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Estee Lauder Idea Proposal (EL)

Estee Lauder Idea Proposal (EL)
 

Can Estee Lauder successfully penetrate and compete in the specialty makeup segment?

Report Available: April 13, 2017

 

Blueshift’s initial research shows EL adversely affected by the decline in traffic in department stores, its core distribution channel. In an effort to stay current and go where the customers are, EL is pushing into the specialty makeup category with its purchase of the Too Faced brand and by getting its MAC line into ULTA stores. This won’t be easy, however, as EL faces tremendous competition from popular fast-fashion beauty brands like ELF, and maintains much higher price points than many of its peers in this category.

 

Observations

  1. EL’s Q2 earnings beat expectations, though revenue fell short despite 3% year-to-year growth. The Estee Lauder brand saw a mid-single digit overall increase, led by double-digit growth in makeup sales of foundation and lip products. The MAC brand was dragged down by weak traffic in department stores, its core distribution channel. Clinique experienced soft sales thanks to the timing of new product launches and a shift in promotional activity. The company expects mid-single digit sales growth in fiscal 2017 with sales and profit accelerating in the second half, led by price increases in January, increased consumer coverage, and contributions from newly-acquired brands.
  2. EL bought Too Faced in November to gain entry into the fast-growing specialty category that is capturing the attention of the ever-important millennials. Too Faced has relationships with Sephora and ULTA, the two key retailers in the segment, and the brand boasts a significant Instagram following, an important driver of non-traditional marketing aimed at its core customer.
  3. EL also recently reached a deal to supply its MAC line in ULTA stores. MAC is the most popular EL brand, generating the most revenue and profit, and its arrival at ULTA stores, slated for June and available online in May, is highly anticipated. This deal brings MAC out of the department store and into to the strip mall and other off-mall locations where traffic remains steady, becoming more accessible to a new audience that does not buy its makeup in Nordstrom and Macy’s. It also gives MAC access to the 23 million shoppers in ULTA’s loyalty program.
  4. Despite these seemingly-positive moves for EL, the company is playing catch up as the industry evolves. The prestige brand is least exposed to the specialty channel, losing out to fast-fashion beauty brands that can go from concept to store shelves in a matter of weeks to capitalize on the latest customer-driven trend. ELF is one such company that is gaining mindshare, with 43% retail sales growth in 2015 and a successful IPO in 2016. Relying on loyal customers to spread the word organically via social media instead of a big budget campaign, ELF sells most of its products for $6 or less, far lower than many of its competitors.
  5. As makeup increasingly becomes a replacement business, especially for those millennials posting selfies daily on Instagram, price becomes an important consideration, to the detriment of EL whose MAC lipsticks, for instance, are expected to cost $16 to $21 at ULTA. EL is experimenting with a Little Mac line, smaller, less-expensive trial-sized options, but even those are $10 to $12.

How much can EL penetrate the specialty makeup category?  What are the latest trends in specialty makeup? How is ELF performing? How will MAC compete with others in ULTA? Will customers buy MAC exclusively, or make it one part of their overall makeup purchases in ULTA? How will private label and less expensive brands fare against MAC in ULTA? How does price point factor into makeup purchasing behavior? How will price affect MAC and EL brand purchases? How fast can Too Faced get product from concept to store shelves? What does Sephora do to counter MAC going to ULTA? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Suppliers, Buyers, Ulta store personnel, and industry specialists.

 

 

Companies: Estee Lauder (EL), Ulta (ULTA), e.l.f Beauty (ELF), Revlon (REV)

 

Research Begins: March 27, 2017