Estée Lauder Cuts Retail Footprint And Up To 2,000 Jobs After Fourth Quarter Loss

The Estée Lauder
EL
Companies will cut between 1,500 to 2,000 jobs globally—about 3% of its current workforce—as part of a comprehensive program to reboot the business for growth in a post-Covid environment.

The global beauty player—whose brands include Estée Lauder, Clinique, Origins, MAC, La Mer, Bobbi Brown, Jo Malone London, and Tom Ford—also expects to close 10-15% of its standalone brick-and-mortar retail units, mainly in Europe and North America, plus less productive department store counters.

While the company will eliminate some roles—mainly point-of-sale employees and related support staff—it will investment in new ones in high-growth areas like online.

The moves come as Estée Lauder reported a loss in its 2020 fiscal fourth quarter (ending June) of $0.46 billion, versus net earnings of $0.16 billion in the same period the prior year. In the three months to June, sales were down by 32% to $2.43 billion. For comparison, the company’s larger beauty rival, France’s L’Oréal, saw sales decline by 19.4% in the quarter to €5.85 billion, buoyed by China.

Estée Lauder’s shares fell by 6.7% Thursday, pushing them below $200 after steady gains over the past month.

The company’s two-year Post-Covid Business Acceleration Program will incur restructuring and other charges of up to $500 million once fully implemented. However, annual benefits of the plan are expected to be in the region of $300 million and $400 million.

The program, which starts now in the company’s fiscal 2021 first quarter, covers the following broad actions:

• Realignment of the distribution network, reflecting some department store closures and freestanding store rationalization while accelerating the shift to online

• Investment in digital capabilities, omnichannel, talent, and advertising and promotional activities to accelerate the business

• Implementing confident beauty practices in-store and adopting new ways of working in light of the ongoing Covid-19 pandemic, for example Bobbi Brown’s Artistry Like Never Before.

Fabrizio Freda, President and Chief Executive Officer said in a statement: “We enter fiscal 2021 with cautious optimism, given the vibrancy of our skincare portfolio, acceleration in Asia-Pacific, momentum online globally, and a robust innovation pipeline, which includes the exciting launch this month of Estée Lauder’s new Advanced Night Repair.

“We expect sales trends to improve sequentially each quarter. Our strategic priorities for fiscal 2021 rightly balance investment in these engines with cost discipline amid the ongoing pandemic. Through the Post-Covid Business Acceleration Program we are better aligning our brick-and-mortar footprint to improve productivity and invest for growth.”

Asia-Pacific overtakes the Americas

Freda’s anticipation of consecutive-quarter sales growth will give the wider beauty business some reasons to be cheerful. His assessment is partly based on the company’s fiscal full-year results which showed skincare growth of 13% led by Estée Lauder and La Mer. Makeup, fragrance and haircare all declined in double digits.

By region, Asia-Pacific shone, growing by 15% to $4.2 billion, driven by big increases in event-related sales in mainland China such as Singles Day. South Korea also performed well helped by incremental sales from the company’s acquisition of Dr. Jart+ in December 2019, which also include sales in the travel retail channel.

Asia-Pacific’s performance allowed it to overtake Estée Lauder’s heartland of the Americas where sales contracted by 20% to $3.8 billion. North America was particularly challenged by soft makeup volumes while online now comprises 40% of sales in the region.

In an investor call, Freda said: “Trusted brands like Clinique flourished online when brick-and-mortar closed. In the fourth quarter, Clinique’s U.S. prestige beauty share rose online, solidifying its number one ranking.” Sales on clinique.com were the largest across all Estée Lauder’s brand sites in the quarter driven by lines like Dramatically Different Moisturizing Lotion and Moisture Surge.

“Our online business surged worldwide in fiscal 2020, delivering nearly triple-digit organic sales growth in the fourth quarter,” noted Freda. “This is a testament to the capabilities and scale we have built.”

Looking ahead to fiscal 2021, Tracey Travis, Executive Vice President and Chief Financial Officer, added: “While online is expected to perform strongly, the momentum for recovery in brick-and-mortar and travel retail will not be realized until later in the second half.”

By then, Estée Lauder will see sales and profit grow significantly, against a period of considerable Covid-19 impacts, particularly in the fourth quarter.

Due to the uncertainty or the timing and speed of a recovery from Covid-19, the company is not providing sales or earnings guidance for full-year fiscal 2021.