Estee Lauder: Contouring the Future
By: Vivek Jariwala & Keerat Juneja
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The Foundations of the Makeup Industry
Throughout history, beauty, and cosmetic trends were dictated by significant social movements that occurred over the span of decades, such as the rise in Western women’s rights in the ‘20s or the “Black is Beauty” empowerment in the ‘50s. With such cultural shifts taking place, the cosmetic industry faced a slower evolution of trends, thereby extending the life cycle of a company's products and promoting sustained competition in the market. Estée Lauder Companies (Estée) mitigated competition through strategic mergers and acquisitions, raising approximately $6 billion in debt to buy out rivals and tap into burgeoning markets. Notable acquisitions included M.A.C. Cosmetics, which allowed Estée to engage with its younger customer base, and Jo Malone, to delve into the luxury fragrance sector. However, with the rise of content creation, the era of predictable trends and market stability came to an abrupt end as virtually everyone held equitable access to define the next beauty trend.
Layering on New Trends
The beauty industry has grown beyond makeup to encompass skincare, fragrance, and haircare, generating approximately $430 billion in revenues in 2022 and on track to hit $580 billion in 2027. Attracted by the industry’s historical growth, strong future outlook, and low barriers to entry, the makeup landscape is expected to become even more competitive as new challengers enter the market. In response to this heightened competition, brands are recognizing the need to differentiate themselves, as well as stay aligned with consumer wants and ever-changing trends. This has sparked a beauty “gold rush,” marked by the emergence of fast beauty and fleeting micro-trends, such as the TikTok-inspired ‘clean girl aesthetic’ lasting merely four weeks. Many influencers and celebrities have also ventured into product creation and beauty collaborations, driving the celebrity beauty niche north of $1 billion in sales for the first time in 2023.
While these collaborations and the rapid turnover of micro-trends yield lucrative returns, they flood the market with sensational products that often lack the longevity required for sustained growth. This short-term focus is expected to hinder the industry’s ability to build and maintain consumer relationships, marking a clear departure from culture-based beauty movements.
The Makeup of Estée Lauder
In 1946, Estée was officially launched to meet the skincare and makeup needs of the everyday woman. Estée later gained mainstream recognition in the 1950s, when it launched “Youth-Dew,” a bath oil that also functioned as a perfume. Since then, Estée has expanded to serve consumers in more than 150 countries, both in-store and online. Undoubtedly, innovation played an enormous role in its success—consider the infamous “gift with purchase” concept and the brand “Clinique,” which were both championed by Estée. Its core values and mission eventually led them to its IPO in the 1990s, which was coupled with numerous brand acquisitions and licensing agreements, to achieve explosive growth. Notable brands that were acquired by Estée, and fall under the “Estée Lauder Companies” umbrella, include M.AC., Bobbi Brown, La Mer, and Jo Malone.
Despite Estée’s historical rise to fame in the past years, its strategies are misaligned with the evolving landscape of today’s beauty market. Esteemed as an innovator within the beauty industry, Estée currently fails to be at the forefront of emerging trends. This includes a late response to the increase in demand for dermatological products. Furthermore, Estée’s entrance into TikTok marketing—a pivotal platform in today’s current market, has been notably tardy. Social media, especially TikTok, has been one of the biggest drivers of influence in the beauty industry, particularly among the Generation Z demographic.
This misalignment with market dynamics has consequently restrained the effectiveness of Estée's M&A growth strategy. By the time an acquisition is finalized, there remains a risk that the brand may no longer hold its relevance, rendering the effort counterproductive. This is especially pertinent in the beauty industry, where trends evolve rapidly. This underscores the need for Estée to reevaluate its current strategy as the beauty industry continues to evolve.
Concealing the True Problem
Recognizing the topline revenue decline and macroeconomic difficulties surrounding its M&A-heavy strategy, Estée recently announced a plan to restructure its conglomerate by cutting nearly 3,100 jobs as advised by Alvarez and Marsal in February 2024. These cuts have been motivated by the decline in demand in China due to economic slowdown, as affected segments of Estée’s operations, including make-up and skincare, have reported 8 percent and 10 percent declines in sales, respectively. While the announcement was received positively by analysts, with share prices jumping 19 percent, this short-term solution does not address why Estée brands have failed to respond to changing consumer trends.
Not All That Glitters is Gold
These underlying issues are exhibited in many of its subsidiary brands’ recent financial performances.
Too Faced Cosmetics is a prime example of a brand striking gold and struggling to keep up thereafter. Defined by the Better Than Sex Mascara line, the brand saw a meteoric rise to fame with an estimated net revenue of $270 million USD in 2016 and was Estée’s largest acquisition to date at $1.45 billion that same year. However, due to the lacklustre performances of recent launches, Too Faced saw a steep decline in profits, with a revenue of $84 million USD in 2023. Despite being over ten years old, the Better Than Sex Mascara has ten times the number of searches than Too Faced’s three most recent product launches have amassed combined.
Too Faced’s recent revenue decline represents Estée’s broader challenges to align recent acquisitions with market dynamics. Despite being one of its most high-profile acquisitions of the 2010s, Too Faced has already been pushed out of the spotlight and left behind by an unaddressed change in consumer preferences. Similar issues have faced Estée’s other brands, Smashbox, and Glamglow as well. Smashbox, acquired in 2010, recently saw a 37-person layoff at its Los Angeles office. Glamglow, acquired in 2014, will now scale back its international presence to become a U.S.-only product. These quick brand declines represent not only a failure of Estée to integrate its brands into its international strategy but also a failure to maintain bottom-line customer retention for its acquisitions in a highly competitive, fast-moving industry.
Brushing off the Excess
In order to fully capitalize on Estée’s existing brand reputation and address the oversaturation of the makeup industry, Estée should launch “Estée’s Picks” – a collection of the best-selling items previously featured in less-profitable brands. This enables Estée to phase out the rest of the brand so that its product portfolio is no longer bloated. By dropping the underperforming brands and retaining the timeless fan favourites (eg. the Too Faced Better Than Sex Mascara, Le Labo’s Santal 33, and Smashbox’s Photo Finish Primer), Estée could retain existing brand-loyal customers while addressing its profitability constraints.
Blending a New Look
Dropping low-performing items from the company’s product line would allow Estée to focus operations and investments on the company’s timeless brands. The company’s 23 existing labels continue to grow in product and customer reach, requiring significant upkeep and investment. Each year, Estée launches 100-150 products across its portfolio in a bid to remain relevant in the industry. Often, these new products do not hold a candle to legacy champion products and have been met with pushback like in the case of Brilliance Brightening Lotion. Creating “Estée’s Picks” would eliminate these associated costs, ultimately boosting Estée’s profitability.
In order to do so, Estée must conduct a thorough analysis of the company’s existing brand collections, identifying the top-performing players across each. Based on historical sales, product profit margins, and customer feedback and reviews (found both via online websites and social media), Estée should conduct periodic ‘product audits’ to identify potential additions to the Estée’s Picks Collection.
A long-term benefit of creating “Estée’s Picks” is the ability for Estée to straddle the middle ground between adapting to industry trends while keeping its timeless products. Since Estée is able to cut down on brands that make it bloated, it can use its fully-fledged brands to remain relevant in the industry. The remaining labels can use extra resources to research makeup trends in order to adapt to the ever-evolving industry. Moreover, having “Estee’s Picks” enables Estée to keep its timeless products in one line, which matches well with its existing strategy. By introducing "Estée's Picks," Estée Lauder can align its heritage with modern demands, ensuring its legacy thrives in the fast-paced beauty industry.
