A Case Study

Jon Hedrec L. Benitez Bachelor of Science in Industrial Engineering - 3C

Engr. Dennis Abesamis

Overview

Introduction Company History Organizational Chart Our Products SWOT Analysis Mission and Vision Statement PEST analysis Porter’s five forces model Financial Condition Competitors Company Strategic Plan Issues and their Solution Conclusion Recommendation

I. Introduction

Company Description

As a top company in the Cosmetics and Perfumes industry Estee Lauder specialize in manufacturing and marketing of skin care, cosmetics, perfume and hair care products.

The Estée Lauder Companies Inc. is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products. The Company's products are sold in over 150 countries and territories under the following brand names: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M•A•C, Bobbi Brown, Tommy Hilfiger, Kiton, La Mer, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Darphin, Michael Kors, American Beauty, Flirt!, GoodSkin™ Labs, Grassroots™ Research Labs, Sean John, Missoni, Tom Ford, Coach, Ojon, Smashbox and Ermenegildo Zegna. For fiscal 2011, net sales were $8.8 billion and net earnings were $701 million.

Management

The company is still controlled by the Lauder family, which controls about 70% of voting shares, and Estée's son Leonard Lauder is Chairman Emeritus of the Board of Directors. William P. Lauder, a grandson, is Chairman of the Board and Executive Chairman. On July 1, 2009, Fabrizio Freda became President and CEO.The Estée Lauder Companies’ annual Breast Cancer Awareness Campaign involves all of the 18 brands that make up The Estée Lauder Companies. They collectively represent The Breast Cancer Research Foundation’s first and largest corporate supporter. Estée's daughter-in-law created BCRF's signature pink ribbon.Over $10 million was raised for The Breast Cancer Research Foundation between 1993 and summer 2003. Another $1 million was raised from their retail partners between July 2002 and summer 2003.

II. Company HistoryThe company began in 1946 when Joseph Lauder and his wife Estée Lauder began producing cosmetics in New York

City. They first carried only had four products: Super-Rich All Purpose Creme, Creme Pack, Cleansing Oil and Skin Lotion. Two years later they established their first department store account with Saks Fifth Avenue in New York.Over the next fifteen years they expanded the range and continued to sell their products in the United States. In 1960 the company started its first international account in the London department store Harrods. The following year it opened an office in Hong Kong.

In 1964 they started Aramis Inc., which produced fragrances and grooming products for men. In 1967 Estée Lauder herself was named one of ten Outstanding Women in Business in the United States by business and financial editors . This was followed by a Spirit of Achievement Award from Albert Einstein College of Medicine at Yeshiva University in 1968. In that year the company expanded again, opening Clinique Laboratories, Inc. Clinique was the first dermatologist guided (Dr. Norman Orentreich), allergy tested, fragrance free cosmetic brand created by Estée Lauder.

Estée Lauder's Clinique brand became the first women's cosmetic company to introduce a second line for men when, in 1976, they began a separate line called "Skin Supplies for Men". In 1981 the company's products became available in the Soviet Union.

In February 2004 the company's teen-oriented jane business was sold; in April 2006, the professional-quality Stila brand, which Estée Lauder purchased in 1999, was sold.The company has had sometimes iconic spokesmodels, sometimes referred to simply as 'faces'. Past 'faces' for Estée Lauder include Karen Graham, Bruce Boxleitner, Shaun Casey, Willow Bay, Paulina Porizkova, Elizabeth Hurley, Carolyn Murphy, Anja Rubik, and actressGwyneth Paltrow. As of 2008 the main spokesmodel for Estée Lauder is supermodel Hilary Rhoda. In 2010, the company added 2 more faces to the roster, Chinese model Liu Wen and French model Constance Jablonski. Their first campaigns will come out June 2010, and will be shot by Craig McDean.

As of 2010 Estée Lauder sells its products in department stores across the world and has a chain of freestanding retail outlets. On July 1, 2010, the company acquired Smashbox Beauty Cosmetics, Inc., a brand created in Smashbox Studios in Culver City, California by brothers Dean and Davis Factor (as in Max).

On October 28, 2011, Aramis and Designer Fragrances, a division of The Estée Lauder Companies Inc., and Tory Burch LLC announced the signing of a multi-year agreement for the exclusive worldwide license of the Tory Burch fragrance business. This partnership marks Tory Burch's first step into the beauty industry. The first Tory Burch fragrance products are expected to be introduced in 2013.

III. Organizational Chart

William P. LauderExecutive Chairman

Fabrizio FredaPresident and Chief Executive Officer

John DemseyGroup President

Amy DiGesoExecutive Vice President, Global Human Resources

Harvey GedeonExecutive Vice President, Research and Development, Product Innovation and Brand Product Development

Richard W. KunesExecutive Vice President and Chief Financial Officer

Evelyn H. LauderSenior Corporate Vice President

Leonard A. LauderChairman Emeritus

Ronald S. LauderChairman, Clinique Laboratories, LLC

Sara E. MossExecutive Vice President and General Counsel

Gregory F. PolcerExecutive Vice President, Global Supply Chain

Cedric ProuvéGroup President, International

Alexandra C. TrowerExecutive Vice President, Global Communications

IV. Our Products

The company had its beginning in 1946, when its founder Mrs. Estée Lauder launched the only product (face crème) in that year. Mrs. Estée Lauder focused on "beauty" with a difference. She wanted to bring out the best in every woman through her special formulated cosmetic products. The brand had already won enough accolades by the time innovative fragrance Youth-Dew was introduced to the consumer base in 1953. The well-researched formulations besides effective product line paved way for popularity within a short span of time.

Buy Estee Lauder Cosmetics Now

Whether it is skincare, makeup or fragrance collections, Estée Lauder products embody the best blend of expertise, knowledge and talent. Acknowledged for providing effective beauty care solutions in over 100 countries, it has not stopped its run for collecting reviews from the various consumer groups across the world. Quality has never been compromised and promises have been kept. This has been the success formula of Estée Lauder.

Estee Lauder Products product facts: Using advanced technology, the company gained worldwide reputation over the years for its innovative line of simple yet

elegant and luxurious products. All the products signify excellent standard in terms of quality, which is the result of widespread research and rigorous

product testing.

Estee Lauder Products product line: Make-up- blusher, bronzer, brushes & accessories, concealer, eyeliner, eye shadow, foundation, lip gloss, lip pencils lipstick

mascara nails powder Skin care-after sun, body care, cleansers & toners, eye care, masks & refiners, moisturizers, repair, self tan, sensitive skin, sun

care SPF

Estee Lauder Latest Products: Sensuous Sumptuous Bold Volume™ Lifting Mascara Perfectionist [CP+] Wrinkle Lifting Serum Private Collection Tuberose Gardenia New Pure Color Shades

V. Mission and Vision Statement

Our Mission - Bringing the Best to Everyone We Touch and Being the Best in Everything We Do…

Our Vision - The global leader in prestige beauty: a well-diversified, brand-building powerhouse of unrivaled creativity and innovation.

Our Values

Strive for excellence - deliver your best. Put your customer first. Know your customers, understand their needs, and surpass

their expectations Be passionate about what you do! Enthusiasm and energy are contagious. Never stop caring. Show concern and respect for every individual, regardless of

position or title. Understand your role in the big picture. We're all part of a larger whole. Look for new and better ways to do things to continually raise our standards. Communicate! Voice your ideas, share your concerns, pass on what you know, and be

honest. Be a team player. We're stronger when we work together.

Listen when others speak. Good ideas can come from anywhere. Be flexible. Success depends upon willingness to adapt when situations change. Pay attention to details - little things do make a difference. Solve the real problem, don't treat the symptom. Spread the good news. Let others know when they've done a good job. Smile.... and have fun!

VI. SWOT Analysis

Estee Lauder, based in New York City, is a manufacturer of cosmetic products that include skincare, makeup, fragrances, and hair products. The company was founded on 1946 by Mrs. Estee Lauder.

Their mission statement: “Bringing the Best to Everyone We Touch”. Some of the best known brands that are sold under its umbrella are Aramis, Clinique, Prescriptives, Lab Series Skincare for Men, Origins, Tommy Hilfiger, M·A·C, Kiton, La Mer, Bobbi Brown, Donna Karan, Aveda, Jo Malone, Bumble and bumble, Michael Kors, Darphin, American Beauty, Flirt!, GoodSkin Labs, Grassroots Research Labs, Sean John, Missoni, Daisy Fuentes, Tom Ford, Coach, Ojon and Smashbox.

Strengths:

· Strong Brand Reputation (The brand is associated with luxury & quality. Also has a strong brand portfolio).· Research & Development (Role model and leader in identifying consumer needs, and preferences and developing products accordingly).· Strong Distribution Network (The products are sold to a limited stores that compliments the image of the brands such as department stores, upscale perfumeries, specialty stores, professional hairdressers etc. specially in U.S.)· Vigorous Revenue & Profitability (Net Earnings for fiscal year 2010 $478 million while Net sales were $7.8 billion.)· Products are sold in more than 150 countries.· Powerful marketing techniques used by the firm: Free Gift, Gift-With-Purchase, Makeup ArtistEvents (for trying out the new products) etc.· Operations and cost maintenance with the firm holds a strong positive attitude in the long run.

Weaknesses:

· Lack of concentration regarding customer value (Client.)· Profit oriented (loses sight of the customer)· Weak Liquidity Position (decline in the firm’s liquidity in the past few years.)· Distribution Network’s lack of reach to other viable markets.· Declining operating income in various market marks the weak penetration of the products in those specific markets.Opportunities:· New markets are emerging in various countries where the firm can inject its products, such as India, China (known to be the 2nd largest cosmetics market in Asia) etc.· Markets where wealthy rule is also a good opportunity to tap in because of the tendency of the wealthy to own luxury commodities.· Many nations are growing to be beauty conscience every passing day; the firm will do well in order to tap-in without any delay and initiate in order to get customer loyalty attached to its products.· Diversification of the distribution channels.· Expansion to global markets, worldwide.

Threats:

· Intense competition in cosmetics has increased and market initiators with quality providers are a serious threat to the firm.· New entrants, even though the market has considerably mature in the sense that it has captured customer loyalty, but there is always room for improvement in this field.· Counterfeit commodities affect the sales of the branded commodities. 9%, according to the Global Congress on Combating Counterfeiting, of all the world trade comprises counterfeit goods.· Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products.

VII. PEST analysis

1. Political, Governmental and Legal Forces

The company made sure that they licensed some of their global brands like Tommy Hilfiger, MAC, Bobbi brown, Donna Karan and a few others.

The company’s manufacturing operations conform to the ISO 14001 standards.

The Food and Drug Administration of every country requires companies to adhere to rules of statutory warnings. (E.g. The safety of a particular product should be determined) The company should instead take safety tests and rely on passing this message onto the customers to win their confidence.

There have been restrictions on products that can be carried in-flight.

2. Economic Forces

The dollar fluctuations would have an impact over the sales as the company has a global presence(E.g. Japan, Australia)

Strengthening of U.S. dollar against the Japanese Yen would have negative impact on Estee Lauder’s Japanese Operations.

Price varies from product to product and brand to brand, but tends to be in the mid-high to high range of the industry hence requiring sustainability of income levels of target audience.

3. Social, Cultural, Demographic and Environmental Forces

Opportunities arise from increase in aging population and hence there will be increase in income from anti-aging products.

Younger consumers (20-30) & Teens investing in preventive cosmetics.

Complaints have been received into the use of animals for testing for new products.

Estimates show that the 70 million people across the globe will reach an income level in the next20 years that allows purchasing of cosmetic products.

Emissions of fluorocarbons and other harmful gases has been an environmental threat. The company must take strict measures to control this.

The life expectancy of the aging population will continue to improve with difference between men and women gradually diminishing.

4. Technological Forces

Internet (E-commerce)

Rapid technological changes in Product Development

Technological efforts in Process Development

VIII. Porter’s five forces model 1. Rivalry among competitive firms(HIGH)With the presence of large and powerful competitors like L’Oreal, P&G, Avon etc who also have a variety of brands under different price ranges, Estee Lauder needs to INNOV ATE constantly in order to stay ahead of the competition.

2 Potential Entrants(LOW)Given the size of the market and that of the existing players, it will be extremely difficult for a new player to enter into the market and emerge as a SERIOUS THREAT to Estee Lauder or any of the other immediate competitors.

3 . Potential  Development of Substitutes(LOW)With a rapidly ageing population around the world especially in the developed markets, the demand for cosmetics/beauty products is expected to be strong and the threat of substitutes looks unlikely.

4.Bargaining  Power of Suppliers(LOW) Since Estee Lauder is a billion dollar brand, it is expected that because of the volume of goods it procures from its suppliers around the world and the numerous number of suppliers, suppliers have LIMITED bargaining power.

5. Bargaining  Power of Customers(HIGH)Due to the presence of large number of brands who cater to different segments of the market, consumers can switch easily and inexpensively from one brand to another.

IX. Financial Condition

Income Statement

View: Annual Data | Quarterly Data

All numbers in thousands

Period Ending Jun 30, 2011 Jun 30, 2010 Jun 30, 2009

Total Revenue 8,810,000   7,795,800   7,323,800  

Cost of Revenue 1,936,900   1,829,400   1,881,600  

Gross Profit 6,873,100   5,966,400   5,442,200  

Operating Expenses

Research Development -   -   -  

Selling General and Administrative 5,696,700   5,067,000   4,883,900  

Non Recurring 87,000   109,500   139,900  

Others -   -   -  

Total Operating Expenses -   -   -  

Operating Income or Loss 1,089,400   789,900   418,400  

Income from Continuing Operations

Total Other Income/Expenses Net -   -   -  

Earnings Before Interest And Taxes 1,089,400   789,900   418,400  

Interest Expense 63,900   101,600   75,700  

Income Before Tax 1,025,500   688,300   342,700  

Income Tax Expense 321,700   205,900   115,900  

Minority Interest (3,000) (4,100) (8,400)

Net Income From Continuing Ops 700,800   478,300   218,400  

Non-recurring Events

Discontinued Operations -   -   -  

Extraordinary Items -   -   -  

Effect Of Accounting Changes -   -   -  

Other Items -   -   -  

Net Income 700,800   478,300   218,400  

Preferred Stock And Other Adjustments -   -   -  

Net Income Applicable To Common Shares 700,800   478,300   218,400  

Currency in USD.

Balance Sheet

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending Jun 30, 2011 Jun 30, 2010 Jun 30, 2009

Assets

Current Assets

Cash And Cash Equivalents 1,253,000   1,120,700   864,500  

Short Term Investments -   -   -  

Net Receivables 945,600   746,200   853,300  

Inventory 995,600   826,600   795,000  

Other Current Assets 492,300   427,500   399,700  

Total Current Assets 3,686,500   3,121,000   2,912,500  

Long Term Investments -   -   12,700  

Property Plant and Equipment 1,143,100   1,023,600   1,026,700  

Goodwill 877,300   752,500   759,900  

Intangible Assets 227,500   109,500   150,100  

Accumulated Amortization -   -   -  

Other Assets 339,500   329,000   314,700  

Deferred Long Term Asset Charges -   -   156,000  

Total Assets 6,273,900   5,335,600   5,176,600  

Liabilities

Current Liabilities

Accounts Payable 1,805,300   1,548,800   1,425,400  

Short/Current Long Term Debt 138,000   23,400   33,800  

Other Current Liabilities -   -   -  

Total Current Liabilities 1,943,300   1,572,200   1,459,200  

Long Term Debt 1,080,100   1,205,000   1,387,600  

Other Liabilities 603,500   593,000   665,800  

Deferred Long Term Liability Charges -   -   -  

Minority Interest 17,600   17,000   24,000  

Negative Goodwill -   -   -  

Total Liabilities 3,626,900   3,370,200   3,512,600  

Stockholders' Equity

Misc Stocks Options Warrants -   -   -  

Redeemable Preferred Stock -   -   -  

Preferred Stock -   -   -  

Common Stock 2,700   2,700   2,600  

Retained Earnings 4,116,500   3,564,000   3,195,000  

Treasury Stock (3,243,100) (2,850,300) (2,586,100)

Capital Surplus 1,735,600   1,428,700   1,145,600  

Other Stockholder Equity 17,700   (196,700) (117,100)

Total Stockholder Equity 2,629,400   1,948,400   1,640,000  

Net Tangible Assets 1,524,600   1,086,400   730,000  

Currency in USD.

Cash Flow

View: Annual Data | Quarterly DataAll numbers in thousands

Period Ending Jun 30, 2011 Jun 30, 2010 Jun 30, 2009

Net Income 700,800   478,300   218,400  

Operating Activities, Cash Flows Provided By or Used In

Depreciation 294,400   263,700   254,000  

Adjustments To Net Income 62,400   53,200   10,500  

Changes In Accounts Receivables (124,700) 79,200   103,800  

Changes In Liabilities 238,700   109,700   47,400  

Changes In Inventories (95,100) (60,800) 125,700  

Changes In Other Operating Activities (52,500) 29,300   (72,200)

Total Cash Flow From Operating Activities 1,027,000   956,700   696,000  

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures (351,000) (270,600) (279,800)

Investments 200   (100) 8,800  

Other Cash flows from Investing Activities (256,100) (10,700) (68,500)

Total Cash Flows From Investing Activities (606,900) (281,400) (339,500)

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid (148,000) (109,100) (108,400)

Sale Purchase of Stock (246,100) (73,100) 38,700  

Net Borrowings (16,100) (234,700) 194,100  

Other Cash Flows from Financing Activities -   -   1,400  

Total Cash Flows From Financing Activities (313,100) (406,100) 125,800  

Effect Of Exchange Rate Changes 25,300   (13,000) (19,500)

Change In Cash and Cash Equivalents 132,300   256,200   462,800  

X. Competitors

Top 10 Competitors for Estee Lauder Cos IncEstee Lauder Cos Inc faces competition from:

1. LRLCY : L Oreal Co

2. CL : Colgate-Palmolive Co

3. KMB : Kimberly-Clark Corp

4. KCRPY : Kao Corp

5. AVP : Avon Products Inc

6. SSDOY : Shiseido

7. SVCBY : Svenska Cellulosa Aktiebolaget

8. KCDMY : Kimberly Clrk De Mex Sab De Cv

9. ACV : Alberto-Culver Co

10. CHTT : Chattem Inc

XI. Company Strategic Plan

CORPORATE STRATEGY

As we pursue our strategic journey, we’re investing greater resources in our most promising opportunities – by category, brand, region and channel. We carefully decide where to allocate our resources to drive our momentum for the long term.

COMMITTED TO GROWTH

The Estée Lauder Companies’ long-term strategy seeks to achieve higher levels of sustainable, profitable growth to remain a leader in global prestige beauty. Our Company is committed to increasing innovation throughout all aspects of its business, putting a greater focus on consumer insights and integrating its brands, regions and functions to leverage scale and efficiencies. We are strengthening four critical areas that distinguish our Company.

OUR KEY INITIATIVES

01

Creativity and InnovationWe are honing our innovation strategy to create fewer but more successful products, with a motivation to be “creativity-driven and consumer-inspired.” We use the consumer as our muse to create beauty products she never imagined she needed.

02High-TouchOur High-Touch personal service creates an emotional connection with the consumer and inspires brand loyalty. Our customized educational approach comes naturally from our talented beauty advisors and makeup artists, but we’ve successfully adapted it for online, direct response television and self-assisted formats, as well.

03Local RelevanceWe strive to be locally relevant to all our consumers wherever they live. We do this by creating certain products for specific markets and by altering our marketing depending on the region, to speak to consumers in more culturally relevant ways.

04Enhancing Digital CapabilitiesWe are deeply immersed in the online world and continue to invest greater resources in all things digital. Many of our brands interact with their consumers through Facebook, Twitter and YouTube, have established global e-commerce sites and created powerful viral marketing campaigns. We are committed to being on the cutting edge of the evolving digital experience.

XII. Issues and their Solutions

Problem:

Estée Lauder's boutique brand, M.A.C, aired an internet commercial starring M.A.C spokesperson Sandra Bernhard. Ms. Bernhard referred to someone who might not approve of her outspokenness as "...little, freaked out, intimidated, frightened, right-wing Republican thin-lipped bitch" in this now infamous internet ad. Many Estee Lauder brand customers contacted the company to complain, asking that it be removed and a public apology made.

Solution:

The company apologized for the ad, and the video was removed from the official site, although it is still available on YouTube.

XIII. Conclusion

Intensive strategies include Market Penetration, Market Development and Product Development. These strategies will require intensive efforts as Estee Lauder needs to improve its competitive position with existing products. Intensive Strategies will help Estee Lauder achieve the following long-term imperatives:

Optimization of Brand Portfolio

Strengthening of Product Categories

Strengthening and Expansion of Global Markets

Diversification and strengthening of channels of distribution

Operational and Cost Excellence

XIV. Recommendation

1. Proposed Mission Statement:

I believe that the current mission statement of Estee Lauder Companies is well-crafted and would rather like to add the following to the existing framework:

Expand operations to all markets including Africa and become the global cosmetics leading brand

Use cutting-edge herbal/non-herbal technology to cater to every global customer/market

2. Proposed Vision Statement:

“Attaining complete share of mind and heart of our customers by delivering the promise of µforever young leading to market leadership in the cosmetics industry”

In my proposed vision statement, I have clearly stated the three key aspects including claiming to attain absolute share of mind and heart of Estee Lauder’s valued customers which is reiterated by promising to deliver the promise that any Estee

Lauder product brings with it, of being young forever which will eventually lead to leadership position in global cosmetics industry.

3. Other Recommendation

Rely on the global brand awareness and build it further by endorsing celebrities from the local markets

Have tie-ups with beauty salons, clinics etc to push their brands.

Using market research, find the brands that have been doing poorly and makes strategies to either improve it or close its operations. Having an idle brand will add on as a burden to the company.

Do not have too many brands for the same product category since it will lead to cannibalization.

Innovation is the key. Identify new customer needs like anti aging products and bring in products that suit the customers better.

Focus more on selling over the internet. It would be the best channel to attract the youth with so much happening over the internet.

Introduce new brands that are priced more economically.

Formulate new strategies for testing.