Fabrizio Freda’s sweeping plans for growth at The Estée Lauder Cos. Inc. includes keeping a close eye on South Korea.
The president and chief executive officer told investors that while South Korean brands have grown to be competitors, trends in the market have become a big opportunity.
He likened South Korea’s influence in beauty to that of Paris’, which has long held a special sway over fashion.
“It’s not only about Korean brands,” he said at Bernstein’s 31st Annual Strategic Decisions Conference. “We are also looking today at Korea as a place where we learn trends. But then we, with our brands, are the first to bring them around the world. Korean trends offer an opportunity for us.”
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For instance, cosmetics companies found great success exporting the concept of the BB cream from South Korea, producing a global trend.
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Freda’s pitch to investors hewed closely to the standard line of big-time ceos’ even at large companies, that Lauder is in growth mode and is going to stay there.
And a big part of that drive is in still-developing economies.
“We believe that emerging markets could compromise 25 percent of sales,” Freda predicted. This would help the company, which was once much more reliant on the U.S. department stores’ business, become even more geographically diverse.
“Our China business is 6 percent of our total sales and one of our most-significant growth opportunities,” he said.
That would put China’s cut of Lauder’s sales for the third quarter ended March 31 in the neighborhood of $155 million. Retail has slowed in China recently and the ceo acknowledged that growth has come from additional distribution and new brands and not as much from same-store sales advances.
“China will be volatile like any emerging market,” Freda said. “It’s a long-term game in China, not a short-term [play]. We have many brands that are not yet in China.”
The country’s influence also projects beyond its borders.
“The Chinese travel more than any other population in the world at this moment,” Freda said. “And in particular when they travel, they buy more than other populations in the world.”
Lauder is looking not so much to build out megabrands in the market, but to bring in its portfolio approach, giving options to Chinese shoppers, who on average use seven beauty products in the morning and seven in the evening.
“One brand alone cannot [command] a huge market share forever in any market in the world, particularly in China,” Freda said.
The company wants to get into China and other developing markets quickly, before local brands take over.
“There will be a moment where the presence of local brands in Korea or China will create a barrier to entry,” he said. “I think we have a strong position for the long-term.”
Asked about the other emerging markets beyond China, Freda described a venture capital-like approach, where many smaller bets are made at once.
“These markets are a very big opportunity,” Freda said. “We are working in many markets at the same time. They tend to be more volatile than the traditional markets, so the approach we are taking is to not bet on one.”
He said the company’s emerging market portfolio grew by 29 percent in the last quarter despite difficulties in Brazil and Russia.
“The average income of women in this market is increasing dramatically more than incomes in the market because many more women are entering the workforce,” Freda said.
And it can be cost-effective to buy into this promising dynamic.
“In these markets, you don’t need to go with big advertising in the beginning,” Freda said. “You can go and create awareness step-by-step. The way to grow these markets tend to be pretty efficient. If you are patient, you do it with this portfolio style.”
Lauder’s portfolio could grow larger still, at a time when competitor Procter & Gamble is downsizing its beauty business dramatically.
Freda underscored the power of the company’s current acquisition strategy, which has it focused on buying smaller and midsize brands and using its infrastructure and knowhow to help scale them up.
But he also acknowledged that a bigger deal was possible if it offered a more attractive opportunity.