The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
NEW YORK, United States — Midday on a Wednesday at Sephora on Columbus Circle, three teenage girls and their backpacks crowded around a row of mascaras at the Clinique display.
“You try this one and you try this one,” said one girl, assigning her friends different formulations to sample. After carefully applying the mascaras with test wands, all three migrated to the window, filled with the warm May sunshine, and took several selfies. Satisfied, they moved onto a wall of skincare marketed as “Breakthrough Brands.”
Even as recently as five years ago, these girls might have discovered Clinique for the first time at a department store counter, chaperoned by their mothers. The brand’s 3-Step Skin Care System was a revelation when it launched in 1968, introducing the concept of skincare to generations of women ever since.
But in recent years, the beauty business has undergone a fundamental shift that the sector's biggest prestige players — brands that dominated vanity tables for decades such as Lancôme, Estée Lauder, Clinique and Elizabeth Arden — simply did not see coming. Now consumers of all ages, eager to tap into the transformational experience of beauty, are more willing than ever to try the influx of new small, independent brands that they discover on social media and through beauty influencers. Mothers are taking cues from their daughters. Makeup (and selfies) are more important than skin care. Consumers know everything about active ingredients, efficacy and product launches.
“We can’t take it for granted that consumers know our story, or that just because we’ve been around for a long time that we shouldn’t scream loud about what makes us different,” says Jane Lauder, whose grandmother founded Estée Lauder in 1946 and who now heads Clinique, one of the prestige conglomerate’s core brands. “We can’t be complacent, we know that these are really dynamic brands that are coming after us.” Anastasia Beverly Hills (founded in 1997), Glossier (founded in 2014) and Kylie Cosmetics (founded in 2016) are just three newer entrants that are dominating sales and social feeds today.
We can't be complacent, we know these are really dynamic brands that are coming after us.
“It’s a level playing field,” says Karen Grant, global beauty industry analyst for the NPD Group. “I think what caught [heritage brands] off guard was that no one player was big enough to warrant their attention…. I don’t think they saw the impact that all these little guys were going to have on them.”
The impact started registering in the last three years. Elizabeth Arden, which includes the namesake prestige brand and celebrity and branded fragrances, saw sales drop 13 percent in fiscal 2014. (It was acquired by Revlon last year for $420 million.) In August 2015, Estée Lauder reported that two of its core brands, Estée Lauder and Clinique, had seen single digit sales declines, particularly in skincare like serums and moisturisers. And L’Oreal, which does does not break out sales for individual brands, wrote in its 2014 annual report that Lancôme, one of its core prestige beauty brands founded in 1935, needed “revamping" in regards to point-of-sales identity, advertising campaigns and ambassadors.
While the shift in consumer behavior caught heritage brands off guard — "when you're steering billion-dollar ships it's not so easy to make turns," says Grant — they are finding new ways to assert themselves in the marketplace, as their parent companies go off on expensive acquisition sprees to keep growing market share.
In the most recent fiscal quarter, Estée Lauder Companies reported that Clinique and Estée Lauder, the brand, are growing again. (The company as a whole saw sales grow 8 percent in the recent quarter.) L’Oreal saw its prestige division grow 17.8 percent in reported sales, and Elizabeth Arden continues to integrate into Revlon, with sales in the division growing less than 1 percent.
For Estée Lauder chief executive Fabrizio Freda, the increased competition — and consumer willingness to try new brands — also provides a key opportunity for heritage brands with dependable products. “The trial moment is not the profitable moment,” he told investors in May. “Trial is an investment. Repeat is a profit. And so at the end, the profitable brands are still the big brands with great hero product, great repeat, and not [the] many small brands that generate a lot of noise on trial. Because unless they get the repeat, they will not be sustainable.”
Grant says the onus is now on heritage brands to tell their stories in a compelling way and remind consumers that they can trust their product. The right ambassador can make all the difference.
Estée Lauder had already signed super-influencer-model Kendall Jenner in her first cosmetics contract before sales started to stumble. But unlike its past ambassador campaigns, the brand decided to make a major investment with the influential face. In March 2016, the brand launched a new collection of makeup-focused products targeted and merchandised for younger consumers called the Estée Edit, which launched exclusively in Sephora stores. Jenner and the Korean model and beauty obsessive Irene Kim, both faces of the launch, together delivered a combination of mass appeal and niche buzz. The immediate success was not clear, however, and it didn't garner half as much social media conversation as Kylie Jenner's namesake line in the year ending October 2016.
A similar strategy was not right for Clinique, where Lauder focused on communicating the brand’s trustworthiness. “Clinique has been and continues to be a brand that was never about a face or a celebrity,” says Lauder. “Product is hero.”
But Clinique wanted to incorporate more humanity and lifestyle into the brand, which led to the first Face Forward campaign in summer 2015 starring Margaret Zhang, Tavi Gevinson and Hannah Bronfman. The multi-hyphenate ambassadors touted the 3-Step Skin Care System and in April 2016, Freda told investors that Clinique's newest digital campaigns had resonated with shoppers at specialty multi-brand stores (which include Sephora and Ulta).
When you're steering billion-dollar ships it's not so easy to make turns.
“They are not the typical celebrities, but more women who we thought were cool, on the cusp of greatness, on the rise and had really interesting stories to tell,” says Lauder, who has continued to invest in partnerships with like-minded ambassadors and YouTube influencers, as well as Clinique’s own service content. “It’s really been an acceleration into digital and social and how to provide YouTube videos that are interesting,” she says.
There’s more progress to be made in messaging. Lauder wants to make sure consumers understand Clinique’s accessible price point. “We have always been the most affordable brand when it comes to the prestige world, and I’m not sure that we are clearly telling that story enough,” she says.
Meanwhile, Elizabeth Arden is framing its approach to ambassadors differently: in March, the company named actress and entrepreneur Reese Witherspoon its “Storyteller in Chief” as a way to connect back to the brand’s origins. “We are the brand that was founded by a woman entrepreneur at a time when most women weren’t going to college,” says Kara Langan, Elizabeth Arden’s senior vice president of global marketing. Any ambassador or influencer the brand works with must have some kind of connection to Arden or her values. “What we never want to do is upstage her story… what we know we need help in is telling that story.”
Elizabeth Arden is also in the unusual position of speaking directly to professional women between the ages of 35 and 55, as anti-aging skincare is core to the business. And now with Revlon’s support, Langan says the brand will have more resources to amplify Arden’s history and its classic products, including the Eight Hour Cream (one of two products in the entire line that was actually invented by the founder). “Part of our challenge has been scale,” says Langan. The company is still adjusting to its new ownership, and in in March Serge Jureidini was named president of the brand and the fragrances division.
Product Innovation Inside and Out
“Packaging before, when it was behind a counter, was very different,” says Shannon Davenport, a trend forecaster at the research firm Stylus. “Now packaging in a self-serve environment like Sephora or Ulta — you need to be drawn to it, you need to pick it up and once you have it, you need to want to share a picture of it.”
Case in point: Lancôme’s La Rose à Poudrer highlighter released in January. The rose-shaped product features powder-infused petals in packaging designed in the style of a hat box. Unlike other moulded powder products, the rose maintains its shape as it is used, but only contains a mere 1.6 grams of product.
Heritage brands have the vast resources to dedicate to this kind of innovation. “With indie brands, a lot of that stuff is really expensive to develop, so that’s not something that every single brand can achieve,” says Davenport.
Packaging can also give new life to classic formulations. One example is Estée Lauder’s Double Wear Nude Cushion Stick Radiant Makeup, the latest iteration of the longstanding foundation line. The brand took the current cushion foundation trend a step further by producing it in a stick form.
Heritage brands also have the resources to invest in the kind of product innovation that can attract new customers. L’Oréal launched a US-based technology incubator in 2012 that has developed, among other projects, a customisable foundation for Lancôme called Le Teint Particulier. The parent company also partnered with Founders Factory, a London-based accelerator and incubator, in 2016, to support the growth of five high potential early-stage startups per year.
Over at Estée Lauder, the company has focused on developing new products with instant benefits, such as masks. Freda told investors in August 2016 that while Clinique makeup sales had increased sharply that year, skincare was also rebounding thanks to a new Pep-Start skin care line, designed to make skin look better for makeup application, among other new products.
The company also just launched a product called Fresh Pressed Vitamin C. "You get immediate results and results over time — that combination is really the sweet spot,” says Lauder. The Vitamin C serum was particularly successful in China and in travel retail and helped drive sales of moisturisers too.
A big challenge for Estée Lauder and Clinique is the eroding retail market in the United States, which has seen more bankruptcies in the first quarter of 2017 than in all of the previous year. Macy’s is Estée Lauder’s biggest client and is closing 68 of its stores in 2017.
“Our growth… below some of our competitors is frankly [due to] 80 percent US department store traffic,” said Freda on an earnings call in May. “We are the company which has the highest exposure in percentage of our business, and in our big brands, to US department store traffic. And that's the big thing.”
To remedy the problem, Estée Lauder has expanded its core brands in the most successful multi-brand specialty beauty retailers, LVMH’s Sephora (where the Estée Edit is available) and Ulta. The latter is known as a mass beauty retailer but is expanding its offerings in prestige rapidly. It started 2016 with 200 in-store Clinique boutiques and 200 in-store Lancôme boutiques, with plans to open hundreds more in 2017. Estée Lauder launched in 250 Ulta locations in 2016 for the first time and is adding another 100 locations in 2017.
For Clinique, letting go of the traditional department store counter has proved difficult because the branded consultants there have always been relied upon as important advocates for the brand. But the brand has been working with those consultants, particularly at Lord & Taylor, to connect with local clients online by sharing video tutorials and other personalised offerings. “Every retailer is slightly different and how their customers get information and make choices is completely different,” says Lauder.
Elizabeth Arden is enticing visitors to its department store counters through quick spa services: clients can stop by for 15 minute oxygen blast facials or makeup applications. “People aren’t abandoning the retail environment completely,” says Langan.
However a heritage brand chooses to refresh its image and product offering, Grant says focus is key. Shoppers no longer rely on any single brand to solve their beauty needs. “That has always been a big thing of the heritage brands: you don’t have to go everywhere, we can take care of you — but now you really have to prove that,” she says. “When there is so much competition, that can be the challenge.”