WEBVTT 00:00:00.000 --> 00:00:01.860 Welcome back to the Deep Dive. Today we are opening 00:00:01.860 --> 00:00:05.080 up a topic that quite honestly is probably sitting 00:00:05.080 --> 00:00:06.860 in your bathroom cabinet right now. Oh for sure. 00:00:07.000 --> 00:00:09.939 It might be hiding in your gym bag or maybe it's 00:00:09.939 --> 00:00:12.359 sitting front and center on your dresser. It 00:00:12.359 --> 00:00:15.179 is a name that feels incredibly familiar almost, 00:00:15.439 --> 00:00:17.160 you know, like it's part of the wallpaper of 00:00:17.160 --> 00:00:19.559 our lives. It really is. You see it, you recognize 00:00:19.559 --> 00:00:22.019 it, but you probably don't think about it. It 00:00:22.019 --> 00:00:24.879 is absolutely ubiquitous. You see it in every 00:00:24.879 --> 00:00:27.739 airport duty free shop from Heathrow to Hong 00:00:27.739 --> 00:00:30.679 Kong, every high end department store from Saks 00:00:30.679 --> 00:00:33.579 to Harrods. And this is the important part. It 00:00:33.579 --> 00:00:35.780 is increasingly dominating your social media 00:00:35.780 --> 00:00:37.990 feeds, whether you realize it or not. We are 00:00:37.990 --> 00:00:39.969 talking about the Estee Lauder companies, and 00:00:39.969 --> 00:00:41.810 I have to be honest, before digging into this 00:00:41.810 --> 00:00:43.869 massive stack of research, I just thought of 00:00:43.869 --> 00:00:47.530 it as, well, a brand, you know. Just Estee Lauder. 00:00:47.609 --> 00:00:50.289 Exactly, Estee Lauder. The perfume your mom wore, 00:00:50.390 --> 00:00:52.929 or maybe that distinct little brown bottle of 00:00:52.929 --> 00:00:55.570 advanced night repair serum. But looking at the 00:00:55.570 --> 00:00:58.250 sheer scale of this operation, calling it a brand 00:00:58.250 --> 00:01:01.450 is a massive understatement. It is a behemoth. 00:01:01.679 --> 00:01:03.880 It really, really is. It's so easy to mistake 00:01:03.880 --> 00:01:05.400 the name on the bottle for the entirety of the 00:01:05.400 --> 00:01:08.519 business. But the Estee Lauder companies, or 00:01:08.519 --> 00:01:11.239 ELC as it's known in the financial world and 00:01:11.239 --> 00:01:14.359 the industry, is actually a massive corporate 00:01:14.359 --> 00:01:18.739 infrastructure that essentially shapes the global 00:01:18.739 --> 00:01:21.560 prestige beauty industry. Shapes it. We aren't 00:01:21.560 --> 00:01:23.459 just talking about one line of lipstick here. 00:01:23.599 --> 00:01:25.879 We are talking about the second largest cosmetics 00:01:25.879 --> 00:01:28.590 company in the world. Sitting right behind L 00:01:28.590 --> 00:01:30.810 'Oreal. Okay, let's unpack this immediately because 00:01:30.810 --> 00:01:32.870 the scale here is kind of mind -blowing. When 00:01:32.870 --> 00:01:35.650 we say second largest, what are we actually looking 00:01:35.650 --> 00:01:37.549 at in terms of the numbers? Because the research 00:01:37.549 --> 00:01:40.409 here points to some, well, some dizzying figures 00:01:40.409 --> 00:01:43.790 for the fiscal year 2025. Right, so to give you 00:01:43.790 --> 00:01:46.409 the headline numbers first, as of fiscal year 00:01:46.409 --> 00:01:49.930 2025, the company reported revenue of $14 .3 00:01:49.930 --> 00:01:53.799 billion. $14 .3 billion. Billion, with a B. They 00:01:53.799 --> 00:01:56.480 are sitting on total assets worth $19 .9 billion. 00:01:57.019 --> 00:01:59.700 That is a massive financial footprint. They employ 00:01:59.700 --> 00:02:03.280 roughly 57 ,000 people globally. But, and this 00:02:03.280 --> 00:02:05.659 is crucial for our analysis today, sheer size 00:02:05.659 --> 00:02:07.939 doesn't insulate you from volatility. That's 00:02:07.939 --> 00:02:10.229 the hook, isn't it? Because looking at these 00:02:10.229 --> 00:02:13.229 reports, despite that massive $14 billion revenue, 00:02:13.629 --> 00:02:16.789 everything isn't exactly perfect in Canada. No, 00:02:16.849 --> 00:02:19.129 it's not. And that's the central tension of our 00:02:19.129 --> 00:02:21.449 deep dive today. While they pulled in massive 00:02:21.449 --> 00:02:24.210 revenue, they actually posted a net loss of $1 00:02:24.210 --> 00:02:27.550 .1 billion in 2025. Wait, let me just pause you 00:02:27.550 --> 00:02:31.789 there. A $1 .1 billion loss on $14 billion in 00:02:31.789 --> 00:02:35.009 revenue? That is a significant disconnect. How 00:02:35.009 --> 00:02:37.150 does a company selling that much product end 00:02:37.150 --> 00:02:40.169 up in the red by a billion dollars? It is a stark 00:02:40.169 --> 00:02:42.810 contrast. And it signals that we are looking 00:02:42.810 --> 00:02:45.210 at a company in a very, very painful transition. 00:02:45.389 --> 00:02:48.289 We are seeing a legacy giant that generates massive 00:02:48.289 --> 00:02:51.030 sales but is facing significant profitability 00:02:51.030 --> 00:02:53.930 challenges, structural overhead issues, and a 00:02:53.930 --> 00:02:56.330 changing consumer landscape that they are, frankly, 00:02:56.430 --> 00:02:58.349 frantically trying to adapt to. It's a giant 00:02:58.349 --> 00:03:00.289 ship trying to make a very sharp turn. It's a 00:03:00.289 --> 00:03:02.370 very complex moment for them, yeah. Which makes 00:03:02.370 --> 00:03:04.669 this the perfect time to explore their story. 00:03:05.199 --> 00:03:07.780 Our mission today is to figure out how a husband 00:03:07.780 --> 00:03:11.599 and wife team in 1946 transformed four symbol 00:03:11.599 --> 00:03:14.580 skin creams into a global empire that now owns 00:03:14.580 --> 00:03:17.300 everything from Tom Ford to the ordinary. And 00:03:17.300 --> 00:03:19.159 more importantly, we need to understand how they 00:03:19.159 --> 00:03:21.800 are navigating this turbulent economic landscape 00:03:21.800 --> 00:03:25.159 in 2026. Exactly. It's a story of legacy versus 00:03:25.159 --> 00:03:28.379 modernity. It's about how a company built on 00:03:28.379 --> 00:03:30.800 the high -touch service of department store counters 00:03:30.800 --> 00:03:34.219 survives and attempts to thrive in the age of 00:03:34.219 --> 00:03:37.060 algorithmic feeds and AI. And just to set the 00:03:37.060 --> 00:03:38.659 stage for the listener who might not realize 00:03:38.659 --> 00:03:40.800 just how much this company owns, it's not just 00:03:40.800 --> 00:03:42.439 the name Estee Lauder on the door here. Well, 00:03:42.439 --> 00:03:44.520 far from it. That's the empire aspect we need 00:03:44.520 --> 00:03:49.289 to grasp. The portfolio is incredibly vast. strategically 00:03:49.289 --> 00:03:51.349 segmented. Right. You have the powerhouse makeup 00:03:51.349 --> 00:03:54.009 brands like Emmy Cosmetics, which basically defined 00:03:54.009 --> 00:03:56.509 artistry in the 90s. You have the clinical skincare 00:03:56.509 --> 00:03:58.930 giants like Clinique. Everyone knows Clinique. 00:03:58.949 --> 00:04:01.689 Everyone knows Clinique. You have the ultra luxury 00:04:01.689 --> 00:04:04.349 tier with La Mer. You have the niche fragrance 00:04:04.349 --> 00:04:07.490 houses like Jo Malone London and La Labo. You 00:04:07.490 --> 00:04:10.050 have hair care with Aveda and Bumble and Bumble. 00:04:10.169 --> 00:04:12.810 And of course. Massive recent acquisition of 00:04:12.810 --> 00:04:14.990 the Tom Ford brand. It's like the Avengers of 00:04:14.990 --> 00:04:17.029 the beauty world. They've just assembled every 00:04:17.029 --> 00:04:19.670 heavy hitter under one roof. That's a really 00:04:19.670 --> 00:04:22.290 good analogy. Yeah. And physically, while they're 00:04:22.290 --> 00:04:23.990 headquartered in the General Motors building 00:04:23.990 --> 00:04:27.170 in midtown Manhattan, which feels very classic, 00:04:27.230 --> 00:04:31.029 old school New York luxury, their footprint is 00:04:31.029 --> 00:04:33.990 truly global. They actually opened a massive 00:04:33.990 --> 00:04:36.430 high -tech distribution center in Galgen in Switzerland 00:04:36.430 --> 00:04:39.949 back in 2022. So it's not just an American company 00:04:39.949 --> 00:04:42.329 anymore. Not for a long, long time. This is a 00:04:42.329 --> 00:04:44.189 machine with moving parts all over the world. 00:04:44.329 --> 00:04:46.689 So we have the current picture, massive revenue, 00:04:46.970 --> 00:04:49.930 a confusing Met loss, and a portfolio of brands 00:04:49.930 --> 00:04:52.430 that basically runs the world. But to understand 00:04:52.430 --> 00:04:54.870 the DNA of this company and perhaps why they 00:04:54.870 --> 00:04:57.209 are struggling to pivot today, we have to go 00:04:57.209 --> 00:05:00.569 back. Way back. We need to go back to 1946. We 00:05:00.569 --> 00:05:04.069 do. To New York City. The humble hustle. I love 00:05:04.069 --> 00:05:05.709 this part of the story because it really strips 00:05:05.709 --> 00:05:08.170 away the glamour. It starts in New York City 00:05:08.170 --> 00:05:11.069 with Estee and Joseph Lauder. And what blows 00:05:11.069 --> 00:05:13.029 my mind is that they didn't launch with some 00:05:13.029 --> 00:05:16.350 massive conglomerate strategy or venture capital. 00:05:16.470 --> 00:05:19.050 No, not at all. They started with just four products. 00:05:19.129 --> 00:05:21.790 That's right. Just four. Cleansing oil, skin 00:05:21.790 --> 00:05:25.149 lotion, super rich all -purpose creme, and creme 00:05:25.149 --> 00:05:28.329 pack. That was it. It sounds so simple now. Super 00:05:28.329 --> 00:05:30.269 rich, all -purpose creme. It's very descriptive, 00:05:30.589 --> 00:05:32.790 very utilitarian. It almost sounds like something 00:05:32.790 --> 00:05:34.930 you'd buy at a hardware store, not a luxury counter. 00:05:35.189 --> 00:05:37.110 It does, doesn't it? Yeah. But you have to remember 00:05:37.110 --> 00:05:39.870 the context. This was post -war America. The 00:05:39.870 --> 00:05:42.310 consumer market was just starting to boom again 00:05:42.310 --> 00:05:45.529 after years of rationing and austerity. People 00:05:45.529 --> 00:05:47.769 were hungry for a bit of luxury, but they also 00:05:47.769 --> 00:05:50.009 wanted things that worked. And Estée Lauder herself. 00:05:50.750 --> 00:05:52.910 She was the engine. She was a marketing genius 00:05:52.910 --> 00:05:55.990 before the term really existed. She understood 00:05:55.990 --> 00:05:58.050 something that modern digital marketers often 00:05:58.050 --> 00:06:01.430 forget, the power of touch. The high touch method. 00:06:01.529 --> 00:06:03.170 I see that term popping up in business schools 00:06:03.170 --> 00:06:06.350 all the time in relation to her. Exactly. She 00:06:06.350 --> 00:06:10.670 famously said, telephone, telegraph, tell woman. 00:06:12.029 --> 00:06:14.449 She believed that if you put the product on the 00:06:14.449 --> 00:06:16.970 woman's face, the product would sell itself. 00:06:17.740 --> 00:06:20.199 She didn't just advertise. She demonstrated. 00:06:20.459 --> 00:06:22.019 She's in the trenches. She's out there on the 00:06:22.019 --> 00:06:25.040 floor, touching faces, applying creams. She realized 00:06:25.040 --> 00:06:28.000 that beauty is an intimate transaction. It's 00:06:28.000 --> 00:06:29.579 not just about selling a product. It's about 00:06:29.579 --> 00:06:32.360 selling confidence. And the hustle to get that 00:06:32.360 --> 00:06:34.579 first department store count. The research mentions 00:06:34.579 --> 00:06:37.439 they got into Saks Fifth Avenue in 1948. That 00:06:37.439 --> 00:06:39.660 feels like a huge turning point. It was the defining 00:06:39.660 --> 00:06:41.519 moment. You have to understand retail hierarchy, 00:06:41.740 --> 00:06:45.259 especially in the 1940s. Getting into Saks established 00:06:45.259 --> 00:06:48.579 the brand as prestige immediately. So it wasn't 00:06:48.579 --> 00:06:50.540 a choice. It was a strategy. It was absolutely 00:06:50.540 --> 00:06:52.399 a strategy. They weren't selling at the drugstore. 00:06:52.459 --> 00:06:54.300 They were selling at the most exclusive address 00:06:54.300 --> 00:06:58.089 in Manhattan. That single decision set the pricing 00:06:58.089 --> 00:07:00.149 power and the brand positioning for the next 00:07:00.149 --> 00:07:03.930 80 years. It positioned the company as an aspirational 00:07:03.930 --> 00:07:06.069 luxury player right from the jump. And there's 00:07:06.069 --> 00:07:08.009 a famous story about how she got that order, 00:07:08.069 --> 00:07:10.189 right? Something about accidentally spilling 00:07:10.189 --> 00:07:13.290 perfume? That's the legend, yes. The story goes 00:07:13.290 --> 00:07:15.850 that she went to the Galleries Lafayette in Paris 00:07:15.850 --> 00:07:18.810 much later. But even in the early days in New 00:07:18.810 --> 00:07:22.730 York, she was known to accidentally drop a bottle 00:07:22.730 --> 00:07:25.490 of her youth do bath oil on the floor of a department 00:07:25.490 --> 00:07:28.269 store. Accidentally? Exactly. The scent would 00:07:28.269 --> 00:07:31.389 waft up. Women would stop and ask what that amazing 00:07:31.389 --> 00:07:35.189 smell was and demand the product. It forced the 00:07:35.189 --> 00:07:37.550 store managers to stock it because the customers 00:07:37.550 --> 00:07:40.290 were literally following their noses. That is 00:07:40.290 --> 00:07:43.050 guerrilla marketing at its finest. Before we 00:07:43.050 --> 00:07:45.629 had viral videos, we had spilled perfume. It 00:07:45.629 --> 00:07:48.350 really is. And she pioneered the concept of the 00:07:48.350 --> 00:07:51.449 gift with purchase. Today, we take it for granted. 00:07:51.589 --> 00:07:53.509 You buy a lipstick, you get a little makeup bag 00:07:53.509 --> 00:07:55.449 with samples. I just assumed that always existed. 00:07:55.670 --> 00:07:58.370 Nope. Estee Lauder invented that. Wait, she invented 00:07:58.370 --> 00:08:01.310 the free gift? Essentially, yes. She realized 00:08:01.310 --> 00:08:03.550 that giving away a free sample wasn't a loss. 00:08:04.009 --> 00:08:06.550 It was a customer acquisition cost. It got the 00:08:06.550 --> 00:08:08.810 product into hands and once they tried it, they 00:08:08.810 --> 00:08:10.949 came back to buy the full size. It transformed 00:08:10.949 --> 00:08:13.129 the economics of the beauty counter. It turned 00:08:13.129 --> 00:08:15.689 a transaction into a relationship. That's brilliant. 00:08:16.329 --> 00:08:18.170 Just fundamentally brilliant. And they didn't 00:08:18.170 --> 00:08:20.029 stay local for long. I was surprised to see how 00:08:20.029 --> 00:08:23.189 early they went international. Harrods in London 00:08:23.189 --> 00:08:26.610 by 1960. Yes. And opening an office in Hong Kong 00:08:26.610 --> 00:08:30.069 in 1961. Think about that. 1961. Global travel 00:08:30.069 --> 00:08:31.790 and communication weren't what they are today. 00:08:31.949 --> 00:08:35.169 We didn't have Zoom. We barely had reliable international 00:08:35.169 --> 00:08:38.129 phone lines. So that was a huge risk. A massive 00:08:38.129 --> 00:08:41.529 risk. And expanding to Hong Kong that early showed 00:08:41.529 --> 00:08:44.159 a tremendous amount of foresight. regarding the 00:08:44.159 --> 00:08:46.480 global market, particularly the potential of 00:08:46.480 --> 00:08:49.320 the Asian consumer, which we will see becomes 00:08:49.320 --> 00:08:51.779 critical to their finances later on. OK, so they 00:08:51.779 --> 00:08:53.620 have the prestige locations, they have the international 00:08:53.620 --> 00:08:56.259 footprint, but they also started doing something 00:08:56.259 --> 00:08:58.440 that I think is the secret sauce of this company. 00:08:58.970 --> 00:09:02.049 They stopped just being Estee Lauder and started 00:09:02.049 --> 00:09:04.909 inventing new personalities. Innovation and diversification. 00:09:05.210 --> 00:09:08.029 Yeah. Precisely. They realized early on that 00:09:08.029 --> 00:09:10.389 they couldn't just sell one idea of beauty to 00:09:10.389 --> 00:09:12.029 everyone. They needed to segment the market. 00:09:12.210 --> 00:09:13.809 You can't be everything to everyone under one 00:09:13.809 --> 00:09:17.110 label. Exactly. If Estee Lauder was the elegant 00:09:17.110 --> 00:09:19.789 mother, who was the daughter? Who was the husband? 00:09:20.049 --> 00:09:22.789 Let's talk about the husband, Eramis, introduced 00:09:22.789 --> 00:09:26.539 in 1964. Right. This was a dedicated move into 00:09:26.539 --> 00:09:29.639 men's grooming and fragrance. At the time, this 00:09:29.639 --> 00:09:32.440 was a very, very niche market. And here's a fun 00:09:32.440 --> 00:09:34.919 fact that I love. The name Aramis isn't just 00:09:34.919 --> 00:09:37.519 a musketeer reference. No, it's not. It comes 00:09:37.519 --> 00:09:40.200 from an exotic Turkish root that was originally 00:09:40.200 --> 00:09:43.559 used as an aphrodisiac. No way. That is incredible 00:09:43.559 --> 00:09:46.019 marketing. Here, splash this aphrodisiac root 00:09:46.019 --> 00:09:48.799 on your face. It worked. It created a distinct 00:09:48.799 --> 00:09:51.480 identity for men, separate from the floral or 00:09:51.480 --> 00:09:53.759 feminine associations of the main Estee Lauder 00:09:53.759 --> 00:09:56.480 brand. It gave men permission to care about grooming 00:09:56.480 --> 00:09:59.279 by packaging it in something masculine and slightly 00:09:59.279 --> 00:10:01.620 mysterious. But the real game changer, the one 00:10:01.620 --> 00:10:03.620 that I feel like everyone knows, is Clinique. 00:10:04.039 --> 00:10:07.019 1968. This seems like a massive pivot from luxury 00:10:07.019 --> 00:10:09.980 creams to hard science. Clinique was revolutionary. 00:10:10.480 --> 00:10:13.279 Right. Before 1968, skincare was often sold on 00:10:13.279 --> 00:10:15.919 mystery, allure, and packaging. It was about 00:10:15.919 --> 00:10:18.399 hope in a jar. Right. The miracle broth idea. 00:10:18.600 --> 00:10:21.000 Exactly. Clinique was sold on dermatology. It 00:10:21.000 --> 00:10:23.440 was guided by Dr. Norman Orrentree. It was fragrance 00:10:23.440 --> 00:10:25.820 -free. It was allergy tested. The people at the 00:10:25.820 --> 00:10:28.620 counters wore lab coats. The lab coats. I remember 00:10:28.620 --> 00:10:30.919 that. It was a whole aesthetic. It feels very 00:10:30.919 --> 00:10:34.080 modern, doesn't it? Like that pitch, dermatologist 00:10:34.080 --> 00:10:37.120 guided, fragrance free is exactly what brands 00:10:37.120 --> 00:10:39.320 are doing today on social media. It was decades 00:10:39.320 --> 00:10:43.159 ahead of its time. Consider the risk. Allergy 00:10:43.159 --> 00:10:46.200 tested? Sounds clinical. Almost medicinal. At 00:10:46.200 --> 00:10:48.299 the time, beauty was supposed to be romantic. 00:10:48.679 --> 00:10:51.340 But they bet that women wanted efficacy. And 00:10:51.340 --> 00:10:53.360 it worked. It worked spectacularly. It allowed 00:10:53.360 --> 00:10:55.879 them to capture a completely different customer, 00:10:56.000 --> 00:10:58.220 someone who wanted a regimen, who wanted something 00:10:58.220 --> 00:11:02.340 clean before clean duty was a buzzword. And interestingly, 00:11:02.620 --> 00:11:04.840 Clinique was the first women's cosmetic company 00:11:04.840 --> 00:11:07.440 to introduce a second line for men, skin supplies 00:11:07.440 --> 00:11:10.860 for men, in 1976. So they were doubling down 00:11:10.860 --> 00:11:13.100 on that clinical approach for everyone. Exactly. 00:11:13.220 --> 00:11:15.580 They're covering all the bases. High -end luxury 00:11:15.580 --> 00:11:18.659 with Estee, men with Aramis, science -based skincare 00:11:18.659 --> 00:11:21.379 with Clinique. It's a portfolio strategy before 00:11:21.379 --> 00:11:23.059 they even started acquiring other companies. 00:11:23.299 --> 00:11:24.799 And then there is this fascinating historical 00:11:24.799 --> 00:11:28.120 footnote. They entered the Soviet Union in 1981. 00:11:28.879 --> 00:11:32.409 Yes. This is where we... the geopolitical ambition 00:11:32.409 --> 00:11:35.230 of the company. Entering the Iron Curtain in 00:11:35.230 --> 00:11:38.889 1981 was not a small feat. I can't even imagine 00:11:38.889 --> 00:11:41.450 the logistics of that. It was incredibly complex. 00:11:41.830 --> 00:11:44.029 Most Western brands weren't there. It speaks 00:11:44.029 --> 00:11:46.509 to a strategy of planting flags in emerging markets 00:11:46.509 --> 00:11:49.549 long before competitors dare to go. It established 00:11:49.549 --> 00:11:52.570 them as a truly global player, not just a Western 00:11:52.570 --> 00:11:54.429 one. It's incredible to think about. Okay, so 00:11:54.429 --> 00:11:56.570 that's the foundation, the origin story. But 00:11:56.570 --> 00:11:59.149 here's where it gets really interesting. The 00:11:59.149 --> 00:12:01.779 1990s. Because up until this point, it's mostly 00:12:01.779 --> 00:12:03.480 a family business building their own brands from 00:12:03.480 --> 00:12:07.139 scratch. But in the 90s, the vibe shifts. The 00:12:07.139 --> 00:12:09.980 acquisition era begins. And structurally, the 00:12:09.980 --> 00:12:13.059 company changes forever. The IPO. Correct. On 00:12:13.059 --> 00:12:16.299 November 16th, 1995, the Estee Lauder companies 00:12:16.299 --> 00:12:18.899 went public on the New York Stock Exchange. The 00:12:18.899 --> 00:12:21.919 share price was $26, which, if you adjust for 00:12:21.919 --> 00:12:23.940 splits and inflation, is roughly equivalent to 00:12:23.940 --> 00:12:27.360 $50 in 2024 terms. And this is a huge moment. 00:12:27.419 --> 00:12:29.659 This moved them from a private family fiefdom 00:12:29.659 --> 00:12:33.039 to a publicly traded organization. It did. But, 00:12:33.139 --> 00:12:35.259 and we have to stress this, they didn't lose 00:12:35.259 --> 00:12:37.480 control. Right. This is critical. No, and that's 00:12:37.480 --> 00:12:39.899 a critical distinction. They implemented a dual 00:12:39.899 --> 00:12:41.820 -class share structure. We'll get into the gritty 00:12:41.820 --> 00:12:44.559 details of that later. But essentially, the family 00:12:44.559 --> 00:12:46.919 kept the shares with the super voting rights. 00:12:47.200 --> 00:12:49.679 They raised capital from the public, but they 00:12:49.679 --> 00:12:51.960 kept the steering wheel firmly in their own hands. 00:12:52.429 --> 00:12:55.029 So flush with cash from the IPO, let's talk about 00:12:55.029 --> 00:12:57.129 the shopping spree, because instead of just building 00:12:57.129 --> 00:12:59.149 new brands like Origins, which they launched 00:12:59.149 --> 00:13:01.870 in 1990, they started buying the competition 00:13:01.870 --> 00:13:04.210 and they weren't just buying anyone. They were 00:13:04.210 --> 00:13:07.250 buying the cool kids. They were. They realized 00:13:07.250 --> 00:13:10.269 they couldn't inherently be cool in every demographic. 00:13:10.789 --> 00:13:13.669 Sometimes corporate culture is too slow or too 00:13:13.669 --> 00:13:16.929 polished to create something gritty. So you buy 00:13:16.929 --> 00:13:20.360 the grit. And first up is MSC Cosmetics. The 00:13:20.360 --> 00:13:23.100 Messy. I remember when MC was the edgy makeup 00:13:23.100 --> 00:13:25.299 artist brand. It fell underground. It was the 00:13:25.299 --> 00:13:26.899 brand for people who were serious about makeup. 00:13:27.000 --> 00:13:29.080 Exactly. It was Toronto -based, started by makeup 00:13:29.080 --> 00:13:32.179 artists, Toscan and Frank Angelo. It was very 00:13:32.179 --> 00:13:35.559 inclusive, very bold, very Viva Glam. Estee Lauder 00:13:35.559 --> 00:13:38.620 made an initial investment in 1994 and fully 00:13:38.620 --> 00:13:41.559 acquired it by 1998. So why would MC sell to 00:13:41.559 --> 00:13:45.759 the establishment? Scale. Distribution. Supply 00:13:45.759 --> 00:13:49.080 chain. Emeke needed the muscle that only a giant 00:13:49.080 --> 00:13:52.139 like ELC could provide to go from a niche artist 00:13:52.139 --> 00:13:55.379 brand to a global powerhouse. And for ELC, what 00:13:55.379 --> 00:13:58.340 did it get? Street cred. It gave them access 00:13:58.340 --> 00:14:01.399 to a younger, more artistic demographic that 00:14:01.399 --> 00:14:03.399 would never have walked up to an Estee Lauder 00:14:03.399 --> 00:14:07.299 counter to buy super rich creme. It was a genius 00:14:07.299 --> 00:14:10.059 move. And then Bobby Brown in 1995. The natural 00:14:10.059 --> 00:14:13.100 look revolution. Bobby Brown was the antithesis 00:14:13.100 --> 00:14:15.019 of the 80s excess. It was about looking like 00:14:15.019 --> 00:14:18.200 yourself, only better. ELC saw that trend coming 00:14:18.200 --> 00:14:20.240 a mile away and just bought it instantly. And 00:14:20.240 --> 00:14:23.519 La Mer in 1995, the same year. The ultimate luxury 00:14:23.519 --> 00:14:25.460 play. This was a different strategy entirely. 00:14:25.820 --> 00:14:27.659 They acquired the brand and the original recipe 00:14:27.659 --> 00:14:29.240 for the Miracle Broth from the estate of the 00:14:29.240 --> 00:14:31.330 founder, Max Huber. So this wasn't about a trend. 00:14:31.370 --> 00:14:33.370 This was about owning the absolute peak of the 00:14:33.370 --> 00:14:35.269 luxury mountain. Exactly. If you wanted the most 00:14:35.269 --> 00:14:37.909 expensive cream on the market, the status symbol 00:14:37.909 --> 00:14:40.549 cream Estee Lauder companies now owned it. That 00:14:40.549 --> 00:14:42.669 solidified their hold on the ultra -premium skincare 00:14:42.669 --> 00:14:46.289 market. Then Aveda in 1997. Entry into holistic 00:14:46.289 --> 00:14:48.909 beauty and hair care. They bought the natural 00:14:48.909 --> 00:14:51.370 and eco -conscious angle before it was mainstream. 00:14:51.799 --> 00:14:55.179 And Jo Malone London in 1999 for Neusch Fragrance. 00:14:55.279 --> 00:14:58.019 Right. They realized fragrance was moving away 00:14:58.019 --> 00:15:00.779 from big blockbuster designer scents and towards 00:15:00.779 --> 00:15:03.519 more personal boutique experiences. So they bought 00:15:03.519 --> 00:15:05.179 one of the leaders in that space. They really 00:15:05.179 --> 00:15:07.779 just covered every single base in the 90s. It's 00:15:07.779 --> 00:15:10.519 an incredible portfolio. They built a portfolio 00:15:10.519 --> 00:15:13.279 that made them recession -proof in a way. If 00:15:13.279 --> 00:15:15.379 people weren't buying $300 cream, maybe they 00:15:15.379 --> 00:15:18.419 were buying a $20 lipstick from Emery. If they 00:15:18.419 --> 00:15:20.559 weren't into makeup, maybe they bought a Veda 00:15:20.559 --> 00:15:23.159 shampoo. It's portfolio theory applied to your 00:15:23.159 --> 00:15:25.059 bathroom cabinet. That's the perfect way to put 00:15:25.059 --> 00:15:28.580 it. So that brings us into the 2000s and 2010s. 00:15:28.659 --> 00:15:30.980 The strategy seems to shift again. They keep 00:15:30.980 --> 00:15:33.419 buying, but now they are chasing trends even 00:15:33.419 --> 00:15:36.179 harder. They seem almost desperate to stay young. 00:15:36.669 --> 00:15:38.509 I think chasing relevance is the right phrase. 00:15:38.710 --> 00:15:41.110 The market was speeding up. You had the rise 00:15:41.110 --> 00:15:44.970 of YouTube beauty gurus, then Instagram. The 00:15:44.970 --> 00:15:47.669 high -tech counter at Saks wasn't where trends 00:15:47.669 --> 00:15:49.470 were starting anymore. They were starting online. 00:15:49.809 --> 00:15:52.669 So they buy Smashbox in 2010. A studio -born 00:15:52.669 --> 00:15:55.210 brand from Los Angeles. Very photo -centric. 00:15:55.389 --> 00:15:57.389 It was designed to look good on camera, which 00:15:57.389 --> 00:15:59.009 was perfect for the emerging selfie culture. 00:15:59.309 --> 00:16:02.730 And then the big one in 2016, Too Faced. They 00:16:02.730 --> 00:16:06.399 spent $1 .45 billion on that. That was a massive 00:16:06.399 --> 00:16:09.240 bet. At the time, their largest ever. And was 00:16:09.240 --> 00:16:11.659 it worth it? Well, frankly, in hindsight, it's 00:16:11.659 --> 00:16:14.299 often debated by analysts. Two -Faced was huge 00:16:14.299 --> 00:16:18.350 on social media. It was fun, pink. unapologetic. 00:16:18.509 --> 00:16:21.730 It was the antithesis of the clinical clinique 00:16:21.730 --> 00:16:23.970 look. So this was a pure play on social media 00:16:23.970 --> 00:16:26.889 hype. Absolutely. It signaled that ELC was willing 00:16:26.889 --> 00:16:29.389 to pay a massive premium to capture the digital 00:16:29.389 --> 00:16:31.649 native generation. And more recently, they bought 00:16:31.649 --> 00:16:34.129 into the skintellectual movement with Deceum 00:16:34.129 --> 00:16:36.330 and The Ordinary. Yes, initially investing in 00:16:36.330 --> 00:16:38.929 2021 and completing the acquisition in June 2024. 00:16:39.350 --> 00:16:41.549 Now, this is a fascinating strategy. And it feels 00:16:41.549 --> 00:16:43.970 counterintuitive. It does. The Ordinary changed 00:16:43.970 --> 00:16:46.269 the industry by offering active ingredients like 00:16:46.269 --> 00:16:54.059 niacinamide, Right. This completely undercut 00:16:54.059 --> 00:16:57.100 the entire luxury markets model of selling you 00:16:57.100 --> 00:17:00.779 a fancy cream for $100 with a tiny amount of 00:17:00.779 --> 00:17:03.220 that same ingredient. So why buy them? Isn't 00:17:03.220 --> 00:17:05.339 that cannibalizing your own sales? That's a defensive 00:17:05.339 --> 00:17:07.960 acquisition. If you can't beat them, buy them. 00:17:08.079 --> 00:17:11.319 By owning the ordinary, ELC essentially bought 00:17:11.319 --> 00:17:13.700 the disruption that was threatening their high 00:17:13.700 --> 00:17:16.559 -margin brands. They capture the customer at 00:17:16.559 --> 00:17:18.940 the entry -level price point, hoping to trade 00:17:18.940 --> 00:17:21.200 them up to Clinique or Estee Lauder later. It's 00:17:21.200 --> 00:17:24.099 like a gateway drug for skincare. That's a cynical 00:17:24.099 --> 00:17:25.740 way to put it, but from a business perspective, 00:17:25.900 --> 00:17:28.319 yes. And they did the same with K -Beauty by 00:17:28.319 --> 00:17:31.700 buying Dr. Chart Plus in 2019, the pioneers of 00:17:31.700 --> 00:17:33.500 BB cream. So they're just constantly looking 00:17:33.500 --> 00:17:35.579 for where the heat is. Exactly. Whether it's 00:17:35.579 --> 00:17:37.880 Korea, social media, or ingredient transparency. 00:17:38.420 --> 00:17:40.460 But then we have to talk about the crown jewel 00:17:40.460 --> 00:17:43.400 of luxury acquisitions, the Tom Ford deal. The 00:17:43.400 --> 00:17:45.970 luxury capstone. announced in November 2022. 00:17:46.309 --> 00:17:49.710 $2 .8 billion. That is a serious chunk of change. 00:17:49.930 --> 00:17:53.269 It is. But think about what they bought. Tom 00:17:53.269 --> 00:17:55.690 Ford isn't just a beauty brand. It's a global 00:17:55.690 --> 00:17:59.509 fashion house. By acquiring the brand, they secured 00:17:59.509 --> 00:18:02.069 the rights to the Tom Ford Beauty line, which 00:18:02.069 --> 00:18:04.450 is incredibly profitable, especially the fragrances 00:18:04.450 --> 00:18:06.369 like Black Orchid. Which they already had the 00:18:06.369 --> 00:18:08.230 license for, right? They had the license, yes. 00:18:08.650 --> 00:18:11.170 But licenses expire. This was about owning it 00:18:11.170 --> 00:18:13.849 forever. And they also took ownership of the 00:18:13.849 --> 00:18:16.410 intellectual property of a major luxury house. 00:18:16.589 --> 00:18:19.190 So they own the name Tom Ford now, even the suits. 00:18:19.390 --> 00:18:22.529 They own the brand trademark. Now, the structure 00:18:22.529 --> 00:18:25.029 of the deal was very clever. They licensed the 00:18:25.029 --> 00:18:27.470 fashion back to Zygna Group to handle the suits 00:18:27.470 --> 00:18:29.710 and clothes, and they kept the beauty for themselves. 00:18:30.109 --> 00:18:32.869 Ah, so they control the high margin part. It's 00:18:32.869 --> 00:18:36.250 a brilliant, asset -light way to control the 00:18:36.250 --> 00:18:38.700 high margin part of the business. beauty fragrance 00:18:38.700 --> 00:18:41.700 while letting experts handle the low margin high 00:18:41.700 --> 00:18:44.519 complexity part manufacturing suits so they've 00:18:44.519 --> 00:18:46.920 assembled this empire they own the high end the 00:18:46.920 --> 00:18:49.839 low end the science the fun the hair the skin 00:18:49.839 --> 00:18:51.720 you would think they would be printing money 00:18:51.720 --> 00:18:54.359 well they generate revenue certainly but as we 00:18:54.359 --> 00:18:56.920 mentioned at the top the modern era specifically 00:18:56.920 --> 00:19:01.299 looking at 2024 through 2026 has been rocky let's 00:19:01.299 --> 00:19:04.039 get into that section three the modern era and 00:19:04.039 --> 00:19:06.019 the financial landscape Because there's been 00:19:06.019 --> 00:19:08.799 a changing of the guard, hasn't there? Huge leadership 00:19:08.799 --> 00:19:12.180 changes. Fabrizio Freyda, who was the CEO from 00:19:12.180 --> 00:19:15.500 2009 all the way through 2024, stepped down. 00:19:15.700 --> 00:19:18.299 He was the architect of that massive growth period 00:19:18.299 --> 00:19:21.339 we just discussed. He turned ELC into a stock 00:19:21.339 --> 00:19:23.920 market darling for a decade. And who is running 00:19:23.920 --> 00:19:27.460 the ship now? As of 2025, the new president and 00:19:27.460 --> 00:19:31.000 CEO is Stephan De La Favre. He's a veteran of 00:19:31.000 --> 00:19:33.279 the company, a former executive group president 00:19:33.279 --> 00:19:35.799 who oversaw Estee Lauder and Aaron. So it's an 00:19:35.799 --> 00:19:38.220 internal promotion. It is, which signals they 00:19:38.220 --> 00:19:40.480 want someone who understands the complex machinery 00:19:40.480 --> 00:19:42.859 of the company rather than an outsider coming 00:19:42.859 --> 00:19:45.059 in to slash and burn. They want stability. But 00:19:45.059 --> 00:19:46.680 we have to address the elephant in the room, 00:19:46.779 --> 00:19:48.980 or perhaps the elephant in the boardroom, the 00:19:48.980 --> 00:19:51.519 Lauder family. You cannot separate the company 00:19:51.519 --> 00:19:55.099 from the family, even in 2026. The Lauder family 00:19:55.099 --> 00:19:58.259 still owns about 38 % of the total equity. But 00:19:58.259 --> 00:20:01.970 here is the kicker. They control 86 % of the 00:20:01.970 --> 00:20:04.950 voting power. 86%. Let's just sit with that for 00:20:04.950 --> 00:20:07.029 a second. So basically, what the family wants 00:20:07.029 --> 00:20:10.109 happens. Effectively, yes. William P. Lauder 00:20:10.109 --> 00:20:12.589 is the chairman of the board. This dual -class 00:20:12.589 --> 00:20:14.650 stock structure means that while it is a public 00:20:14.650 --> 00:20:17.109 company, it is governed like a kingdom. What 00:20:17.109 --> 00:20:19.450 are the pros and cons of that? Because it seems 00:20:19.450 --> 00:20:21.950 like a double -edged sword. It absolutely is. 00:20:22.109 --> 00:20:24.380 The pro is long -term thinking. They aren't just 00:20:24.380 --> 00:20:26.019 looking at the next quarter. They're looking 00:20:26.019 --> 00:20:28.240 at the next generation. They protect the brand 00:20:28.240 --> 00:20:31.099 equity from short -term activist investors. And 00:20:31.099 --> 00:20:33.599 the con? A con is a potential lack of agility. 00:20:34.019 --> 00:20:36.259 It can make it harder to pivot quickly when the 00:20:36.259 --> 00:20:39.200 market demands radical change or to remove leadership 00:20:39.200 --> 00:20:42.039 that isn't performing. It can create an environment 00:20:42.039 --> 00:20:44.400 where legacy can sometimes trump innovation. 00:20:44.819 --> 00:20:48.000 And radical change might be needed. If we connect 00:20:48.000 --> 00:20:50.039 this to the bigger picture, let's look at that 00:20:50.039 --> 00:20:54.410 2025 financial report again. Revenue, $14 .3 00:20:54.410 --> 00:20:59.069 billion. Operating income loss, $785 million. 00:20:59.710 --> 00:21:04.609 Net loss, $1 .1 billion. What is driving this? 00:21:04.690 --> 00:21:06.329 Is it just that people aren't buying makeup? 00:21:06.630 --> 00:21:08.529 It's more complex than that. It's a combination 00:21:08.529 --> 00:21:11.369 of three big things. First, operating costs and 00:21:11.369 --> 00:21:13.609 restructuring. They're spending money to streamline 00:21:13.609 --> 00:21:15.809 the business. Closing underperforming stores, 00:21:16.069 --> 00:21:18.509 laying people off. That costs money up front. 00:21:18.690 --> 00:21:20.869 You have to spend money to save money. In theory. 00:21:21.490 --> 00:21:23.289 Second, something called goodwill impairment. 00:21:23.849 --> 00:21:25.509 Okay. Can you explain that in plain English? 00:21:25.650 --> 00:21:28.009 Sure. Remember those big acquisitions? Two -face 00:21:28.009 --> 00:21:31.430 for $1 .45 billion, Dr. Chart, Plessy. When you 00:21:31.430 --> 00:21:33.069 buy a company, a lot of the price you pay is 00:21:33.069 --> 00:21:35.170 for the goodwill, the brand name, the reputation. 00:21:35.289 --> 00:21:37.690 It's an intangible asset on your books. Got it. 00:21:37.930 --> 00:21:39.849 If those brands stop performing as well as you 00:21:39.849 --> 00:21:41.829 projected when you bought them, accounting rules 00:21:41.829 --> 00:21:43.890 say you have to admit the brand isn't worth what 00:21:43.890 --> 00:21:46.150 you paid for it. You have to write down the value 00:21:46.150 --> 00:21:48.650 of that goodwill. And that write down counts 00:21:48.650 --> 00:21:51.710 as a loss on your income statement. So the shopping 00:21:51.710 --> 00:21:53.430 spree is coming back to bite them a little bit. 00:21:53.470 --> 00:21:55.910 Some of those big bets aren't paying off as expected. 00:21:56.170 --> 00:21:58.089 Precisely. And the third factor, and this is 00:21:58.089 --> 00:22:00.890 a huge one, is the travel retail slump. Duty 00:22:00.890 --> 00:22:04.769 free shops. Yes. ELC was heavily, heavily dependent 00:22:04.769 --> 00:22:08.819 on duty free sales, particularly in Asia. The 00:22:08.819 --> 00:22:11.160 Daegu market, personal shoppers in places like 00:22:11.160 --> 00:22:14.119 Korea buying beauty products in bulk to resell 00:22:14.119 --> 00:22:16.960 in China, that market basically collapsed due 00:22:16.960 --> 00:22:19.279 to new regulations and the economic cooling in 00:22:19.279 --> 00:22:21.339 China. I mean, that was a massive profit engine 00:22:21.339 --> 00:22:24.079 for them. Massive. And it just sputtered out. 00:22:25.079 --> 00:22:27.119 The stock price reflects this. Oh, absolutely. 00:22:27.440 --> 00:22:31.039 Remember, the IPO was $26. Well, while it soared 00:22:31.039 --> 00:22:34.000 to over $300 at its peak a few years ago, the 00:22:34.000 --> 00:22:35.839 current financial challenges have put significant 00:22:35.839 --> 00:22:38.539 pressure on their valuation. It's been a painful 00:22:38.539 --> 00:22:40.740 correction for investors. So how are they trying 00:22:40.740 --> 00:22:42.480 to fix it? They aren't just sitting there losing 00:22:42.480 --> 00:22:44.559 a billion dollars, right? There has to be a plan. 00:22:44.720 --> 00:22:47.339 No, of course not. They are pivoting. And the 00:22:47.339 --> 00:22:50.299 strategy seems to be twofold, technology and 00:22:50.299 --> 00:22:52.339 emerging markets. Let's talk about the tech. 00:22:53.130 --> 00:22:56.470 October 2024, they opened something called the 00:22:56.470 --> 00:23:00.130 Global Fragrance Atelier in Paris. This is fascinating. 00:23:00.369 --> 00:23:02.730 It's located in La Maison des Parfums. It's an 00:23:02.730 --> 00:23:06.150 AI -enabled innovation hub. AI perfume? How does 00:23:06.150 --> 00:23:08.829 that even work? Essentially, they're using artificial 00:23:08.829 --> 00:23:11.369 intelligence to analyze decades of fragrance 00:23:11.369 --> 00:23:14.710 formulas, global scent trends, ingredient combinations, 00:23:15.190 --> 00:23:18.309 and consumer preferences at a speed no human 00:23:18.309 --> 00:23:20.819 nose could ever match. So it tells the perfumer, 00:23:20.900 --> 00:23:23.160 hey, people in Brazil are really into notes of 00:23:23.160 --> 00:23:25.740 vanilla and cedar right now. Exactly that. But 00:23:25.740 --> 00:23:27.980 on a much more complex level, they are trying 00:23:27.980 --> 00:23:30.779 to marry the artistry of French perfumery, the 00:23:30.779 --> 00:23:34.140 nose, with the data analysis of AI. It shows 00:23:34.140 --> 00:23:35.819 they're trying to innovate their way out of the 00:23:35.819 --> 00:23:38.480 slump by creating blockbusters faster and with 00:23:38.480 --> 00:23:40.460 a higher chance of success. And then the second 00:23:40.460 --> 00:23:42.839 part of the strategy. Emerging markets. I saw 00:23:42.839 --> 00:23:45.920 a note here about December 2025. Yes. They announced 00:23:45.920 --> 00:23:48.160 they are taking minority stakes in brands across 00:23:48.160 --> 00:23:51.079 China, Mexico, and India. Now, they had already 00:23:51.079 --> 00:23:52.799 dipped their toes in India with forest essentials 00:23:52.799 --> 00:23:55.750 back in 2014, right? They did, buying a minority 00:23:55.750 --> 00:23:58.789 stake in that Ayurvedic luxury brand. But this 00:23:58.789 --> 00:24:01.730 new push in 2025 is more aggressive and broader. 00:24:01.950 --> 00:24:04.450 They are targeting the growing middle class in 00:24:04.450 --> 00:24:06.950 these specific regions. So they've realized something. 00:24:07.269 --> 00:24:08.890 They realize that growth isn't going to come 00:24:08.890 --> 00:24:11.430 from selling more Clinique in a mall in Ohio. 00:24:12.130 --> 00:24:15.109 That market is saturated. Right. The growth is 00:24:15.109 --> 00:24:17.329 going to come from selling local, culturally 00:24:17.329 --> 00:24:20.470 relevant brands in Mumbai, Mexico City, and Shanghai. 00:24:20.529 --> 00:24:23.859 It's a... hyper -local strategy on a global scale. 00:24:23.980 --> 00:24:26.460 Instead of forcing Western beauty standards on 00:24:26.460 --> 00:24:28.980 the world, they are investing in the local definitions 00:24:28.980 --> 00:24:31.700 of beauty. It's a much smarter, more sustainable 00:24:31.700 --> 00:24:34.319 approach for the next decade. No, we can't talk 00:24:34.319 --> 00:24:35.940 about a beauty company without talking about 00:24:35.940 --> 00:24:38.480 marketing. And for Estee Lauder, that means the 00:24:38.480 --> 00:24:41.220 face. The face is iconic. The Estee Lauder woman. 00:24:41.380 --> 00:24:43.559 From the past to what we see today, it's been 00:24:43.559 --> 00:24:45.740 quite a journey. It used to be very specific. 00:24:46.099 --> 00:24:49.160 Karen Graham, Elizabeth Hurley, very polished, 00:24:49.400 --> 00:24:52.039 very wealthy looking. Very aspirational in a 00:24:52.039 --> 00:24:54.819 traditional Western aristocratic sense. It was 00:24:54.819 --> 00:24:58.480 about old money glamour. But the evolution of 00:24:58.480 --> 00:25:02.410 the face. mirrors the evolution of cultural standards 00:25:02.410 --> 00:25:05.109 of beauty. Right. I mean, signing Kendall Jenner 00:25:05.109 --> 00:25:08.210 in 2015 was a huge moment. That was the bridge 00:25:08.210 --> 00:25:10.910 to the Instagram generation. Yeah. Before Kendall, 00:25:11.130 --> 00:25:14.150 Estee Lauder felt like your mother's brand. It 00:25:14.150 --> 00:25:16.710 did. Kendall made it relevant to the girl browsing 00:25:16.710 --> 00:25:19.349 her phone. It was controversial at the time. 00:25:19.430 --> 00:25:21.750 Purists hated it, but it brought in the numbers. 00:25:21.829 --> 00:25:23.450 It was a purely commercial decision. Well, he 00:25:23.450 --> 00:25:25.549 didn't stop there. The diversity push has been 00:25:25.549 --> 00:25:28.470 significant. And necessary. Absolutely necessary 00:25:28.470 --> 00:25:31.470 for a global brand. They signed Leah Kibede as 00:25:31.470 --> 00:25:34.410 the first African face. They brought on Lou Nguyen, 00:25:34.450 --> 00:25:36.829 Joan Smalls. These weren't just token nods. These 00:25:36.829 --> 00:25:39.329 were major global campaigns. They needed the 00:25:39.329 --> 00:25:41.549 face of the brand to actually look like the customers 00:25:41.549 --> 00:25:43.569 they were selling to globally. And recently, 00:25:43.650 --> 00:25:45.609 the ambassadors have become even more interesting. 00:25:45.730 --> 00:25:49.589 Amanda Gorman, the poet. Yes. That signals a 00:25:49.589 --> 00:25:52.390 shift from just visual beauty to substance and 00:25:52.390 --> 00:25:55.069 intellect. It's a very smart move. Saying smart 00:25:55.069 --> 00:25:57.769 is beautiful. And then the K wave. The K wave 00:25:57.769 --> 00:26:00.470 capturing the massive influence of Asian pop 00:26:00.470 --> 00:26:03.549 culture. They announced IU as the first Korean 00:26:03.549 --> 00:26:07.309 global brand ambassador in 2024. IU is huge. 00:26:07.390 --> 00:26:09.410 That connects directly back to that Asian market 00:26:09.410 --> 00:26:11.430 strategy we talked about. It's a very calculated 00:26:11.430 --> 00:26:14.289 move to leverage the Halley global phenomenon. 00:26:14.470 --> 00:26:18.509 If IU uses a serum, it sells out in Seoul, Tokyo 00:26:18.509 --> 00:26:21.599 and increasingly Los Angeles. Now. Running a 00:26:21.599 --> 00:26:23.980 company this big isn't always about glamorous 00:26:23.980 --> 00:26:27.359 photo shoots. Sometimes crisis strikes. And we 00:26:27.359 --> 00:26:29.140 have to look at how they handled the big one, 00:26:29.420 --> 00:26:32.779 COVID -19. August 2020, a very difficult time. 00:26:32.940 --> 00:26:34.339 Remember, this is a company built on department 00:26:34.339 --> 00:26:36.859 stores. When the malls closed, their revenue 00:26:36.859 --> 00:26:38.940 tap turned off. Their whole business model was 00:26:38.940 --> 00:26:40.940 threatened overnight. Completely. The company 00:26:40.940 --> 00:26:42.799 had to make some hard choices. They cut between 00:26:42.799 --> 00:26:45.839 1 ,500 and 2 ,000 jobs. That was about 3 % of 00:26:45.839 --> 00:26:48.160 their workforce. And they closed stores. 10 to 00:26:48.160 --> 00:26:51.059 15 percent of their standalone stores. They realized 00:26:51.059 --> 00:26:53.200 that the foot traffic just wasn't coming back 00:26:53.200 --> 00:26:55.799 the same way, so they had to aggressively pivot 00:26:55.799 --> 00:26:59.359 to digital operations. It was a painful but necessary 00:26:59.359 --> 00:27:02.680 correction to survive the pandemic. It forced 00:27:02.680 --> 00:27:04.599 them to accelerate their e -commerce capabilities 00:27:04.599 --> 00:27:07.539 by about five years in the span of five months. 00:27:07.680 --> 00:27:09.980 Speaking of operations, I want to briefly shout 00:27:09.980 --> 00:27:12.680 out a name that popped up in the research, Jeanette 00:27:12.680 --> 00:27:16.539 Sarkeesian Wagner. Ah, yes, an unsung hero of 00:27:16.539 --> 00:27:18.599 the operational side. She was the one who really 00:27:18.599 --> 00:27:20.859 opened up those difficult markets in the 80s 00:27:20.859 --> 00:27:23.460 and 90s, right? The Iron Curtain? Correct. As 00:27:23.460 --> 00:27:26.079 head of international operations, she was pivotal 00:27:26.079 --> 00:27:28.700 in getting Estee Lauder into the USSR and China 00:27:28.700 --> 00:27:31.470 when those doors were just barely cracking. open. 00:27:31.750 --> 00:27:34.069 Under her watch, the international division went 00:27:34.069 --> 00:27:36.630 from a small side project to generating half 00:27:36.630 --> 00:27:38.430 the company's revenue. It's a good reminder. 00:27:38.630 --> 00:27:41.289 It is. A reminder that behind the famous faces 00:27:41.289 --> 00:27:44.109 like Kendall Jenner, there are incredibly sharp 00:27:44.109 --> 00:27:47.150 business operators making this machine run. Absolutely. 00:27:47.450 --> 00:27:50.529 But talking about the machine running, sometimes 00:27:50.529 --> 00:27:53.130 the machine runs into trouble. We need to move 00:27:53.130 --> 00:27:55.349 into Section 5, controversies and challenges. 00:27:55.910 --> 00:27:58.490 Because you don't get to be a $14 billion company 00:27:58.490 --> 00:28:01.089 without stepping on some toes or facing some 00:28:01.089 --> 00:28:03.349 ethical dilemmas. That is unfortunately true. 00:28:03.849 --> 00:28:06.190 When you operate at this scale, ethical consistency 00:28:06.190 --> 00:28:08.990 becomes very, very difficult to maintain across 00:28:08.990 --> 00:28:11.769 every single market and supplier. The biggest 00:28:11.769 --> 00:28:13.630 one that always seems to come up in the beauty 00:28:13.630 --> 00:28:16.470 community is animal testing. This is a major 00:28:16.470 --> 00:28:20.329 tension point. A real thorn in their side. Estee 00:28:20.329 --> 00:28:23.130 Lauder companies owns brands like Aveda and Smashbox 00:28:23.130 --> 00:28:25.490 that built their reputations on being cruelty 00:28:25.490 --> 00:28:27.809 free. That's their whole identity. It is. They 00:28:27.809 --> 00:28:30.140 market themselves heavily on not. testing on 00:28:30.140 --> 00:28:33.279 animals. But. But the parent corporation sells 00:28:33.279 --> 00:28:36.039 other brands in mainland China. And historically, 00:28:36.279 --> 00:28:38.460 the Chinese government has required animal testing 00:28:38.460 --> 00:28:40.400 for many cosmetic products to be sold in the 00:28:40.400 --> 00:28:42.700 country. This is called post -market surveillance 00:28:42.700 --> 00:28:45.940 or entry testing. So if you are a consumer who 00:28:45.940 --> 00:28:48.819 buys Aveda because you love animals, but Aveda 00:28:48.819 --> 00:28:51.700 is owned by a parent company that pays for animal 00:28:51.700 --> 00:28:54.819 testing in China for its other products or even 00:28:54.819 --> 00:28:57.670 for Aveda products sold there. It's a contradiction. 00:28:58.049 --> 00:29:00.910 It creates a massive ethical gray area for the 00:29:00.910 --> 00:29:04.890 consumer. ELC states they perform non -animal 00:29:04.890 --> 00:29:07.670 testing where possible and advocate for alternative 00:29:07.670 --> 00:29:10.269 methods globally, but they comply with local 00:29:10.269 --> 00:29:13.490 laws where required. For a purist, that compliance 00:29:13.490 --> 00:29:16.309 is a deal breaker. No way around it. For a pragmatist, 00:29:16.329 --> 00:29:18.390 they might argue that being in the market allows 00:29:18.390 --> 00:29:20.849 them to influence the Chinese government to change 00:29:20.849 --> 00:29:23.829 the laws. Which, to be fair, China has started 00:29:23.829 --> 00:29:26.450 to do recently, slowly phasing out some of those 00:29:26.450 --> 00:29:28.430 requirements. It's complicated. Then there was 00:29:28.430 --> 00:29:30.750 the child labor issue. This was back in 2001. 00:29:31.130 --> 00:29:33.289 This was a disturbing report involving a contract 00:29:33.289 --> 00:29:35.829 manufacturer in New York, of all places, making 00:29:35.829 --> 00:29:38.589 products for their Origins brand. What happened? 00:29:38.750 --> 00:29:41.069 It turned out the manufacturer, a company called 00:29:41.069 --> 00:29:43.690 Common Sense Natural Soap and Body Care, was 00:29:43.690 --> 00:29:46.470 owned by a group led by a cult leader, and children 00:29:46.470 --> 00:29:48.690 were found working in the factory. That is horrifying. 00:29:48.990 --> 00:29:51.880 How did ELC respond? they terminated the contract 00:29:51.880 --> 00:29:54.480 immediately they stated they were totally unaware 00:29:54.480 --> 00:29:57.400 of the conditions prior to the inspection but 00:29:57.400 --> 00:29:59.700 it highlights the risks of complex supply chains 00:29:59.700 --> 00:30:02.940 even if you are a massive company if you outsource 00:30:02.940 --> 00:30:05.579 manufacturing you are vulnerable to the bad practices 00:30:05.579 --> 00:30:07.940 of your partners it was a wake -up call for the 00:30:07.940 --> 00:30:10.509 industry regarding auditing suppliers There are 00:30:10.509 --> 00:30:13.230 also geopolitical issues. We mentioned the family's 00:30:13.230 --> 00:30:16.849 strong influence. That has led to boycotts. Yes. 00:30:16.970 --> 00:30:19.349 Since at least 2001, there have been boycott 00:30:19.349 --> 00:30:22.730 campaigns led by pro -Palestine activists. This 00:30:22.730 --> 00:30:24.930 is largely due to Ronald Lauders, one of the 00:30:24.930 --> 00:30:27.990 key family members and son of Este, and his very 00:30:27.990 --> 00:30:30.630 public, very significant pro -Israel activities 00:30:30.630 --> 00:30:33.450 and political stances. And again, we aren't taking 00:30:33.450 --> 00:30:35.829 a side here on the conflict itself, but it's 00:30:35.829 --> 00:30:38.049 important to note that for a global brand, the 00:30:38.049 --> 00:30:40.119 political activities of its owners can have a 00:30:40.119 --> 00:30:42.660 direct impact on consumer sentiment. Absolutely. 00:30:42.839 --> 00:30:45.859 In a polarized world, the family aspect of a 00:30:45.859 --> 00:30:48.160 family -controlled business becomes a liability 00:30:48.160 --> 00:30:50.779 as much as an asset. When the name on the building 00:30:50.779 --> 00:30:52.740 is the same as the name on the political donation, 00:30:53.059 --> 00:30:56.579 consumers connect those dots. And briefly, SOPA. 00:30:57.130 --> 00:30:59.750 The SNAP Online Piracy Act. Right, the Internet 00:30:59.750 --> 00:31:03.509 Freedom Controversy. ELC appeared on lists of 00:31:03.509 --> 00:31:06.490 companies supporting SOPA back in the day. Critics 00:31:06.490 --> 00:31:08.690 felt the bill was overreaching and would harm 00:31:08.690 --> 00:31:11.089 Internet freedom. It didn't sit well with the 00:31:11.089 --> 00:31:13.369 younger digital native audience they were trying 00:31:13.369 --> 00:31:16.269 to court with brands like MAC and Smashbox. The 00:31:16.269 --> 00:31:18.450 real disconnect. It showed a disconnect between 00:31:18.450 --> 00:31:19.990 the corporate lawyers and the marketing department 00:31:19.990 --> 00:31:22.400 for sure. It seems like they're constantly walking 00:31:22.400 --> 00:31:24.819 a tightrope. But we can't finish without talking 00:31:24.819 --> 00:31:27.480 about the other side of their impact. The positive 00:31:27.480 --> 00:31:30.380 side. The pink ribbon. You really can't tell 00:31:30.380 --> 00:31:32.640 the story of Estee Lauder without the Breast 00:31:32.640 --> 00:31:34.859 Cancer Awareness Campaign. It's part of their 00:31:34.859 --> 00:31:37.180 DNA now. I think people forget that the pink 00:31:37.180 --> 00:31:39.359 ribbon didn't just appear out of nowhere. It 00:31:39.359 --> 00:31:42.680 was launched in October 1992 by Evelyn Lauder. 00:31:42.960 --> 00:31:45.519 Estee's daughter -in -law. She co -created the 00:31:45.519 --> 00:31:48.480 ribbon with Self Magazine. And you have to remember, 00:31:48.599 --> 00:31:51.130 back then... Breast cancer was spoken about in 00:31:51.130 --> 00:31:53.450 hushed tones. It wasn't a public conversation. 00:31:53.789 --> 00:31:56.390 It was stigmatized. Very much so. This campaign 00:31:56.390 --> 00:31:58.309 helped bring it into the light. And the impact 00:31:58.309 --> 00:32:00.839 has been undeniable. It has. They have raised 00:32:00.839 --> 00:32:04.619 over $89 million globally for research, education, 00:32:04.759 --> 00:32:07.119 and medical services. And what's impressive is 00:32:07.119 --> 00:32:09.880 how they mobilized the entire portfolio. It wasn't 00:32:09.880 --> 00:32:12.579 just an Estee Lauder brand initiative. It united 00:32:12.579 --> 00:32:15.720 all 19 of their brands at the time. That's powerful. 00:32:16.200 --> 00:32:18.119 It is. Whether you were at a Clinique counter 00:32:18.119 --> 00:32:20.900 or buying La Mer, you saw that ribbon. It's arguably 00:32:20.900 --> 00:32:23.140 one of the most successful corporate social responsibility 00:32:23.140 --> 00:32:25.640 campaigns in history. It changed the culture 00:32:25.640 --> 00:32:28.319 surrounding the disease. So we have covered a 00:32:28.319 --> 00:32:30.819 lot of ground. here, from four creams in a kitchen 00:32:30.819 --> 00:32:34.660 in 1946 to an AI fragrance lab in Paris in 2024, 00:32:34.940 --> 00:32:39.539 from a net loss of $1 .1 billion to a charitable 00:32:39.539 --> 00:32:43.119 impact of $89 million. So what does this all 00:32:43.119 --> 00:32:45.319 mean? Where does this leave them? We are looking 00:32:45.319 --> 00:32:47.680 at a company at a crossroads. That is the only 00:32:47.680 --> 00:32:49.839 way to describe it. How so? They have the legacy. 00:32:49.920 --> 00:32:51.839 They have the moat of these incredible brands, 00:32:52.039 --> 00:32:54.539 Tom Ford, Lemaire, Amaze Command. Those names 00:32:54.539 --> 00:32:56.759 aren't going away. They have brand equity that 00:32:56.759 --> 00:32:58.819 takes decades to build. That's their strength. 00:32:58.940 --> 00:33:01.220 But they're facing a financial reality that is 00:33:01.220 --> 00:33:04.200 harsh. Losing a billion dollars is a wake up 00:33:04.200 --> 00:33:07.240 call. The travel retail bubble has burst. The 00:33:07.240 --> 00:33:09.380 department store model is fading. And the market 00:33:09.380 --> 00:33:11.900 is changing faster than ever. Exactly. They are 00:33:11.900 --> 00:33:13.980 trying to pivot with this hyper localization 00:33:13.980 --> 00:33:17.180 in India and Mexico and this investment in AI. 00:33:17.380 --> 00:33:20.380 But the question remains, can a company that 00:33:20.380 --> 00:33:22.740 is still 86 percent controlled by the founding 00:33:22.740 --> 00:33:26.390 family truly be agile enough? Right. Can you 00:33:26.390 --> 00:33:28.869 really disrupt yourself when your primary mission 00:33:28.869 --> 00:33:31.809 might be protecting a legacy? Or will they just 00:33:31.809 --> 00:33:34.099 rely on their old playbook? Yeah. Waiting for 00:33:34.099 --> 00:33:36.019 someone else to innovate and then buying them. 00:33:36.079 --> 00:33:37.859 They bought the cool with Ambat. They bought 00:33:37.859 --> 00:33:39.619 the science with The Ordinary. They bought the 00:33:39.619 --> 00:33:42.640 luxury with Tom Ford. But at a certain point, 00:33:42.740 --> 00:33:45.819 can you buy your way out of every problem or 00:33:45.819 --> 00:33:47.740 do you eventually run out of money to buy the 00:33:47.740 --> 00:33:49.799 solution? That is the big question. With the 00:33:49.799 --> 00:33:52.619 new CEO, Stéphane de la Favre, taking the helm 00:33:52.619 --> 00:33:55.259 in 2025 and the family still holding the keys, 00:33:55.480 --> 00:33:58.140 the next five years will determine if ELC remains 00:33:58.140 --> 00:34:00.960 the undisputed beauty behemoth. or if it starts 00:34:00.960 --> 00:34:02.859 to show its age. It's going to be a fascinating 00:34:02.859 --> 00:34:06.420 watch for anyone interested in business, branding, 00:34:06.640 --> 00:34:10.079 or, you know, just lipstick. So here is my challenge 00:34:10.079 --> 00:34:12.780 to you, the listener. Go to your vanity table. 00:34:13.019 --> 00:34:15.420 Go to your bathroom. Look at the labels. Flip 00:34:15.420 --> 00:34:18.000 them over. See how many of them trace back to 00:34:18.000 --> 00:34:20.539 the General Motors building in New York. You 00:34:20.539 --> 00:34:22.559 might be surprised to find that your indie favorite 00:34:22.559 --> 00:34:25.599 is actually part of the empire. It's a good exercise 00:34:25.599 --> 00:34:27.960 in realizing just how consolidated the world 00:34:27.960 --> 00:34:30.190 of beauty really is. Thanks for joining us on 00:34:30.190 --> 00:34:32.230 this deep dive into the Estee Lauder companies. 00:34:32.349 --> 00:34:33.949 We will catch you on the next one.