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The Estée Lauder Companies is a beacon for beauty.
With more than 20 brands in its portfolio including MAC Cosmetics, Clinique and Bobbi Brown, Estée Lauder is a leader in the prestige beauty category with a global footprint. That means the business’ activities can say a lot about what’s happening in commerce and the consumer economy. This includes ecommerce, where Estée Lauder is growing its business by selling through its own websites, third-party marketplaces and other retailers’ websites.
In recently reported results for the fiscal year ended 2022, company leaders shared insights into how ecommerce fits into the wider picture of the business, and progress for online sales over the last year.
Here’s a look at how the company is Estée Lauder is growing its online business, as described on its FY 2022 Q4 earnings call:
For the year ended June 30, Estée Lauder’s online sales grew 11%, and represent 28% of overall sales. Online sales grew mid-single digits in the latest quarter, paced by double-digit growth in the Asia Pacific region. Digital sales are now more than double their pre-pandemic numbers.
The company launched Estée Lauder, Clinique and Origins on JD.com in China. It is planning to add more brands at JD.
“We continue to innovate across the online ecosystem to generate trial and repeat,” CEO Fabrizio Freda said.
Haircare from Aveda was also introduced in China through the marketplace Tmall with a standalone store, and Estée Lauder is planning to “double down” on this channel. In the coming year, the company is set to open an innovation lab in Shanghai to create for Chinese consumers, and beginning production in a facility near Tokyo that is the company’s first-ever in the region.
Online also allows Estée Lauder to reach more consumers. In China, for example, Freda said the company reaches 148 cities, but is seeing demand from more than 600 cities. Through ecommerce, the company can reach the cities where it does not have physical distribution. It allows the company to attract new customers. In India, it introduced The Ordinary Skincare through the platform Nykaa, and is further growing a presence among the community by partnering with the channel to stand up a beauty-focused incubator for entrepreneurs. These online-focused strategies works in concert with the company’s introduction of new brands to a region and its entrance into new brick-and-mortar stores. It all increases distribution.
When it came to earnings, one big factor in the quarterly results was disruption at the company’s Shanghai distribution center as a result of COVID-19 quarantine. This limited capacity to fulfill orders from mid-March to early June. However, the distribution facilities were reopened in June in time for the 6.18 Shopping Festival, where brands performed well.
Freda talked about how the company engages consumers on WhatsApp in Latin America. This helped social media-based selling reach 30% of revenue in the region. Beauty advisors and makeup artists are also extending their expertise by creating content on platforms like TikTok.
Freestanding stores in North America have fulfillment capacity, and Estée Lauder is standing up these capabilities in EMEA and Asia Pacific.
“These new capabilities are driving higher average order values and convincing upsell trends,” Freda said.
Estée Lauder is also seeking to close freestanding retail stores that are “unproductive.”
“By the end of fiscal 2023, we expect to have closed nearly 250 freestanding retail stores under the program. We've also rationalized department store counters and other retail locations, improving our ability to focus our efforts on driving more profitable omnichannel opportunities in our remaining distribution,” CFO Tracey Travis said.
Notes and numbers
Here’s a few more notes on Estée Lauder’s sales and the macroeconomic picture from the earnings call:
- Net sales for Fiscal year 2022 (ended June 30) were $17.74 billion, up 9% from the prior year. Net earnings were $2.39 billion, compared with $2.87 billion in the prior year.
- Supply chain woes ate into the company’s margins in the latest quarter. “Global transportation delays, port congestion, labor and container shortages and higher costs for both ocean and air transport have increasingly pressured our cost of goods,” said Travis. Shipping costs are also rising.
- Pricing: Estée Lauder is planning list price increases to offset inflation. These pricing actions are expected at the beginning of the fiscal year, which started July 1.
Trending in Brand News
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.