The secret of Estee Lauder's success
(BLOOMBERG) – In the midst of taking Estee Lauder public in 1995, Mr Leonard Lauder, the company’s then chairman and chief executive, fielded a question from an investment banker during the roadshow.
“If your products are so good,” the banker asked Mr Lauder, then in his 60s, “why do you have so many lines on your face?”
Fortunately, Mr Lauder writes in his new book, The Company I Keep: My Life In Beauty, “my wrinkles didn’t deter investors”.
His comeback came in the stock’s debut. It opened at US$26 a share and climbed to US$34.50 in its first day of trading.
He hasn’t quite written an autobiography; there isn’t much discussion of his personal life, friends, travels or lifestyle. Most of the names you’ll find in the book are hard-working employees whom Mr Lauder singles out for praise, various industry competitors and luminaries with whom he has collaborated in various industries.
Aside from his mother, father, first wife Evelyn, and second wife Judy, even Mr Lauder’s relatives don’t get much print. Of his younger son Gary, who chose not to join the family business, Mr Lauder writes that “Gary has a dedicated sense of philanthropy and doing his own thing” and leaves it at that.
But Mr Lauder’s niceness, sphinx-like as it might read, doesn’t detract from one of the most dazzling corporate success stories in the history of the United States.
The book details how Mr Lauder’s mother Estee started a cosmetics company with nothing but chutzpah and a “super rich all-purpose creme”, and how Mr Lauder then built it into a roughly US$89 billion (S$120 billion) company with 25 brands and approximately 1,600 free-standing retail stores in around 150 countries.
When Estee Lauder started out, the American cosmetics industry was dominated by Elizabeth Arden, Helena Rubinstein, Charles of the Ritz and Revlon.
His mother managed to succeed in an already crowded field, Mr Lauder writes, by combining a personal touch (literally – her signature move was to massage the lotion onto women’s faces) with a strategy to side-step, rather than confront, her larger competitors.
How his mother did it
“My mother was determined to carve out her own niche and create a unique power base,” he writes.
The niche she chose was luxury, and the power base would be select speciality stores such as Detroit’s Himelhoch’s department store, Sakowitz in Houston and, eventually, Saks Fifth Avenue in New York.
“Their customers had the means to buy premium-priced products,” Mr Lauder explains, and “the stores provided a sophisticated setting that would immediately burnish my mother’s brand”. It’s a strategy the company turned into a mantra: “Launch at the top, and stay at the top,” Mr Lauder writes.
“If you launch at the top of the market, you have two ways to go: up or down,” he continues. “If you launch into the heart of the market, there’s always someone who will sell a similar product cheaper than you, and you have no way to go but down in what becomes a race to the bottom.”
Mr Lauder officially joined the company in 1958 after attending the Wharton School of the University of Pennsylvania, followed by a stint in the Navy, and was named president in 1972. (His mother kept the title of CEO.)
While his father managed operations and his mother served as the face of the company, Mr Lauder began to map out a business plan that mirrored what was then the largest company in the world. “My dream was to make Estee Lauder the General Motors of the beauty business,” he writes, “with multiple brands, multiple product lines and multinational distribution.”
He conceived and launched Clinique in 1968, a skincare line that capitalised on the era’s nascent appreciation for “hypoallergenic” skincare and beauty “regimens”, rather than “products”.
“The Estee Lauder brand had an aura of glamour; it embodied aspiration,” Mr Lauder writes. “Clinique was more democratic; it was less about aspiration and more about everyday pragmatism.” Several more brands followed, including Prescriptives (1979) and Origins (1990). Starting in the mid-1990s, Mr Lauder began to acquire outside brands, including Mac Cosmetics, Bobbi Brown, Aveda and La Mer.
Strategy paid off
In 1946, the company’s first official year in business, annual revenue stood at US$50,000.
By 1960, annual sales were “just a shade over US$1.75 million”, Mr Lauder writes.
By the mid-1990s, revenue hit US$2 billion; by the late 1990s they had doubled to more than US$4 billion. Today, annual sales are roughly US$14.3 billion.
“Everyone imagines that I was heir to a great family fortune,” Mr Lauder writes. “They forget that I had to build the fortune first.”
So, why take his wildly successful company public? Mr Lauder notes the obvious: “To make a lot of money.” But he also suggests that the move was a form of succession planning.
“Money has the potential to divide families and cause lasting rancour, resentment and bitterness,” he writes. “Going public took the issue of money off the table.”
Mr Lauder had been wealthy for decades; now, with an estimated net worth of US$24.6 billion, he’s become one of the richest people in the world. Understandably, when he stepped away from the company, he stepped up charitable giving. The closing section of his book is dedicated to his family’s philanthropy.
Still, Mr Lauder can’t help bringing it back to his business.
In a final list of “leadership lessons”, he includes such entries as “Cut your losses” and “It’s my neck”, but the fourth, “Never make an important decision without a woman at the table”, rings as the most heartfelt.
“Growing up with a mother like Estee Lauder,” he writes, “how could I not respect and seek out smart, tough women?”
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