The Estée Lauder Companies Inc. has found success by focusing on emerging markets — in particular, the growing Chinese middle class.
The company has approached emerging markets as a portfolio, with markets grown at different speeds in order to provide the company with flexibility. Additionally, every year, one or two markets with the most potential for growth are given more attention, with a continued focus on China and the rest of eastern Asia.
According to the company’s fourth-quarter earnings for 2018, announced today, Estée Lauder Cos. saw double-digit growth in China and Hong Kong for its MAC and Estée Lauder brands. La Mer, which topped $1 billion in total sales for the first time, saw that more than 40 percent of its consumers in China were new to the brand after focusing more on digital content. Overall, nearly two-thirds of the company’s ad spend across all regions and brands were focused on digital, an increase from about 50 percent last year.
“We really believe the emerging markets will continue to be a driver of growth, however, emerging markets by definition are more volatile, and that’s why we look at it as a portfolio,” Fabrizio Freda, president and CEO of Estée Lauder Companies, said on the earnings call.
The focus on China comes at a time when the local middle class is growing, and its spending power has increased, directly leading to a 17 percent growth in skin care and a 30 percent growth in makeup from 2016 to 2017, according to market research firm Kantar Worldpanel. Nearly 70 percent of the Estée Lauder Cos.’ sales are generated outside of the U.S., while sales in emerging markets specifically account for 15 percent of its total business and increased 24 percent.
Estée Lauder Cos. has particularly focused on digital marketing and online retail sales to drive its sales in Asia. For example, both MAC and Estée Lauder Cosmetics are sold through Alibaba’s Tmall platform and feature campaigns on WeChat, reaching out to the significant socially engaged customer base in this market. La Mer has also focused on creating digital content and original storytelling, which has helped it reach millennial and Gen Z consumers; more than 40 percent of Chinese consumers who are new to La Mer are in their 20s, Freda said. Overall, in the fourth quarter, the company reported net sales of $3.3 billion, a 14 percent increase year-over-year, driven by double-digit growth in China and Hong Kong. However, operating income increased 20 percent, to $277 million, due to higher advertising expenses to build awareness and drive continued sales growth over the next year, the report said.
In the coming year, the company is also expected to additionally focus on India, the Philippines, Indonesia and Russia, as well as make an effort to turn around its presence in the Middle East and restart growth in Brazil. In the Middle East, the company’s sales fell due to the decision to adjust inventories on multiple brands.