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Estée Lauder’s Skincare Business: Star Performer

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Skincare business overview

Estée Lauder (EL) operates in four product categories or segments: skincare, makeup, fragrance, and hair care.

EL’s skincare products include moisturizers, serums, exfoliators, acne and oil correctors, sun care products, toners, and cleansers. These products are developed for use on the face and hands, as well as around the eyes. Skincare products alone accounted for 43.5% of the total net sales, or $4.8 billion, in fiscal 2014[1. Year ended June 30, 2014]. This was the highest amongst all segments. Operating income for the segment came in at almost $1.0 billion, contributing 53.5% of the company’s total operating income.

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Why operating income has increased

Skincare operating income increased 18% due to recent product launches from Estée Lauder, Clinique, and La Mer products. For example, Advanced Night Repair Synchronized Recovery Complex II, reformulated Repairwear Laser Focus, and the Nutritious line of products from EL offset the lower sales of existing products. Excluding the impact of foreign currency translation, skincare net sales increased 8% compared to 6% in the previous fiscal year. This was primarily due to increased spending on product innovation and increased travel retail.

Future outlook for skincare and makeup

As skincare is EL’s most profitable product category, the company aims to strengthen this line through continuous product innovation and expansion of distribution channels. EL is also focusing on luxury consumers across all product categories to increase net sales of many high-end prestige products. The travel channel continues to be an important source for sales growth and profitability for EL. Hence, EL is emphasizing skincare to boost travel retail (XRT) sales.

Similarly to its peers Coty (COTY), L’Oréal (LRLCY), and Avon (AVP), EL is aiming to expand skincare in the Asia Pacific region.

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