere. Be flexible. Success depends upon willingness to adapt when situations change. Pay attention to details - little things do make a difference. Solve the real problem, don't treat the symptom. Spread the good news. Let others know when they've done a good job.

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Smile.... and have fun!

VI. SWOT Analysis Estee Lauder, based in New York City, is a manufacturer of cosmetic products that include skincare, makeup, fragrances, and hair products. The company was founded on 1946 by Mrs. Estee Lauder. Their mission statement: “Bringing the Best to Everyone We Touch”. Some of the best known brands that are sold under its umbrella are Aramis, Clinique, Prescriptives, Lab Series Skincare for Men, Origins, Tommy Hilfiger, M·A·C, Kiton, La Mer, Bobbi Brown, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Michael Kors, Darphin, American Beauty, Flirt!, GoodSkin Labs, Grassroots Research Labs, Sean John, Missoni, Daisy Fuentes, Tom Ford, Coach, Ojon and Smashbox. Strengths: · Strong Brand Reputation (The brand is associated with luxury & quality. Also has a strong brand portfolio). · Research & Development (Role model and leader in identifying consumer needs, and preferences and developing products accordingly). · Strong Distribution Network (The products are sold to a limited stores that compliments the image of the brands such as department stores, upscale perfumeries, specialty stores, professional hairdressers etc. specially in U.S.) · Vigorous Revenue & Profitability (Net Earnings for fiscal year 2010 $478 million while Net sales were $7.8 billion.) · Products are sold in more than 150 countries. · Powerful marketing techniques used by the firm: Free Gift, Gift-With-Purchase, Makeup ArtistEvents (for trying out the new products) etc. · Operations and cost maintenance with the firm holds a strong positive attitude in the long run. Weaknesses:

· Lack of concentration regarding customer value (Client.) · Profit oriented (loses sight of the customer) · Weak Liquidity Position (decline in the firm’s liquidity in the past few years.) · Distribution Network’s lack of reach to other viable markets. · Declining operating income in various market marks the weak penetration of the products in those specific markets. Opportunities: · New markets are emerging in various countries where the firm can inject its products, such as India, China (known to be the 2nd largest cosmetics market in Asia) etc. · Markets where wealthy rule is also a good opportunity to tap in because of the tendency of the wealthy to own luxury commodities. · Many nations are growing to be beauty conscience every ing day; the firm will do well in order to tap-in without any delay and initiate in order to get customer loyalty attached to its products. · Diversification of the distribution channels. · Expansion to global markets, worldwide. Threats: · Intense competition in cosmetics has increased and market initiators with quality providers are a serious threat to the firm. · New entrants, even though the market has considerably mature in the sense that it has captured customer loyalty, but there is always room for improvement in this field. · Counterfeit commodities affect the sales of the branded commodities. 9%, according to the Global Congress on Combating Counterfeiting, of all the world trade comprises counterfeit goods. · Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products.

VII. PEST analysis 1. Political, Governmental and Legal Forces •

The company made sure that they licensed some of their global brands like Tommy Hilfiger, MAC, Bobbi brown, Donna Karan and a few others.

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The company’s manufacturing operations conform to the ISO 14001 standards.

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The Food and Drug istration of every country requires companies to adhere to rules of statutory warnings. (E.g. The safety of a particular product should be determined) The company should instead take safety tests and rely on ing this message onto the customers to win their confidence.

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There have been restrictions on products that can be carried in-flight.

2. Economic Forces •

The dollar fluctuations would have an impact over the sales as the company has a global presence(E.g. Japan, Australia)

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Strengthening of U.S. dollar against the Japanese Yen would have negative impact on Estee Lauder’s Japanese Operations.

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Price varies from product to product and brand to brand, but tends to be in the mid-high to high range of

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the industry hence requiring sustainability of income levels of target audience.

3. Social, Cultural, Demographic and Environmental Forces •

Opportunities arise from increase in aging population and hence there will be increase in income from anti-aging products.

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Younger consumers (20-30) & Teens investing in preventive cosmetics.

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Complaints have been received into the use of animals for testing for new products.

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Estimates show that the 70 million people across the globe will reach an income level in the next20 years that allows purchasing of cosmetic products.

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Emissions of fluorocarbons and other harmful gases has been an environmental threat. The company must take strict measures to control this.

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The life expectancy of the aging population will continue to improve with difference between men and women gradually diminishing.

4. Technological Forces •

Internet (E-commerce)

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Rapid technological changes in Product Development

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Technological efforts in Process Development

VIII. Porter’s five forces model 1. Rivalry among competitive firms (HIGH)With the presence of large and powerful competitors like L’Oreal, P&G, Avon etc who also have a variety of brands under different price ranges, Estee Lauder needs to INNOV ATE constantly in order to stay ahead of the competition. 2 Potential Entrants (LOW)Given the size of the market and that of the existing players, it will be extremely difficult for a new player to enter into the market and emerge as a SERIOUS THREAT to Estee Lauder or any of the other immediate competitors. 3 . Potential Development of Substitutes (LOW)With a rapidly ageing population around the world especially in the developed markets, the demand for cosmetics/beauty products is expected to be strong and the threat of substitutes looks unlikely. 4.Bargaining Power of Suppliers (LOW) Since Estee Lauder is a billion dollar brand, it is expected that because of the volume of goods it procures from its suppliers around the world and the numerous number of suppliers, suppliers have LIMITED bargaining power. 5. Bargaining Power of Customers

(HIGH)Due to the presence of large number of brands who cater to different segments of the market, consumers can switch easily and inexpensively from one brand to another.

IX. Financial Condition Income Statement View: Annual Data | Quarterly Data

All numbers in thousands

Period Ending

Jun 30, 2011

Jun 30, 2010

Jun 30, 2009

Total Revenue

8,810,000

7,795,800

7,323,800

Cost of Revenue

1,936,900

1,829,400

1,881,600

Gross Profit

6,873,100

5,966,400

5,442,200

Operating Expenses Research Development

-

-

-

5,696,700

5,067,000

4,883,900

87,000

109,500

139,900

Others

-

-

-

Total Operating Expenses

-

-

-

1,089,400

789,900

418,400

-

-

-

1,089,400

789,900

418,400

63,900

101,600

75,700

1,025,500

688,300

342,700

321,700

205,900

115,900

Selling General and istrative Non Recurring

Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events

(3,000) 700,800

(4,100) 478,300

(8,400) 218,400

Discontinued Operations

-

-

-

Extraordinary Items

-

-

-

Effect Of ing Changes

-

-

-

Other Items

-

-

-

700,800

478,300

218,400

-

-

-

700,800

478,300

218,400

Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares Currency in USD.

Balance Sheet View: Annual Data | Quarterly Data

All numbers in thousands

Period Ending

Jun 30, 2011

Jun 30, 2010

Jun 30, 2009

Assets Current Assets Cash And Cash Equivalents

1,253,000

1,120,700

864,500

-

-

-

Net Receivables

945,600

746,200

853,300

Inventory

995,600

826,600

795,000

Other Current Assets

492,300

427,500

399,700

3,686,500

3,121,000

2,912,500

-

-

12,700

1,143,100

1,023,600

1,026,700

Goodwill

877,300

752,500

759,900

Intangible Assets

227,500

109,500

150,100

-

-

-

339,500

329,000

314,700

-

-

156,000

6,273,900

5,335,600

5,176,600

1,805,300

1,548,800

1,425,400

138,000

23,400

33,800

Short Term Investments

Total Current Assets Long Term Investments Property Plant and Equipment

Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Liabilities Current Liabilities s Payable Short/Current Long Term Debt

Other Current Liabilities

-

-

-

Total Current Liabilities

1,943,300

1,572,200

1,459,200

Long Term Debt

1,080,100

1,205,000

1,387,600

603,500

593,000

665,800

-

-

-

17,600

17,000

24,000

-

-

-

3,626,900

3,370,200

3,512,600

Misc Stocks Options Warrants

-

-

-

Redeemable Preferred Stock

-

-

-

Preferred Stock

-

-

-

Common Stock

2,700

2,700

2,600

Retained Earnings

4,116,500

3,564,000

3,195,000

Treasury Stock

(3,243,100)

(2,850,300)

(2,586,100)

Capital Surplus

1,735,600

1,428,700

1,145,600

Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity

Other Stockholder Equity

17,700

(196,700)

(117,100)

Total Stockholder Equity

2,629,400

1,948,400

1,640,000

Net Tangible Assets

1,524,600

1,086,400

730,000

Currency in USD.

Cash Flow All numbers in thousands View: Annual Data | Quarterly Data Period Ending Net Income

Jun 30, 2011

Jun 30, 2010

Jun 30, 2009

700,800

478,300

218,400

294,400

263,700

254,000

62,400

53,200

10,500

Changes In s Receivables

(124,700)

79,200

103,800

Changes In Liabilities

238,700

109,700

47,400

Operating Activities, Cash Flows Provided By or Used In Depreciation Adjustments To Net Income

Changes In Inventories

(95,100)

(60,800)

Changes In Other Operating Activities

(52,500)

29,300

Total Cash Flow From Operating Activities

1,027,000

125,700 (72,200)

956,700

696,000

(270,600)

(279,800)

Investing Activities, Cash Flows Provided By or Used In Capital Expenditures Investments

(351,000) 200

(100)

8,800

Other Cash flows from Investing Activities

(256,100)

(10,700)

(68,500)

Total Cash Flows From Investing Activities

(606,900)

(281,400)

(339,500)

Financing Activities, Cash Flows Provided By or Used In Dividends Paid

(148,000)

(109,100)

(108,400)

Sale Purchase of Stock

(246,100)

(73,100)

38,700

(16,100)

(234,700)

194,100

Net Borrowings Other Cash Flows from Financing Activities Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents

-

-

(313,100)

(406,100)

25,300

(13,000)

132,300

256,200

1,400 125,800 (19,500) 462,800

X. Competitors Top 10 Competitors for Estee Lauder Cos Inc Estee Lauder Cos Inc faces competition from: 1. LRLCY : L Oreal Co 2. CL : Colgate-Palmolive Co 3. KMB : Kimberly-Clark Corp 4. KCRPY : Kao Corp 5. AVP : Avon Products Inc 6. SSDOY : Shiseido 7. SVCBY : Svenska Cellulosa Aktiebolaget 8. KCDMY : Kimberly Clrk De Mex Sab De Cv 9. ACV : Alberto-Culver Co 10. CHTT : Chattem Inc

XI. Company Strategic Plan CORPORATE STRATEGY As we pursue our strategic journey, we’re investing greater resources in our most promising opportunities – by category, brand, region and channel. We carefully decide where to allocate our resources to drive our momentum for the long term. COMMITTED TO GROWTH The Estée Lauder Companies’ long-term strategy seeks to achieve higher levels of sustainable, profitable growth to remain a leader in global prestige beauty. Our Company is committed to increasing innovation throughout all aspects of its business, putting a greater focus on consumer insights and integrating its brands, regions and functions to leverage scale and efficiencies. We are strengthening four critical areas that distinguish our Company. OUR KEY INITIATIVES 01 Creativity and Innovation We are honing our innovation strategy to create fewer but more successful products, with a motivation to be “creativity-driven and consumer-inspired.” We use the consumer as our muse to create beauty products she never imagined she needed. 02 High-Touch Our High-Touch personal service creates an emotional connection with the consumer and inspires brand loyalty. Our customized educational approach comes naturally from our talented beauty

advisors and makeup artists, but we’ve successfully adapted it for online, direct response television and self-assisted formats, as well. 03 Local Relevance We strive to be locally relevant to all our consumers wherever they live. We do this by creating certain products for specific markets and by altering our marketing depending on the region, to speak to consumers in more culturally relevant ways. 04 Enhancing Digital Capabilities We are deeply immersed in the online world and continue to invest greater resources in all things digital. Many of our brands interact with their consumers through Facebook, Twitter and YouTube, have established global e-commerce sites and created powerful viral marketing campaigns. We are committed to being on the cutting edge of the evolving digital experience.

XII. Issues and their Solutions Problem: Estée Lauder's boutique brand, M.A.C, aired an internet commercial starring M.A.C spokesperson Sandra Bernhard. Ms. Bernhard referred to someone who might not approve of her outspokenness as "...little, freaked out, intimidated, frightened, right-wing Republican thin-lipped bitch" in this now infamous internet ad. Many Estee Lauder brand customers ed the company to complain, asking that it be removed and a public apology made.

Solution: The company apologized for the ad, and the video was removed from the official site, although it is still available on YouTube.

XIII. Conclusion Intensive strategies include Market Penetration, Market Development and Product Development. These strategies will require intensive efforts as Estee Lauder needs to improve its competitive position with existing products. Intensive Strategies will help Estee Lauder achieve the following longterm imperatives: •

Optimization of Brand Portfolio

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Strengthening of Product Categories

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Strengthening and Expansion of Global Markets

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Diversification and strengthening of channels of distribution

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Operational and Cost Excellence

XIV. Recommendation 1. Proposed Mission Statement: I believe that the current mission statement of Estee Lauder Companies is well-crafted and would rather like to add the following to the existing framework: Expand operations to all markets including Africa and become the global cosmetics leading brand •

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2.

Use cutting-edge herbal/non-herbal technology to cater to every global customer/market

Proposed Vision Statement: “Attaining complete share of mind and heart of our customers by delivering the promise of µforever young leading to market leadership in the cosmetics industry” In my proposed vision statement, I have clearly stated the three key aspects including claiming to attain absolute share of mind and heart of Estee Lauder’s valued customers which is reiterated by promising to deliver the promise that any Estee Lauder product brings with it, of being young forever which will eventually lead to leadership position in global cosmetics industry.

3. Other Recommendation

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Rely on the global brand awareness and build it further by endorsing celebrities from the local markets

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Have tie-ups with beauty salons, clinics etc to push their brands.

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Using market research, find the brands that have been doing poorly and makes strategies to either improve it or close its operations. Having an idle brand will add on as a burden to the company.

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Do not have too many brands for the same product category since it will lead to cannibalization.

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Innovation is the key. Identify new customer needs like anti aging products and bring in products that suit the customers better.

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Focus more on selling over the internet. It would be the best channel to attract the youth with so much happening over the internet.

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Introduce new brands that are priced more economically.

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Formulate new strategies for testing.