As I said in my previous blog post, Estee Lauder’s efforts to nourish its relationships with its department store middlemen builds upon its strengths. But, Estee Lauder also pursues new retail opportunities beyond its traditional distribution in department stores. And, these new opportunities, for example offering the Estee Lauder brands in non-department store outlets such as the Ulta Beauty Products chain, seem to build on Lauder’s strengths as well.
A September 15, 2016 Fortune magazine article “More than Skin Deep” by Phil Wahba, which profiles Mary Dillon, CEO of Ulta Beauty Products, points out that Ulta now sells Estee Lauder products. The article says that Ulta, a fast growing retailer with stores in strip malls, “is rolling out souped-up in-store boutiques for upmarket brands,” such as Estee Lauder’s Clinique.
The article explains that strip malls have traditionally been viewed as downscale locations, where it is harder for retailers to attract high-end brands. But, Ultra’s success is changing this. According to the article, “Ulta’s reliable growth has contrasted favorably with the ongoing department store meltdowns, making it easier to lure luxury brands.” The article goes on to quote Fabrizio Freda, CEO of Estee Lauder saying, “There is nothing wrong with strip malls if Ulta has a nice presentation, traffic, training and experience.” Ultra’s strip mall locations, however, are quite different from the more upscale department stores, such as Macy’s, that have long been Estee Lauder’s primary distribution outlet.
As my previous blog post explains, rather than abandoning its struggling department store middlemen, Estee Lauder plans to help those stores–Macy’s, for example–build traffic. My previous post credits such moves by Lauder as worthwhile, pointing out that Lauder is building upon its strengths in the department store market, despite adverse conditions there. This contrasts with how Proctor and Gamble is attempting to eliminate middlemen and sell directly to consumers online, as I discussed in a previous newsletter. P&G is doing so in response to challenges facing its retailers as ecommerce proliferates. But, these moves do not build on P&G’s strengths.
Estee Lauder, on the other hand, seems to be building on its strengths even though it is moving into non-department store retail outlets like Ulta. Ulta’s product mix has previously included not just mass market, but also upscale and professional hair care products, thus offering some fit with Estee Lauder’s more upmarket branding.
Furthermore, according to a June 21, 2016 Wall Street Journal article “A Beauty Retailer That Knows What You Want” by Elizabeth Holmes, Estee Lauder limits which of its products are sold at Ultra. Estee Lauder “sells select higher-end brands at Ulta but not others in order to maintain the brands ’exclusivity’”.
As I see it, Estee Lauder seems to be building on its strengths and holding down risk, both of which generally contribute to business success. The company is tapping new, potentially high growth opportunities like Ulta. But, at the same time, Estee Lauder continues to support its existing relationships with department stores, letting those upscale outlets retain product exclusivity on items not offered at Ulta. Thus, Estee Lauder seems to be on the right track, taking prudent risks as it pursues new opportunities. And, building on strengths and taking prudent risks generally leads to success.
