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From downgraded forecasts to layoffs to cyber-attacks, the Estée Lauder Cos. faced numerous challenges in 2023.
Perhaps the toughest came from China, where for years it successfully rode the wave of the country’s beauty boom, selling buckets of hero products like Estée Lauder Advance Night Repair Serum to Chinese consumers.
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The coronavirus pandemic put an abrupt stop to that, however, and sales failed to bounce back both in China and its Asia travel retail business. Indeed, in Lauder’s most recent quarter, net sales decreased 14% in the Europe, the Middle East and Africa region, which includes Asia travel retail, and were down 7% in Asia-Pacific.
In the last three months of 2023 on a category basis, skin care net sales declined 10%, on the back of a decrease in its Asia travel retail business. Net sales from Estée Lauder, Clinique and Origins all fell.
Makeup sales declined 8%, while fragrance sales were flat, as increases from luxury brands Le Labo and Jo Malone London were offset by a decline from Estée Lauder. Hair care net sales also dropped, by 6%.
One of the biggest issues, sources said, seems to be the company’s reliance on daigou — the practice of Chinese consumers purchasing products at lower prices overseas and selling them at a discount in China. While exact numbers are not known, analysts say that Lauder was certainly active in this area. When the Chinese government cracked down on daigou, Lauder was left in a difficult spot.
Nevertheless, industry watchers contend that Estée Lauder and La Mer, the two brands understood to be involved in daigou, are still seen as desirable by consumers and the company needs to rebuild brand equity through reinvestments.
Lauder is also believed to have a significant backlog of products in the popular Chinese vacation resort of Hainan, no doubt as a result of COVID-19 lockdowns in China, which curtailed travel. Some of those products are now fast approaching their expiration dates, said analysts.
As a result of the slower than expected recovery, Lauder once again cut its full-year forecast in November, sending its share price down by around 19% to close at $104.51, a six-year low. For context, it peaked at over $370 in January 2022.
In a bid to demonstrate to the markets it is working on a turnaround, Lauder pledged to drive $1.1 billion to $1.4 billion of incremental operating profit for 2025 and 2026. This February, it revealed a restructuring plan, including laying off between 3% and 5% of its 62,000-strong global workforce. This followed layoffs at its trio of California brands — Glamglow, Smashbox and Too Faced.