Name: Why Estée Lauder Is Spending $1.5 Billion On A Makeover
Uploaded: 2025-03-30T06:40:27.000Z
Duration: 9 min 28 s
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The over $1 trillion beauty industry is booming and set to grow an estimated 7.3% in 2025.

There are thousands of brands and millions of products.

Sentences with advanced comparative

The sector is as crowded as it is competitive, but for the second largest player with a market cap of about $26 billion, things aren't going as well.

Estée Lauder's stock tumbled nearly 50% in 2024, 42% in 2023, and 33% in 2022, all together stripping more than $100 billion from its value in just three years.

Estée Lauder, this was a premium company whose time has come a lot.

I know that change is never easy and we have a lot of work to do.

We're embarking on the biggest operational transformation in our company's history.

In January 2025, it appointed new CEO Stéphane De La Favrie, and a month later, the company expanded and modified its restructuring plan from February 2024, which now includes laying off as many as 7,000 employees.

So can one of America's oldest and most beloved makeup companies make a comeback?

Today, the American beauty business is one of the largest consumer service industries in the country.

$25 billion cosmetics giant Estée Lauder was launched by New York City couple Estée

After focusing on the flagship brand for years, the company became known for its aggressive acquisition strategy in the 90s that included household names like La Mer in 1995, MAC in 1998, and Jo Malone in 1999.

Today, the company owns more than 20 brands across five categories sold in more than 150 countries.

Once they acquire a company, they are very good at scaling the brand globally.

Jo Malone is a really good example of that.

And they bought it when it was very small.

I want to say it might have been as small as $50 million of annual revenue.

And now it's one of their largest, it's in their top five brands.

Though its fiscal second quarter 2025 earnings announced on February 4th, 2025 beat expectations, its revenue was down 6% year over year due to falling sales and profits.

Skincare, its largest category by far, was down 12%.

The top line decline, it's not good and it's not down 40%.

When you look at the company's performance excluding Asia and Asia travel retail, they're actually not doing that badly.

Okay, they do have issues here and there.

The big problem is their big exposure to Asia and travel retail.

It all goes back to the 2010s, when Estée Lauder began making substantial investments for its Asia market, like a $1 billion manufacturing facility in Japan in 2018, an innovation center in China, and a distribution facility in Switzerland supporting its duty-free business.

And all this because it anticipated strong growth in China's premium beauty market.

So for many years, investors and everybody was applauding Estée Lauder.

And companies like Coty today in the beauty industry wish they were bigger in China.

But that became a big weakness after the country's economy didn't recover from the pandemic as quickly as analysts expected.

I think that speaks right to the point of how important geographical diversification is for a global company like Estée, right?

You know, macro backdrop continues to worsen.

It takes time for you to find other large markets to kind of mitigate the impact.

Overall, global beauty spending has slowed since the pandemic.

Though sales grew double digits in 2023 from 2022, it was mainly due to price increases.

And that has partly affected Estée Lauder, too.

Its net earnings dropped by 60% in 2024 from 2023.

The company cut its dividends by nearly half in its fiscal Q1 2025, which meant it reduced the amount of money it would pay its shareholders, something companies rarely do.

But in this case, helped the company conserve cash for its restructuring plan.

I think that was a prudent decision, you know, especially now that we get to know more about the challenges that the company faced in Q2 and going forward in the next couple of quarters.

Its North America sales have slowed, too, in part because of inflation and an overall drop in global spending.

But also because some of its products have lost market share to rival brands, like L'Oreal, who grew La Roche-Posay into the fastest-growing skincare brand in 2022 and 2023.

Other smaller brands have penetrated the market, while Estée Lauder has been slower to adapt to new trends and invest in new markets and products.

Blueness is a huge part of the beauty landscape and sector.

You've got brands like Rare Beauty, Makeup by Mario, you've got these brands that are connecting with consumers in new, innovative ways that are fresh and new.

It's really difficult as an incumbent to hold your ground.

Stéphane De La Favrie took the reins as new president and CEO of Estée Lauder at the start of 2025 after a turbulent few quarters.

The company posted a series of videos outlining his plan to restore sustainable sales growth. But as we look ahead, we must learn from what worked and what didn't.

We must be bolder in our pivot to growth.

We all knew a shakeup was coming and needed.

It's just a question of, you know, of execution of the game plan and an ability to kind of start to then focus on growth again.

The first step is reducing the workforce, the biggest operational change in the company's history. That also includes trimming down the C-suite.

As the company re-evaluates its brand portfolio, it could sell some of its lower performing brands. Like in makeup, its brand Smashbox and Too Faced are also now worth less than what the company paid, according to its full fiscal year 2024 results. Instead, its fragrant brands Le Labo and Jo Malone drove double-digit growth in the Asia-Pacific region and the Americas, as other categories like skincare continue to decline through the company's fiscal second quarter 2025.

While trying to reduce operating expenses, Estée Lauder says it's increasing its advertising budget. It'll use AI to help target consumers and improve supply chains. Other changes include more growth in e-commerce, specifically Amazon and TikTok Shop, which the company adopted in part in 2024.

Competitors appeared there much earlier and more strongly.

Executives are also looking for growth opportunities in new markets like Latin

America and Africa, regions that are expected to have explosive growth in beauty in 2025. It's going to take years, right?

You've got to build the infrastructure to facilitate your ability to connect to consumers. You've got to accelerate innovation to come up with things that the local consumers in those markets need.

And you want to proceed cautiously because you are a global brand with premium brand standing. You don't want to jeopardize that in any way.

The biggest obstacle to this new plan is time drag.

You know, the longer this takes, the more at risk that becomes.

And it's, you know, it's a it's a flywheel kind of effect.

Having become the world's second largest beauty company through a fierce M&A strategy, the company could leverage that again.

And though it fully acquired Canadian-based company Dessium in May 2024, experts believe it needs to invest even more in that area.

So I think the pause by Modesté is really making it troublesome to keep up in that regard, making it difficult and tricky.

It's really hard to meet the trends without M&A.

And when the headwinds take that tool out of your chest, it's tough.

Estée Lauder is still the number two premium beauty brand in the U.S.

by market share. But other companies, including LVMH, with $8.7 billion in beauty sales in 2024, are inching closer.

The company is also lagging behind competitors in capturing Gen Z consumers.

Innovation will be crucial, especially when moving beyond travel retail and the Chinese market. As of March 4th, 2025, the U.S.

and China are in a trade war, and that could further dampen demand.

It's a very big uncertainty for Estée Lauder.

They can't quickly eliminate or significantly reduce their exposure to China.

Beauty is not fully discretionary, and the industry outperformed other consumer sectors like apparel in 2023 and 2024.

While it has started to correct some of its mistakes, it's still early.

This is the first quarter under new leadership, and real impact, if any, will take time. Together, we are reimagining what's possible, leading our own transformation so that we can lead this industry once again.

You're not going to see a $300 stock price immediately.

Yes. I have a buy rating on the stock, so, you know, I guess that speaks for itself.