Successful strategy implementation is a key to any organisation’s survival. Estee Lauder Companies (ELC) could not sustain its competitive advantages, despite having a robust strategy formulation process. This is because it lacks the processes in implementing the strategies. By considering the bigger failure rates in the implementation of strategies, more notice should be given to implementing it. There are several reasons often offered for the failure of implementing a strategy (Rajasekar, 2014). This paper investigates the strategy implementation processes followed in the cosmetics industry. The study proposes SWOT analysis, product analysis, Market/Industry analysis and Porter’s five force analysis that affect implementation strategy. The results demonstrate that leadership is by far the most crucial factor influence successful implementation strategy in the cosmetics.
Overview of ownership
Estee Lauder Companies Inc. (ELC), with a global reputation for luxury, elegance, and superior quality in the cosmetics industry was founded in 1946 by Estée and Joseph Lauder (Flynn, Glover, Wenzel & Zuk, 2014). ELC products are strongly researched and evaluated before they are available to the customers, and the company takes pride in offering skincare, makeup, and fragrance that is gentle and effective which meets high-quality standards.
Locations & Facilities
In the 1960s the company began establishing affiliate offices in high growth-potential markets, which has helped them to stay close to their consumers. ELC has affiliates in 40+ countries, and sales footprint spans 150 countries (“About – elcompanies.com”, 2018). EL’s business is organised in geographic regions composed Asia/Pacific, Europe, the Middle East & Africa and The Americas. Within EMEA are the United Kingdom and Travel Retail. Within the Americas are Latin America and North America. Critical to their global success is a focus on cultural relevance and the ability to ensure that their products, messaging and in-store experiences reflect the aspirations and desires of consumers in local markets. The company sells its products in department stores, speciality stores, and online. Moreover, as shopping behaviours evolve and driven by technology, demographic shifts and the growing affluence of populations in emerging markets (“About – elcompanies.com”, 2018).
ELC’s team of senior executives bring multinational talent, creativity and humanity to the leadership of the organisation. The Lauder family members featured are active in the business today. The Estée Lauder Companies is a publicly traded, family-controlled company with a long-term orientation and focus on sustainable growth. The responsibility of managing and executing the strategy, as well as overseeing the corporate affairs, is shared across the Executive Officers and Board of Directors. William P. Lauder, the son of Leonard and Evelyn Lauder and the grandson of Estée and Joseph Lauder, became Executive Chairman and Chairman of the Board of Directors in 2009. Fabrizio Freda is President and Chief Executive Officer, a position he assumed in 2009. He is responsible for the Company’s overall vision and strategy, financial objectives and investment priorities. Being selective and strategic about where and how individual brands are sold preserves the prestige positioning while delivering a better experience to the consumer (“About – elcompanies.com”, 2018).
Estee Lauder’s strengths include its diverse product portfolio, improved profitability indicators, and increased brand strength. All these factors have added to the success of the company over the years. The company has been able to improve its profitability indicators every year. These indicators include operating income, revenue, product sales, net income, gross profit. All of these accounts have increased every year, making ELC more profitable (Flynn, Glover, Wenzel & Zuk, 2014). ELC has successfully grown brands by introducing new products and expanding into various markets around the globe. These brands have allowed the company to increase its brand strength as well as expand its product portfolio since they acknowledge the essential benefits of producing a diverse product line targeting a global clientele (Flynn, Glover, Wenzel & Zuk, 2014).
Over many years the company has obtained many licenses to sell designers products, and with such license deals comes the possibility for legal issues. An example of a recent legal issue involves the owner of the brand Darphin, who filed a lawsuit against ELC seeking to recover the amount ELC still owned them for the rights of the Darphin brand. Such legal issues are a burden on the company with penalties and fines, which also affect their customer’s views on the overall brand (Flynn, Glover, Wenzel & Zuk, 2014).
The Estee Lauder Companies owns numerous famous brands such as Estée Lauder, M A C, Origins, Prescriptives, Lab Series, La Mer, Aveda, Jo Malone, Bobbi Brown, Aramis, Clinique, American Beauty, Darphin, Osiao, and Smashbox. Also, the company operates with a license to sell cosmetics and fragrances products for brands including Tommy Hilfiger, Donna Karan New York, Kiton, Michael Kors, Tom Ford, Coach, Ermenegildo Zegna, Aerin, and Tory Burch (Flynn, Glover, Wenzel & Zuk, 2014).
To create the high-quality beauty products and experiences for Estee Lauder Companies discerning consumers, they require the best ingredients and packaging materials. Their deep-rooted values to operate with the highest level of ethics and integrity while caring for people and the environment. Many of the company’s brands use resources from all around the world. They endeavour to source their ingredients responsibly and sustainably with respect for local communities and the environment. The company’s internal Responsible Sourcing Working Group meets regularly to review their sourcing standards, analyse and benchmark best practices, engage key stakeholder groups and develop and implement policies to advance sustainable sourcing practices within the Company.
To ensure continuous improvements in the sourcing practices, through shared auditing, supplier capability-building, member benchmarking, and best practice education, AIM-Progress works with members to improve supply chain practices. The Supplier Code of Conduct, with the company’s standard purchasing contracts, requires that suppliers be in compliance with governmental, legal, regulatory and professional rules and are currently working to develop an ethical and responsible framework for sourcing from biodiverse areas. We are developing sourcing protocols that will enable us to ensure:
The company sells its products through limited distribution channels such as upscale department stores, upscale perfumeries, speciality multi-brand retailers, and pharmacies, and prestige salons and spas. Also, EL products are sold in freestanding stores, their authorised retailer websites, stores on cruise ships, in-flight and duty-free shops, and direct response television. Estee Lauder’s channel diversification strategy is reaping benefits for the company. It is trying to grow its presence in the online channels, multi-retail, and travel-retail as more and more brick-and-mortar department stores, show lacklustre demand.
To improve its supply chain efficiency, EL aims to utilise a network of third-party manufacturers on a global basis, including an increased percentage of manufacturing volume in the Asia Pacific region to support growth. EL is continually benchmarking the performance of its supply chain and adjusting its distribution networks and manufacturing footprint based on the changing needs of the business.
Estee Lauder’s e-commerce and m-commerce channel sales are growing significantly. It launched almost 100 new websites over the recent years. Its m-commerce sales showed 75% year-on-year growth over the Thanksgiving Cyber Monday weekend.
The company has implemented a Strategic Modernization Initiative, or SMI, through SAP-based technologies, or SAP, to integrate data, processes, and technologies that will be used to standardise business processes.
Recently, ELC collaborated with ModiFace, an augmented reality player, to help create try-on features for its desktop and mobile websites. The partnership will let users virtually test products by using the Light Field Rendering technology by Modiface. It allows customers to try out a product virtually before deciding to buy it. This could have a significant positive impact on Estee Lauder’s product sales. Along with its acquisitions, these digital innovations facilitate Estee Lauder’s capabilities to not only recapture its lost market share in North America but also to expand internationally (Team, 2017).
Market Analysis / Industry Analysis
Macro Environmental Factors
Political factors comprise areas such as labour law, tax policy, tariffs, trade restrictions, environmental law and political stability. Political features may also include goods and services which the government wants to deliver. ELC is getting affected by the legislation for advertising. To deal with the political challenges affecting ELC, it is trying to alter all the political leadership styles in different countries where it operates which also touches on how and to what degree a government intervenes in the economy. Precisely, EL is manufacturing virtually all the safe products which don’t encompass any harmful substance.
Economic factors include economic growth, interest rates, exchange rates and the inflation rate in all the countries which they are operating. For example, ELC was affected by the continuous weakness of the dollar and other currencies in the past. These factors have significant impacts on how business operates and decision making. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business expands. Exchange rates affect the costs of exported goods and the supply and price of imported goods in an economy.
As ELC’s business is exactly focused on the people all over, it is closely involved in the life of the communities in different locations, and it also includes the cultural aspects and includes health consciousness, population growth rate, career attitudes, age distribution, and emphasis on safety. Trends in social factors also affect the demand for a company’s products and how that company operates.
Technological factors include the ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. ELC has embraced the technological innovation in many ways. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.
The main factor includes weather, climate and climate change. Growing awareness of climate change is affecting how companies operate and the products they offer, it is both creating new markets and diminishing or destroying existing ones. Environmental factors impact the cosmetic and skincare industry at the consumer level. The production of cosmetics and personal care products has a disastrous effect on the environment. EL utilise sustainable practices that do minimal damage to the environment.
The cosmetics market is segmented based on the category of cosmetics, mode of sale, gender and geography. The category segment includes skin & sun care products, hair care products, deodorants, makeup & colour cosmetics and fragrances. Among these products, skin & sun care, and hair care products are majorly used by individuals and hold a considerable amount of percentage share in global cosmetic products category market. The mode of sale comprises retail and online sale, where the retail mode of sale is further classified into the general departmental store, supermarkets, drug stores and brand outlets. Customers for buying cosmetic products majorly prefer the retail mode of sale. However, online medium for the purchase of the cosmetic product is observed as a rising trend among customers. Geographically, the global cosmetics market is split into North America, Asia-Pacific, Europe and LAMEA.
Source: Secondary research and AMR analysis
Millennials are regarded as the beauty industry’s most important demographic, but these young consumers are demanding and hard to target due to their digital dependency and quest for authenticity. The famous beauty bloggers and social media in the region that are promoting the ideal selfie make-up approach, including DIY techniques on mixing colours and products. A shift of preference towards natural and organic beauty products, particularly in U.S. and European countries, fosters the demand for natural, herbal and organic beauty products which forced the manufacturers to innovate and develop new products.
Market size / growth
Global cosmetics market is expected to garner $429.8 billion by 2022, registering a CAGR of 4.3% during the forecast period 2016-2022. Retail stores including supermarkets, exclusive brand outlets, and speciality stores amongst others are the major distribution channels, with online channels gaining popularity among consumers. There is a significant rise in disposable incomes over the past decade. The growth in global economies, changing lifestyles, rising demands of skin and sun care products due to varying climatic conditions encourages the growth of the market for cosmetics.
Customer / Target Market profile
ELC’s recent acquisition of new companies, a typical niche brand targeting the millennial customer, demonstrates the firm’s never-ending search for new companies that will change as the customer changes. New companies are an exciting addition to the brand portfolio since it has inspired the whole Lauder family to think young and act even younger.
The Porter’s Five forces analyse internal and external factors which affect the fight within the industry. It includes Threat of New Entrants, Threat of Substitute, Competitive Rivalry, Supplier Power and Buyer Power in the industry (Porter, 2008, 3-7).
• Profitable markets bring new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to enter, profitability will decrease to a competitive rate. High economies of scale by the existing players, strong brand identity, obtaining access to distribution and expected retaliation are some of the barriers (Kasi, 2017).
• Skincare and beauty products have a high number of substitutes. However, ELC develops necessary ingredients in its research and development departments which is a significant advantage. So, the threat of substitutes is low for Estee Lauder.
• ELC faces healthy competition from Coty and L’Oréal products worldwide. According to Markets’ and Research Business Wire report, the beauty industry brought in 2016 revenue of $437 billion, which is expected to reach $461 billion in 2018 where Estee Lauder’s revenue reached $11.81 billion in the fiscal year 2016.
• ELC purchases raw materials on a global basis through its Global Supplier Relations department. The presence of substitutes and the impact of inputs on cost is low. Hence, the bargaining power of the suppliers in this industry is low.
• Estée Lauder’s products are priced high and feed to the premium market. However, wealthy buyers are less price-sensitive and unlikely to switch to the lower-priced product (Morgan, 2015), which makes it difficult for the companies to maintain long-term profitability.
ELC has been able to grow as a successful company over the years, which has offered many opportunities for the future. ELC takes advantage of opportunities such as growth in the e-commerce, promotion of key business initiatives, and continuation of its business restructuring initiatives (Flynn, Glover, Wenzel & Zuk, 2014). ELC increased its profitability through the direct-to-customer segment by focusing more on e-commerce, while continuing its efforts in department stores and other retailers. ELC has expanded its online retail format by offering some products online only, as a result of lower demand for such products in retail stores. By investing more time and effort into e-commerce opportunities, ELC could save on the operating costs of retail stores and also which makes their products more accessible to consumers in various locations around the world. In the effort to promote key business initiatives, one of Estee Lauder’s recent business initiatives is their new brand Osiao, which focuses on the needs of Asian skin. This allowed ELC the opportunity for further growth into the Asian and Pacific markets (Flynn, Glover, Wenzel & Zuk, 2014). Additionally, ELC adopted the multi-faceted cost savings program for business restructure in 2009 because there was an opportunity for the company to deliver long-term profitable growth, to redesign its organisational structure, to find more efficient ways to operate globally and to have the opportunity to outsource certain information technology processes. ELC has many opportunities to grow both within the company as well as within its industry.
Estee Lauder is in a highly competitive industry, which assumes threats like changes in consumer preferences, the counterfeit goods market, and tough competition (Flynn, Glover, Wenzel & Zuk, 2014). The counterfeit market has an adverse impact on ELC because it contributes to lost sales as well as hurts the brand image and consumer confidence. Industry competitors are another threat, as they may have better resources and may be better able to keep up with trends. ELC is operating in an industry where success is based on its product line, innovation, service, value, advertising, and special events. Shortfalls in any of these aspects could damage Estee Lauder’s position within the highly competitive products industry. Although ELC has threats, it strives to overcome those threats by maintaining its strengths, improving its weaknesses, and exploring its opportunities (Flynn, Glover, Wenzel & Zuk, 2014).