Image credit: Visual China

On August 20, Estee Lauder Group (EL.N) disclosed its fourth quarter and full-year performance for the 2024 fiscal year.

According to the financial report, Estee Lauder's net sales for the 2024 fiscal year were $15.609 billion (approximately RMB 56.475 billion), a decrease of 2% year-on-year; net income was $0.31 billion (approximately RMB 2.2 billion), a decrease of 61% year-on-year. This marks the second consecutive year of declining performance for Estee Lauder.

In terms of product categories, perfume sales saw a slight increase of 1%, while skin care, scalp care, and makeup business declined. In terms of regions, the Americas market saw a slight increase in sales of 1%, while EMEA and Asia/Pacific markets declined.

Accompanying the financial report is the news that current President and CEO Fabrizio Freda will retire at the end of the 2025 fiscal year, which has drawn attention and discussion on the future direction of Estee Lauder Group in the industry.

After the announcement, Estee Lauder's stock price fell more than 8% on the US stock market. As of August 21st, it closed at $90.97 per share, a decrease of 2.02%, with a market cap of approximately $32.6 billion.

The Chinese market is weak, with declines in skin care and makeup business.

During the financial report meeting, Estee Lauder Group executives described the performance of the previous fiscal year as "disappointed", indicating the severity of the dismal performance.

From the perspective of product categories, skincare business as the largest revenue source for Estee Lauder, with a net sales of 7.908 billion US dollars (approximately 56.47 billion RMB) in the 2024 fiscal year, decreased by 3% year-on-year. Net sales of Estee Lauder, Clinique, and Dr.Jart+ have all declined. Estee Lauder stated that this is mainly due to the weak performance of the mainland China and Asian travel retail markets.

However, net sales of La Mer achieved high single-digit growth, and The Ordinary saw double-digit growth in net sales. The financial report attributes this to the sales of flagship products like repairing lotions and eye serums, as well as the innovation of new products, continuous success of star products, and innovation of soothing barrier serum and other new products.

Looking at the makeup business, the net sales for the 2024 fiscal year were 4.47 billion US dollars (approximately 31.92 billion RMB), a 1% year-on-year decline. Clinique performed well, achieving double-digit growth in net sales, with growth in all regions. This is mainly attributed to the continuous popularity of brand lip and mascara products.

In terms of business segments, among the four major business departments under Estee Lauder Group, only the perfume department achieved a slight 1% increase, while skincare, makeup, and haircare businesses all showed a declining trend. Skincare business net sales declined by 4%, makeup business declined by 1%, and scalp care business decreased by 4%.

Image source: from financial report

Looking at different regions, Estee Lauder Group only experienced sales growth in the Americas market in the 2024 fiscal year, with a 6% decrease in net sales in the Asia-Pacific market, mainly due to the impact of mainland China. High-end beauty products continue to be soft in mainland China, with continued pressure on tourism retail channels, reduced shipments, especially in the Hainan region.

Estee Lauder senior executives expect that the travel retail channel will continue to shrink in the 2025 fiscal year. In addition, the strong US dollar has put pressure on global beauty companies like Estee Lauder, and exchange rate fluctuations have had an impact on performance. The weakness of the high-end beauty market has become a common challenge for foreign giants in the Chinese market.

White Yunhu, a senior management expert in the cosmetics industry, stated in an interview with Blue Whale News that from the overall situation of the domestic beauty and skincare consumption market, the "recovery" is still "below expectations", so individual companies are more or less affected.

On the other hand, for Estee Lauder, in the domestic market, the competition strategy of "high investment in traffic" and "low-price sales" has also "prompted" international brands to be partially involved in "price wars".

"Due to the rise of domestic brands in the mid-to-low-end market, they have snatched away consumption, resulting in a decline in the performance of international brands. Even with a certain degree of price increase, Estee Lauder Group still cannot make up for the profit gap caused by low prices," said Bai Yunhu.

Fabrizio Freda, President and CEO of Estee Lauder Group, stated that although the outlook for the Chinese market is uncertain, the company will continue to strategically adjust and achieve balanced regional growth.

High-end fragrance category is popular in China.

It is worth noting that the fragrance business is the only category of Estee Lauder Group that achieved growth, with a net sales of $2.487 billion (approximately RMB 17.759 billion) for the entire fiscal year, a year-on-year growth of 1%.

Among them, Le Labo and Jo Malone have achieved outstanding performance, with Le Labo achieving double-digit strong growth and nearly doubling in the Asia-Pacific region.

Estee Lauder stated that the Group's high-end perfume line, including Jo Malone London, Tom Ford, Le Labo, Kilian Paris, Frederic Malle, and Aerin Beauty, achieved single-digit organic growth in the overall 2024 fiscal year and is expected to continue to grow in the 2025 fiscal year.

In other words, the perfume business is expected to become a relatively important growth engine for Estee Lauder in the future.

Currently, the global perfume and fragrance market is in a period of rapid growth. According to Euromonitor statistics, the global market value is between $57 billion and $61 billion, and is expected to grow to $79.296 billion by 2027. The Chinese market is particularly prominent in this trend, with the market size expected to reach nearly 600 billion RMB in the next three years.

From 2021 to 2025, the compound annual growth rate of the Chinese market is expected to be 21.78%, significantly higher than the global average of 7%. Based on this prediction, the size of China's fragrance market is expected to exceed $5 billion, or about 32.3 billion RMB, by 2026.

In the Chinese market, Estee Lauder's net sales of Tom Ford and Le Labo, which were acquired for $2.8 billion, have achieved double-digit growth. In addition to international high-end fragrance brands, domestic brands have also emerged. For example, brands like To Summer and DOCUMENTS have gained market recognition and investment from the L'Oreal Group due to their unique oriental fragrance and high quality.

Why are fashion giants extending an olive branch to emerging Chinese fragrance brands?

Xu Jiawei, founding partner of Rui Feng Capital, stated in an interview with Blue Whale News that "the selection of targets by CVC (corporate venture capital) must first be related to the global strategy of these international brands. The Chinese market will definitely be a very large consumer market in the future, and fragrance will also be a long-term growth track with good growth rates. Secondly, these two brands have good brand power and belong to the mid-to-high-end market, which is also close to the positioning of international brands."

"Other preferences are related to the preferences of these CVCs themselves. For example, fragrance has always been a key area for Estee Lauder's layout and they have acquired brands like Le Labo and gained popularity in China, which is expected to enhance Estee Lauder's understanding and confidence in Chinese consumers," Xu Jiawei added.

Why is the high-end fragrance category popular in China?

Baiyunhu's analysis attributes this fundamentally to the fact that on the one hand, consumers are driven by emotional marketing, and on the other hand, to a certain extent, it is the result of the capital market finding another growth track after the skincare and makeup tracks, which has contributed to the momentum.

At the same time, according to the interviews and investigations conducted by Blue Whale News reporters who visited several fragrance stores, it was found that the number of physical stores selling fragrance products and the variety of products have significantly increased compared to the previous two years, indicating that the demand in the Chinese market is gradually increasing.

For example, at Peking Chang'an Avenue Shopping Center, there is a store that specializes in bath and body care as well as home fragrances. Not only does it have a water pool with abundant foam as an open display, but it also has exquisite faucets and marble sinks for on-site product testing. At the Grandjoy Holdings Group Fragrance Collection Store in Peking Chaoyang Joy City, you can find various niche fragrance brands from abroad.

A fragrance collection store at Peking Chaoyang Joy City. Blue Whale News reporter Wang Hanyi took the photo.

When chatting with the staff of a lifestyle store that sells fragrances, they mentioned that consumers have more diverse consumption demands and that many young consumers have shown a strong interest in innovative fragrance forms such as flameless fragrances and fragrance body care series.

The store displays a series of non-flaming aromatherapy products. Blue Whale News Reporter Wang Hanyi.

In addition, according to Blue Whale News reporters' observation, it is not only women who shop in stores, but male consumers are also increasing their use of fragrance products. Mr. Zhao, a consumer, told Blue Whale News reporters that their pursuit of high-end fragrance products is not only reflected in personalized choices, but also in their desire for emotional healing. In terms of product preferences, neutral fragrance tones and natural ingredients such as rose, gardenia, jasmine, and sandalwood are highly favored.

Although the current penetration rate of the fragrance market in China is only 5% to 10%, far lower than the 45% to 50% of the European and American markets, this gap also indicates tremendous market potential and development space.

Fashion industry's "work emperor" announces retirement.

In the past year, the Chinese market has posed challenges to many foreign giants, especially in the high-end field, which has put significant pressure on almost all international brands. How to activate the high-end market has become a common challenge in the industry.

Estee Lauder, which focuses on high-end cosmetics, especially feels this pressure and is seeking transformation to address and alleviate this situation.

After releasing its financial report, Estee Lauder Group announced that Fabrizio Freda, who has been leading the Estee Lauder Group for 16 years, plans to retire at the end of the 2025 fiscal year.

Before appointing a successor, Fabrizio Freda will continue to lead and supervise the company's strategic, financial, and investment priorities, including the Profit Performance Growth Plan (PPGP). Once the successor is determined, Fabrizio Freda will work with them to ensure a smooth transition and will serve as a company advisor in the 2026 fiscal year.

According to public information, Fu Yide joined Estee Lauder Group in 2008 as President and Chief Operating Officer (COO). He had many years of executive experience at Procter & Gamble before that. In 2009, he was promoted to Group CEO by William Lauder and subsequently promoted cost reduction and overseas market expansion strategies. He successfully acquired brands such as GLAMGLOW, Becca, and Too Faced, helping Estee Lauder become one of the leading global cosmetics industry.

Under Fu Yide's leadership, Estee Lauder Group has made use of the rapid development of Chinese e-commerce to enter the Chinese market with 16 brands including Estee Lauder, Clinique, La Mer, and Origins, achieving a full category layout of skincare, makeup, perfume, and hair care.

With outstanding performance, the Lauder family has highly appreciated Fu Yide's contribution, providing not only generous compensation but also stock rewards. In the fiscal year 2021, his annual salary reached as high as $65.997 million, earning him the title of "Emperor of the Beauty Industry" by the media.

In response, Bai Yunhu said, "As far as the CEO role is concerned, whether the compensation is reasonable should be related to performance, etc.; as far as Estee Lauder is concerned, CEO retirement, etc., are routine organizational adjustments or changes. In the short term, there may be some impact, but in the long run, mature companies have a complete set of mechanisms to ensure a smooth transition for the successor CEO."

Regarding retirement plans, Fu Yide said, "It has been my honor to lead Estee Lauder Group for 16 years. I am proud of the great achievements of the company and the talented, dedicated, and passionate team we have built. I will continue to tirelessly execute our strategic adjustments and 'Profit Recovery and Growth Plan' to address current challenges."

What kind of CEO does Estee Lauder need in the future?

Fu Yide also provided specific criteria for the next CEO of the group: "They must be a strong leader who understands the key factors of the company, one of which is 'being a brand builder' and able to discover growth drivers for the company."

It is worth mentioning that Estee Lauder Group has devised a reform plan called the 'Profit Recovery and Growth Plan' (PRGP) to restore growth. This plan has been mentioned with very high frequency in speeches, financial reports, and financial meetings by Fu Yide.

Estee Lauder Group stated that PRGP aims to improve gross margin, reduce the company's cost base, reinvest in activities targeting key consumers to accelerate growth, and increase flexibility and market responsiveness to accelerate sales growth and profit recovery.

In fact, similar to the strategies of other international groups, the essence of PRGP is also to reduce costs and increase efficiency.

Since the beginning of this year, Estee Lauder Group has implemented a series of personnel adjustments and layoffs. For example, in early February, the group announced plans to lay off 3% to 5% of its workforce in order to achieve profit recovery goals for the fiscal years 2025 and 2026. At the same time, the group's internal organizational structure is also undergoing major changes.

According to the statistics of "FBeauty Future Traces", Estee Lauder has already made at least 8 key personnel changes this year, including senior executives, brand and regional leaders, and other important positions.

According to the reform plan, in the future, Estee Lauder Group will focus on five strategic goals: first, activate the skincare category to attract new consumers through precision marketing and product innovation; second, leverage the growth potential of high-end perfumes; third, accelerate channel utilization and brand marketing, especially in the fields of social e-commerce and livestreaming; fourth, launch innovative initiatives to explore new growth opportunities; fifth, strengthen precision marketing, optimize customer investment effectiveness, and respond quickly to market trends.

"How to bring the Chinese market back to a path of sustained growth will be a key strategy." Bai Yunhu believes that in terms of the "Chinese brand trend", Estee Lauder should be able to leverage its successful "merger and acquisition plan" to help Chinese-born mid-to-high-end brands achieve "brand value empowerment".

In fiscal year 2025, Estee Lauder Group expects the global high-end beauty market to grow at a rate of 2% to 3%, lower than the mid-single-digit growth of the past two years. It is expected that the global high-end beauty industry will stabilize and return to mid-single-digit growth levels in fiscal year 2026, and the recovery is premised on the stabilization and recovery of the high-end beauty market in China.