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Why Estée Lauder’s Makeup Brands Are Gaining Popularity

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Makeup business overview

Estée Lauder (EL) manufactures and markets high-end makeup products, offering an extensive array of shades and colors for the face, eyes, lips, and nails. Apart from these products, EL markets compacts, brushes, and other makeup tools. MAC and Bobbi Brown are EL’s famous makeup artist brands.

Makeup products amounted to $4.2 billion, or 38.4% of EL’s total net sales, in fiscal 2014[1. Year ending June 30, 2014]. After skincare, this was the second-highest among all product categories. The operating income for this segment came in at $0.7 billion, contributing 39.2% of the company’s total operating income.

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Increase in operating income

Operating income for EL’s makeup business increased 23% in fiscal year 2014. This was due to the recent launch of All About Shadow from Clinique and higher sales of Smashbox products. Also, expanded distribution in line with the company’s retail store strategy helped boost sales. Partially offsetting these increases were lower sales of Chubby Stick Moisturizing Lip Color Balm from Clinique and the prior-year launch of Pure Color Vivid Shine Lipstick from Estée Lauder. The net sales increased 9% on a constant currency basis for this segment compared to 5% in the previous year.

Future plans for expansion of makeup brands

Estée Lauder aims to reallocate its investment spending among brands and media formats that positively impact the operating income of makeup products. The company continues to strengthen its makeup category through new product offerings and innovations.

In addition to expanding travel retail (XRT) sales, EL plans to grow freestanding retail stores, specialty multi-brand retailers, and prestige salon channels for makeup products. Also, the company’s focus is to expand its Aveda makeup brand, which manufactures innovative botanically based products. This will help EL to increase its consumer base and gain a competitive advantage over L’Oréal (LRLCY), Shiseido (SSDOY), and Avon (AVP).

EL has exposure in the iShares S&P 500 Growth ETF (IVW) with 0.1%[2. Updated July 29, 2015] of the total weight of the portfolio.

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