The hundred billion beauty giant has changed its leadership

Author | Zheng Qiao

Editor | Wang Xiaojun

Another family heir has exited the corporate management.

Recently, the Estée Lauder family announced that third-generation heirs Jane Lauder and William Lauder will step down from the group's operations. This marks the first time since Estée Lauder's establishment that there are no family members involved in daily operations and management.

Current Executive Vice President Stéphane de La Faverie will succeed Fabrizio Freda as CEO, with the appointment effective from January 1, 2025.

The leadership change is a response to Estée Lauder's sluggish performance.

A few days ago, Estée Lauder released its financial report for the first quarter of fiscal year 2025 (July to September 2024), revealing a 4% decline in group revenue to $3.36 billion, with organic revenue down 5%. The performance decline was primarily impacted by a sluggish Chinese market and a drop in demand across Asia, resulting in a net loss of $156 million, compared to a net profit of approximately $36 million in the same period last year.

This is also Estée Lauder's first loss in the past five comparable fiscal quarters, and even to provide an explanation to investors, Estée Lauder needs to quickly find a "firefighter."

After all, Estée Lauder's stock price has been sluggish for a long time, and the current stock price has even fallen back to levels seen a decade ago.

However, the performance decline faced by Estée Lauder in China is not an isolated case; international beauty and luxury giants are collectively struggling in the Chinese market.

In the first half of this year, L'Oréal's North Asia sales fell by 1.7% year-on-year, while Shiseido's sales in China dropped by 7% year-on-year.

In response to declining performance, international brands are attempting to offset this through "price increases." Since the beginning of this year, brands under the L'Oréal Group, such as Armani and YSL, as well as Estée Lauder Group's Estée Lauder, La Mer, and MAC, along with Shiseido, have all announced price hikes.

However, in an environment where consumers are becoming more rational, it has become increasingly difficult to win consumer favor after price increases, leading to growing inventory. Estée Lauder also mentioned in its fiscal year 2023 report that "retailers tightening inventory" has put pressure on performance.

Once upon a time, international beauty giants like Estée Lauder nearly monopolized half of the high-end beauty market in China.

Brands are also actively expanding in the Chinese market in hopes of achieving more growth. For example, Estée Lauder continuously improves its channel layout through brand acquisitions and agency partnerships; it also implements an omnichannel and multi-scenario development strategy, focusing on general retail, travel retail, and online sales.

Previously, Fabrizio Freda had been trying to "capture" the future by attracting young consumers. Reports show that in early 2019, Estée Lauder disclosed that the average age of active consumers for its four major brands—MAC, Tom Ford, Estée Lauder, and La Mer—was only around 30 years old. Additionally, to cater to the youth demographic, approximately 75% of Estée Lauder Group's advertising expenditure in 2018 was allocated to online channels However, in recent years, the brand's layout has also led the market into a slow growth era. According to data released by the National Bureau of Statistics, from January to July, the total retail sales of cosmetics in China reached 241 billion yuan, a slight increase of 0.3% year-on-year.

In addition, Chinese consumers are becoming increasingly rational, adopting a consumption attitude of "only buy what is right, not what is expensive," which has led them to no longer continuously pay for high-end beauty products and instead turn to high cost-performance products. Taking Estée Lauder as an example, the retail sales decline in the high-end beauty market in mainland China has expanded from 10% in the fourth quarter of fiscal year 2024 to around 15%, with market demand continuing to weaken.

With the rise of domestic beauty brands, Chinese consumers are "abandoning" imported cosmetics. Data from the General Administration of Customs shows that from January to July this year, the total value of imported beauty cosmetics and personal care products nationwide was $9.659 billion, a year-on-year decline of 11.1%. In contrast, domestic beauty giant Proya has achieved revenue and net profit growth for 18 consecutive quarters.

In the face of changes in the Chinese consumer market, finding a management team that understands the Chinese market is crucial. Wall Street News has learned that Stéphane de La Faverie has visited Shanghai four times in the past year.

Public information also shows that Stéphane de La Faverie is a veteran of Estée Lauder Companies, having joined the group in 2011 and served as the global president of Origins and Darphin, the global president of the Estée Lauder brand, and the executive president of Estée Lauder Companies. Before joining Estée Lauder Companies, he held executive positions in the high-end beauty industry, including nine years at L'Oréal Group, where he served as the vice president of marketing for Lancôme and the U.S. manager for Armani Beauty.

Before becoming the executive president of Estée Lauder Companies, Stéphane de La Faverie also helped the company's fragrance business become another strong growth driver.

Financial reports show that although net sales for fiscal year 2024 declined by 2% year-on-year, fragrance became the only category to grow within the group, with net sales of $2.487 billion. Notably, the Asia-Pacific region, particularly China, achieved double-digit high growth, with the group's high-end fragrance brand Le Labo's net sales in the Asia-Pacific nearly doubling.

However, for Estée Lauder, increasing sales in other core business segments is essential to winning the future.

Whether Stéphane de La Faverie can lead this struggling beauty giant to regain its former glory remains to be seen