How Estee Lauder is bagging Millennials
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How Estee Lauder is bagging Millennials

Iconic cosmetics group Estée Lauder has a secret weapon: its CEO. Fabrizio Freda joined the company in 2009, and has presided over an eight-fold increase in market cap: from $6.6 billion when he joined to $53 billion today. Perhaps his greatest achievement, though, has been convincing younger shoppers that this venerable 72-year old brand is the right choice for them.

Estée Lauder’s share price has risen by 79% over the past year

graph 1005 esteelauder

 

SOURCE: Yahoo Finance

Freda says that the biggest influence on his leadership style is infamous Italian philosopher and political theorist Niccolò Machiavelli. Machiavelli is best known for his 1513 work The Prince – framed as advice on leadership, and dedicated to Italian nobleman Lorenzo de Medici – which set out an illiberal ruling strategy immortalized in the term “Machiavellian”. However, Freda’s interest in the book does not relate to its particular prescription for leadership, but rather, the way in which that prescription was reached:

“At a time when analytics were not invented, it offers the idea you really need to understand the environment you are in, to determine the right strategies for that environment.”

Use of analytics has been a dominant theme in Freda’s reign at Estée Lauder. About seven years ago, he set up a team called “the compass” – in-house researchers dedicated to producing 10-year forecasts of beauty trends. Its direction has “so far proven to be absolutely accurate,” he says.

Millennials are a key component in Estée Lauder’s ability to stay on top – they are avid cosmetics buyers, and Freda claims that most Millennial women have ten lipsticks for every three their mothers’ had. In part, this is a reflection of the fact that the generation grew up with the internet and social media, becoming “selfie-obsessed”. It is no mistake that Estée Lauder-owned Glamglow specializes in a 10-minute facemask to make skin “camera ready”.

Freda’s latest, and most novel, strategy to get Millennials buying Estée Lauder is to hire them, and then listen to their opinions. But this goes beyond vague corporate promises: Freda has actually set up a “reverse mentoring” scheme, whereby all senior management are paired with a Millennial employee (they make up 67% of the company’s workforce) to get an education into their world.

Speaking about his own Millennial mentor, Freda says she “shows me what’s new on Instagram, or YouTube or the new cool retail model that she would shop in. And beyond that, she then gives me her point of view, of where are our gaps. This happens to me and to all my direct reports at the same time, so it’s a big cultural push to wake up. Most importantly, I learn what’s cool.”

Freda’s strategy is working. In China, more than half of Estée Lauder’s customers are Millennials. In the U.S., its proportion of Millennial customers has doubled in the last three years. As the company continues to roll out newly-acquired brands that play well to the generation (Smashbox, Becca, Too Faced, amongst others), it’s quite possible that your daughter’s favourite make up brand will be the same as your mother’s.

Disclosure

Dominion holds Estée Lauder in its Global Trends Luxury Fund.


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