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At first glance, The Estée Lauder Companies (NYSE: EL) seems like a simple business.
It makes and sells cosmetics and personal care products on a worldwide scale, branding itself as a leader in "global prestige beauty." With a $28 billion market cap, Estée Lauder is one of the largest cosmetics specialists in the world. It also sports industry-leading gross margins thanks to its upscale branding power.
But the stock has plunged in recent years. Estée Lauder reached an all-time high of $372 per share at the start of 2022. It took a nosedive from that peak, losing 79% of its record value as of December 17, 2024.
So consumers lost their enthusiasm for luxury-branded cosmetics in the inflation crisis, spelling the end of Estée Lauder's prosperity. Right?
Well, not so fast. As it turns out, Estée Lauder has a powerful trick up its lavish sleeves. The company may be poised for a strong recovery, and the plunging stock should follow suit. And the secret ingredient is digital.
PRGP: Estée Lauder's strategic turnaround plan
Estée Lauder is pulling out all the stops to pull off a turnaround. Working under a new management team, the company has launched an effort called the profit recovery and growth plan, or PRGP. This isn't your average cost-cutting program, though. Estée Lauder places cost savings far down the list of priorities in this strategy reset, doubling down on the business operations that are already working well.
That means higher marketing budgets for luxury skincare products and high-end fragrances. And a large portion of the advertising effort has been redirected from traditional TV and newspaper ads to highly targeted digital channels. Social media also plays an important role in the updated marketing policy, but the most important tool is data-driven marketing with artificial intelligence (AI) assistance.
The convergence of analog beauty and AI brains
That's right, you can call Estée Lauder an AI company with a straight face. The company has tapped Microsoft (NASDAQ: MSFT) as a technology partner, building data analytics tools around fashion-related social trends and boosting the development of new products.
An AI chatbot for internal use helps Estée Lauder teams access the company's massive product catalog and build effective marketing campaigns. Other generative AI systems will support cosmetics development, not to mention the way AI can "create more engaging customer experiences."
These platforms were all text-based at first, but the company has already moved on to more advanced fare. Estée Lauder announced another AI-focused partnership in October, setting up an advanced store-within-a-store on Amazon (NASDAQ: AMZN) with virtual tryout tools for various shades of foundation.