The story behind Estée Lauder’s $ 89 billion success

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The story behind Estée Lauder's $ 89 billion success

During the 1995 release of Estée Lauder, Leonard Lauder, the company’s then chairman and chief executive officer, asked a question from an investment banker during the road show. “If your products are so good,” the banker asked Lauder in his 60s, “why do you have so many lines on your face?”

Fortunately, in his new book The Company I Keep: My Life in Beauty, Lauder writes: “My wrinkles didn’t put investors off.”

His comeback took place on the stock’s debut. It opened at $ 26 per share and rose to $ 34.50 on the first day of trading. Lauder has not yet written an autobiography; There is not much discussion about his personal life, friends, travel, or lifestyle.

Most of the names you’ll find in this book are hardworking employees that Lauder recognizes for praise, various industry competitors, and greats that Lauder has worked with in various industries. Aside from his mother, father, first wife Evelyn, and second wife Judy, even Lauder’s relatives don’t get much pressure. Of his younger son Gary, who chose not to join the family business, Lauder writes that “Gary has a dedicated sense of philanthropy and does his own thing,” and leaves it at that.

But Lauder’s friendliness, as sphinx-like, doesn’t detract from one of the most colorful corporate success stories in US history.

In that regard, My Life In Beauty is basically a ledger. It describes how Lauder’s mother Estée (actually Josephine, until she adapted her name to her company) founded a cosmetics company with nothing but chutzpah and a “super rich all-purpose cream” and how Lauder then built it into around 89 US dollars Companies with 25 brands and around 1,600 free-standing retail stores in around 150 countries.

Start at the top
When Estée Lauder started, the American cosmetics industry was dominated by Elizabeth Arden, Helena Rubinstein, Charles of the Ritz, and Revlon. Estée managed to thrive in an already crowded field, Lauder writes, by combining a personal touch (literally – her signature move was massaging the lotion on women’s faces) with a side step strategy.
instead of facing their bigger competitors.

“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 basis was selected specialty stores such as the Himelhoch department store in Detroit, Sakowitz & Co. in Houston, and finally Saks Fifth Avenue in New York.

“Your customers had the opportunity to buy products at premium prices,” explains Lauder. “The stores provided a sophisticated environment that would instantly polish my mother’s brand.”

It’s a strategy the company has turned into a mantra: “Start at the top and stay at the top,” writes Lauder.

“When you start at the top of the market, you have two options: up or down,” he continues. “When you get into the heart of the market there is always someone selling a similar product cheaper than you, and you have no choice but to end up in a race to the bottom.”

The General Motors of Cosmetics
Lauder formally joined the company in 1958 after attending Wharton School, followed by a stint in the Navy, and was named president in 1972. (His mother retained the title of Chief Executive Officer).

While his father ran the business and his mother acted as the face of the company, Lauder began devising a business plan that would mirror what was then the largest company in the world. “My dream was to make Estée Lauder General Motors of the beauty business,” he writes, “with multiple brands, multiple product lines and multinational sales.”

In 1968 he conceived and launched Clinique, a skin care line that capitalized on the emerging appreciation of the era for “hypoallergenic” skin care and beauty regimens rather than “products”.

“The Estée Lauder brand had an aura of glamor. it embodied striving, ”writes Lauder. “Clinique was more democratic; It was less about striving than about everyday pragmatism. “

Several other brands followed, including Prescriptives (1979) and Origins (1990). From the mid-1990s, Lauder began acquiring external brands such as Mac Cosmetics, Bobbi Brown, Aveda and La Mer.

The strategy has paid off.

In 1946, the company’s first official fiscal year, annual sales were $ 50,000. Until 1960, annual sales were “only a shadow over USD 1.75 million,” writes Lauder. By 1970 the number reached $ 50 million. In 1975 annual sales exceeded $ 200 million and in 1986 it exceeded $ 1 billion. By the mid-1990s, according to Lauder, they had doubled to $ 2 billion; By the late 1990s they had doubled again to over $ 4 billion. Today, annual sales are around $ 14.3 billion.

“Everyone imagines that I am the heir to a large family fortune,” writes Lauder. “You’re forgetting that I had to build my fortune first.”

Publish
So why go public with his hugely successful company? Lauder notes the obvious: “To make a lot of money.” But he also suggests that the move was some form of succession planning. “Money has the potential to divide families and create persistent resentment, resentment and bitterness,” he writes. “The IPO took the issue of money off the table.”

(Unmentioned was the fact that the IPO was structured so that Lauder’s brother and mother could avoid a potential capital gains tax of USD 95 million, which led to a revision of the federal tax law. The Lauders then paid taxes of USD 40 million for the maneuver).

Lauder had been rich for decades; Now he’s one of the richest people in the world, with an estimated net worth of $ 24.6 billion. Understandably, he stepped up charitable giving when he retired from the company.

The final section of Lauder’s book is devoted to his family’s philanthropy, including the Wharton Lauder Institute of Management & International Studies, the Breast Cancer Research Foundation, Memorial Sloan Kettering Hospital’s Evelyn H. Lauder Breast Center, the Alzheimer’s Drug Discovery Foundation, and the Leonard of the Whitney Museum A. Lauder Building (Lauder says he doesn’t know they would name it after him, “and I’m not humble”), the Leonard A. Lauder Modern Art Research Center in New York’s Metropolitan Museum of Art, and Leonard A. Lauder’s $ 1 billion Cubist collection, which he pledged to the Met in 2013.

Still, Lauder can’t help but get it back into business.

One final list of “leadership hours” includes entries like “Cut your losses” and “It’s my throat”, but the fourth, “Never make an important decision without a woman at the table” sounds heartfelt.

“Growing up with a mother like Estée Lauder,” he writes, “how could I not respect and seek out smart, tough women?”