According to the fashion industry media "Women's Wear Daily", at a recent meeting of UBS Group, Fabrizio Freda, CEO of Est é e Lauder, revealed a plan on how to return to growth after struggling.
Firstly, the optimization of product portfolio, Est é e Lauder Group will launch more high-end products in the Chinese market, such as La Mer and Tom Ford. High end products are also among the categories that the company has performed well in the Chinese market.
Est é e Lauder's second quarter financial report for the 2024 fiscal year also showed a 10% decline in revenue from its skincare business, which accounted for more than half of the total revenue. The performance of Est é e Lauder, Clinique, and Yuemuzhiyuan brands was inferior to The Order, La Mer, and Meike M A. C.
In the Chinese market, according to the data previously provided by the Estee Lauder China team, during the Double 11, Estee Lauder and Hailan Mystery were the main forces driving the growth of the whole group's Tiktok channel.
Est é e Lauder Group had already expressed its ambition for the high-end beauty industry in China at that time. In addition to the newly launched Re Nutriv series by the Est é e Lauder brand, Mystery of Blue, Tom Ford, Le Labo, and Bobbi Brown will all have aggressive plans in the second half of the fiscal year. The China Innovation and Research Center located in Shanghai will also play a role during this period.
In early March, Sealand Mystery held a press conference in Shanghai and invited brand ambassador Quan Zhixian to the scene in order to promote the aging cloud cream, aging miracle face cream and the newly launched aging cold cream in China, which is enough to show the increase of its marketing investment.
The innovation of product portfolio is a long-term goal, and Est é e Lauder's top priority is to reshape its pricing system.
Previously, the heavy investment in tourism retail business brought considerable profit growth to Est é e Lauder. However, under the impact of the epidemic and strengthened purchasing control policies, the tourism retail business has significantly slowed down, and the backlog of goods in tourism retail has become a performance backlash.
In the fiscal year 2023, tourism retail accounted for up to 20% of Est é e Lauder's total revenue, which was listed as one of the main reasons for the decline in the group's revenue. During the period, Est é e Lauder Group and its retailers unanimously prioritized reducing trade inventories in response to policy changes faced by tourism retail starting in the second half of the 2023 fiscal year. However, at the same time, Est é e Lauder's data on tourist consumption conversion rates has decreased.
Fabrizio Freda admitted at the aforementioned meeting that due to the tourism retail business being severely hit and unable to rebound during the pandemic, Est é e Lauder Group is vigorously promoting to accelerate the clearance of excess inventory in the Asian tourism retail business.
And this will obviously lead to the collapse of the price system established by the brand for a long time, and consumers will only look for promotional prices when they think of Est é e Lauder. On the other hand, when distributors have an excessive backlog of inventory, it is easy for products to flow into some gray areas where the brand is not authorized, further affecting the value trust of the brand in the minds of consumers.
Fabrizio Freda stated at the meeting that Est é e Lauder Group plans to reabsorb these discounts without affecting sales. Pricing should be the pillar that creates more value for each sale.
In addition, Est é e Lauder Group plans to maximize the utilization of its factories in different regions. The group's new factory in Japan has started production this year, but the delivery time is up to six months, which means Est é e Lauder may still be hindered in quickly adjusting inventory to adapt to new market trends.
Fabrizio Freda also emphasized that Est é e Lauder Group will adjust its business scale, including reallocating resources to businesses and brands that can generate growth.
The adjustment of business scale also means a reduction in personnel. At the same time as the release of the second quarter report, Est é e Lauder Group announced plans to lay off 3% to 5% of its global workforce to restore its profit margin. Based on the employee base as of June 30, 2023, Est é e Lauder is expected to lay off a maximum of 3100 employees worldwide.
Est é e Lauder China once told Interface Fashion that there are no major adjustment plans in the Chinese market, and the profit recovery plan will help empower the Chinese team to better adapt to the development status of the Chinese market.
At present, Est é e Lauder Group's development of local Chinese brands is still mainly focused on Volkswagen brands, and local laboratories will continue to innovate to quickly respond to changes in the Chinese market.
Although Fabrizio Freda believes that there will not be another "China" in terms of growth, he believes that emerging markets with the most opportunities include India, Vietnam, Mexico, Brazil and Türkiye.