Estée Lauder applies millennial makeover
The stylish, cool twentysomethings delivering a presentation to senior executives have dressed up their slides to resemble Tinder, the dating app. As marketing and design concepts appear on the big screen, the young employees “swipe right” to indicate the brands whose ideas make their pulses race. Then they “swipe left” anything they dislike.
The team is developing a modern, in-store shopping concept. Their presentation could be taking place at any hot technology start-up in Brooklyn, New York’s hip borough. But instead, it is in the upmarket Manhattan headquarters of the Estée Lauder Companies, located in the grand General Motors Building overlooking Central Park.
“Senior leadership was ecstatic about the level of ideation that came from this session,” says Nicky De Simone, a 29-year-old employee who took part. “They come back to this group for innovation and creativity.”
At the buttoned-up purveyor of prestige cosmetics, Fabrizio Freda, the chief executive, is 59. Just three of the 15 Estée board members are under 50, and four are members of the Lauder family.
Neophytes would have been unlikely to stand in front of such a distinguished audience in the past. But the Tinder-style presentation is part of an attempt by a company confronted with an ageing customer base to reach women who are changing their shopping habits. In a world of online shopping and social media influencers, Estée Lauder and other long-established brands are scrambling to keep up.
Estée Lauder, who founded the company in 1946, began by visiting department stores and selling her wares counter to counter. Today, US chain department stores — the group’s largest sales channel — are under pressure. Macy’s, with 700 stores, will close 100 this year.
Estée’s annual revenue exceeds $11bn, but the formula that worked for decades is under strain. Sales of products from Estée Lauder and Clinique, the company’s core brands which account for nearly half of sales, were flat in the fiscal year that ended in June 2016.
Growth has been driven by the group’s cooler midsized brands, such as Jo Malone, Tom Ford, M-A-C, La Mer and Smashbox — all of which are acquisitions. In recent weeks it has added Becca Cosmetics, a make-up line that relies on social marketing and is designed to appeal to consumers of all ethnicities; and Too Faced, a social media upstart (see box).
As well as acquisitions, the group is turning to its millennial staff to help it predict what the next big thing will be.
“Millennials will soon have the greatest purchasing power of any demographic and their mindset is influencing how women of all ages shop,” says Jane Hertzmark Hudis, group president, who oversees six brands including Estée Lauder.
The group’s push to tap young employees began two years ago with “retail immersion days” — off-campus excursions to pop-up shops by Apple and the like. On the first outing, Mr Freda was shepherded by a group of junior employees who showed him how “millennials fall in love with brands”, says Ms De Simone.
In the months that followed, the company created a formal reverse-mentoring programme, in which young employees were paired with senior Estée Lauder managers. Today there are 300 such duos meeting monthly around the world. In one session, the mentor may teach the senior executive how to use Snapchat. In another, the two will scroll through new shopping smartphone apps.
The company has also created “millennial advisory boards” to offer advice to executive teams.
These initiatives have led to Estée Edit, a product line launched early in 2016, targeted at millennial women and promoted by social media and reality television stars including Kendall Jenner. The glosses and powders with bright shades, all under $50, are designed to stand out in social media posts. Marketing is focused on YouTube video tutorials and Instagram pictures from online celebrities.
The company has not yet published sales figures for Estée Edit, but company insiders told the Financial Times that sales were short of their targets.
Estée maintains that the line has shown promise. “We are learning what is working better and what needs tweaking,” the company said in a statement.
“Millennials are about experiences,” says Ms Hertzmark Hudis. “They go into a bricks-and-mortar store for the experience — the product is a souvenir.”
Even with newly empowered young voices, changing an enterprise with 46,000 employees is difficult. One executive, who asked not to be named, says the millennial programmes have had mixed results. “The receptiveness among the executive leadership really varies across the brands,” she says.
“We are all about perfection and perfection is the enemy of speed. If we get something on Instagram in two weeks, we pat ourselves on the back. We are trying but we are behind.”
Estée insists its entrepreneurial streak, combined with its ability to offer employees diverse career opportunities, still makes the company an attractive employer to MBA graduates, many of whom have their pick of beauty industry upstarts and more venerable brands.
But it is competing for talent against the likes of Birchbox, a popular beauty product subscription service founded in 2010 by two MBA graduates. It typifies the new brands that attract millions in venture capital funding and interest from young employees.
“We give millennials a voice. We make sure their ideas are not random, crazy things but rather fit within the strategy of our brands,” says Phebe Farrow Port, chief of staff to the CEO.
“I’m not naive to think young employees will spend their whole careers here. But they will have the chance to work across our many brands, in different geographies.”
Ms De Simone, the young professional who helped develop the reverse-mentoring programme, says Estée’s millennials want to feel appreciated.
“Estée has allowed a young employee, say, working in finance to cross into a different area and through the mentor programme or the advisory boards in way they could not in their day job.”
This year Estée began a cost-cutting and redundancy plan that it says will free up to $300m annually for modernising its operations.
Should it succeed in reinventing itself, its millennial employees may receive a standing invitation to the executive suite.