Learning From Estee Lauder’s Leonard Lauder

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Learning From Estee Lauder’s Leonard Lauder
Image used with permission from Investment Masters Class

‘Paris, the Eiffel Tower, Estée Lauder.’Kind of rolls off the tongue doesn’t it? Now try this one: ‘Esther Lauter, Brooklyn, Business Fanatic.’ While the former conjures up images of glamour and beauty, the latter does so less, and is rather the story of one woman’s unrelenting drive and obsession to create a luxury brand renowned the world over.

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From the start, Estée recognised the psychological benefits of a name that sounded feminine and vaguely European, distinctive but elegant, and easy to pronounce and remember. She settled on her baby nickname ‘Estee’ and added an accent mark to make it a little French while softening the hard German Lauter to a more amorous Lauder.

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I recently enjoyed reading ‘The Company I keep - My Life in Beauty,’ the story of one family’s journey to the top of the world’s cosmetic and beauty stage. The story is told by Estée’s son Leonard who joined the company in 1958 when it was still a fledging mom-and-pop company, with less than $1m in revenue and product distribution limited to just a small handful of prestige specialty stores. In time, Estée’s creativity, intelligence and fanaticism combined with Leonard’s business acumen and acquisition prowess created the powerhouses that are The Estée Lauder Companies today.

The Lauder’s were applying a repertoire of ‘influencing’ tools long before Charlie Munger’s favourite psychologist, Robert Cialdini, identified them in his bestselling book of a similar name. A Clinique beauty expert dressed in a lab coat and armed with the ‘Clinique computer’ would trigger the power of authority; free samples and gifts would engage the reciprocation tendency; Saks 5th Avenue provided the requisite social proof; glamorous models and compliments from the beauty counter initiated the liking disposition; while limited distribution created a sense of scarcity.

“The [Clinique] beauty experts exuded exactly the right combination of scientific authority and style.”

Two of my favourite takeaways from the book were Leonard’s insights into the creation and evolution of prestige brands and their delicate relationship with distribution channels and his ‘modus operandi’ of ensuring constant competition within the business. The book is brimming with business lessons; the need for patience; the danger of becoming a prisoner of the P/E ratio, staying under the radar, the value of a diverse workforce, setting the tone from the top, and the benefits of ‘walking the floor’ to name but a few.

There’s a plethora of mental models you’ll recognise from many of the other great businesses we’ve studied. Hopefully there’s one or two new ones you can add to your own investing toolkit. Below you’ll find some of my favourites.

Estée Lauder vs SP500 1995-2021 [Source: Bloomberg]

Estée Lauder vs SP500 1995-2021 [Source: Bloomberg]

Family

“The company and I grew up together, our lives as closely paired as twins. It has always been more than a family company: it was - and continues to be - my family.”

My mother strongly believed in ‘family’ as a powerful asset, and she was right. There's a lot of research comparing the sustainability and profitability of family companies whether the family is in control or "just" works there, to non-family companies. Because of their sense of stewardship, the family companies tend to be more profitable and more sustainable in the long run.”

Family for me is not limited to my blood relatives; the concept extends to all of our employees at The Estée Lauder Companies. We make a big effort to make everyone in the company feel part of the Estée Lauder family.”

“It’s been said that there are two things that can destroy a family business: the family and the business, and they both have to be kept in order.”

Culture

“Seeing how Revson [Revlon CEO] treated some of his top executives pointed me in a direction that I think always worked out for us. You can make a nice place to work and still make money.”

Quality

“I learned early that being a perfectionist and providing quality was the only way to do business.”

My mother was a stickler for quality. Quality was, to use a modern term, a differentiator.”

Never skimp on quality; put your heart and soul into producing the best-quality products to present to your public. Don’t let anyone talk you out of it.”

Reciprocation

“My mother had discovered what she called ‘The sales technique of the century’: free samples.”

‘A Gift for You’ - Estée Lauder advert 1989

A free sample was the basis on which Estée Lauder was built.”“‘I visited the sales personal in the dress department, the hat department, the shoe department, as well as other cosmetic departments,’ she [Estée Lauder] later wrote. ‘To each saleswoman, I brought a gift of my makeup or cream, exactly what I’d be giving away to customers as they claimed their free gifts they’d been promised in advertisements. ‘I learned the merchandising method of inducing the whole store to speak for my products,’ she concluded. ‘The point was to keep placing the products in the public eye, keep devising new ways of capturing the consumer’s attention.’”

“The giveaways created an opportunity to exercise the high-touch Estée Lauder sales approach, encourage spontaneous buying, increase loyalty among existing customers, and bring in new ones.”

Value Employees

If you respect the people that work for you, they will respect you.”

“As time went on, I made a habit of writing once a year to everyone who worked behind the counter, expressing my recognition of and gratitude for their hard work. I’d write individual notes - not ‘Dear Everyone’ form letters - and I’d sign each one. As the company grew, I had to resort to dictation, but each letter was personalised - and each one signed by me.”

I firmly believe that people don’t work only for money. They work for recognition.”

Find a way to congratulate someone for a job well done. Even if your note is just a little one-liner, when you say ‘thank you for doing a good job,’ it’s more likely the recipient will go to the ends of the earth for you.”

When we went public in 1995, I persuaded all the members of the Lauder family to carve out a portion of their personal stock and give it as a gift to the employees of Estée Lauder. It wasn't enough to enable everyone to splurge on a yacht, but it was enough to make each person feel that we were all in this together.”

Ideas

“I’m a big believer in what I call ‘lateral creativity’ - getting ideas from everywhere.”

Competitive Advantage

“My mother didn’t realise it at the time, but her insistence on personally training saleswomen would be a key differentiator when she eventually opened counters in department stores.”

“My parents didn’t have the capital to create even one such salon, let alone a chain of salons that could compete against Miss Arden and Madame. Instead, my mother hones in on a different platform to reach her customers: select specialty stores.”

“My mother instinctively knew that a brand is defined by its distribution. If we were sold in Saks Fifth Avenue, then we had made it. How to get Estée Lauder products into Saks was the main topic of dinner conversation every night.”

Estée Lauder / Saks Fifth Avenue

Estée Lauder / Saks Fifth Avenue

“At Estée Lauder, everything was and still is about training. It’s one of our key differentiators from our competitors. Training is all about teaching people that they can achieve anything if they know what to do and how to do it and giving them the confidence to do it well.”

Competitive Strategy - Avoid Competitors

“Backing into the fragrance market through bath oils taught me another lesson. Our non-threatening strategy enabled Estée Lauder to stay below the radar of major competition. French perfume manufacturers scoffed, saying, ‘We don’t do bath oils.’ Meanwhile, sales of Youth Dew skyrocketed. I learned the importance of choosing my battles - and not to dismiss a competitor just because they seem innocuous.”

“The lesson my mother drummed into me: Everyone is a competitor or a potential competitor. You can’t ignore anyone.”

Change

“In 1960, there were 4,500 malls accounting for 14 percent of retail sales. By 1975, there would be 16,400 shopping centres scooping up 33 percent of retail sales… We owned the suburban stores. First to market always wins.”

Economic Resilience

‘My mother was onto something: even in 1933, one of the worst years of the Depression, cosmetic sales were higher than they had been before the crash.”

Compete with Yourself

“I learned a valuable lesson [running two film clubs at college]: you can compete with yourself and win. It was a lesson that, a decade later, would spawn Clinique and would eventually inform the thinking behind The Estée Lauder Companies’ portfolio of brands.”

Instead of waiting to see what our rivals might dream up and then respond, wouldn’t it be better for us to leapfrog them and create our own competitor first? A multi-brand model for Estée Lauder had always been in my mind. I thought, ‘I know just what I’d do if I were competing with Estée Lauder. Why let a competitor do it? I’ll do it.”

Clinique wasn’t just a new line of skin-care or makeup: it was an entirely new way of thinking about beauty.”

In retrospect, the Clinique and Estée Lauder brands both competed and complemented each other. Clinique was the ‘anti-cosmetic,’ so wherever Estée Lauder sold well, Clinique didn’t. And where Estée Lauder lagged, Clinique did well.”

Clinique's first computer, launched in 1968, was used to determine skin type and deliver personalised results.

I created Clinique specifically to compete with Estée Lauder. Competing against myself is an idea that never grows old. Who was going to compete with M.A.C? The answer, unquestionably, was Bobbi Brown Cosmetics. [When we acquired] Bobbi Brown it was the perfect counterbalance to M.A.C.”Creating our own competition both brings about something and prevents something. What I was trying to bring about was becoming the market leader, and we’ve done that: we are the largest supplier of prestige cosmetics in the world and we are the dominant player in almost every prestige market, largely because of that strategy. Second, I knew that a brand can’t live forever. I had seen older brands, which were once market leaders fade away. People would come up to me and say, ‘Oh, Estée Lauder, my grandmother loves your products.’ If they said, ‘My daughter loves your products,’ I’d be thrilled. But ‘my grandmother?’ Not as great. So we kept on acquiring companies or launching our own competitors so that as new consumers came into the market, they would discover their own newer brands and they would make them theirs.”

Humility

“Being a waiter was a good experience because I believe you have to do grunt work in order to appreciate the big things.”

Patience

“It didn’t happen overnight. The sampling and Gift-with-Purchase programs were like planting an accord. They didn’t really bear fruit for another year, and only then did Youth Dew [fragrance] itself start to take off. This would be a valuable lesson in patience that I would apply to subsequent fragrance launches.”

“We took a bath before Clinique started paying off… just six months after the launch of Clinique, our cashflow problem had become a crisis."”

Brands

“The navy also taught me about strategy. The aircraft carrier was always accompanied by several destroyers, which served as a screen for the large ship. I would use that analogy in business: The small brands would protect the main brand. Clinique was the first screen for the Estée Lauder aircraft carrier, followed by Origins and Prescriptives. Later, the brands we acquired for the The Estée Lauder Companies’ portfolio would support the heritage brands.”

“My dream was to make Estée Lauder the General Motors of the beauty business, with multiple brands, multiple product lines, and multinational distribution.”

‘In 1956 Estée Lauder advertising proudly lists price at an unprecedented $115 a jar’ Source: Estée Lauder Companies

“[Launching in Europe] we deliberately chose a different approach: Re-Nutriv, the most expensive cream in the world… [Treatment] creams were unabashedly expensive - and that was one of their selling points. Estée Lauder led this rarefied club.. Not only was it a terrific product; it had one of the most brilliant positioning statements we’ve ever made: the most expensive cream in the world… it was the positioning, not the ingredients, that propelled its success.”I wanted Estée Lauder to be the most upmarket brand there was. I wanted to have limited distribution so that every store that was selling our product knew that the person they were selling to could only come back to them; conversely, the person who was buying revelled in the exclusivity of where she bought it. That’s how you build a great brand and a great business.”

“I knew that out products had to be the highest quality, unique, creative, original, and, of course, efficacious. The Lauder brand would be synonymous with luxury, and Re-Nutriv would be the epitome and standard-bearer of luxury products.”

We wanted to sell our products in high-end specialty stores because their prestige gave us prestige.”

Positioning a brand says, “This is who we are.” I’ve seen too many companies fail by trying to reposition a brand. Know who you are and stick to it. Enhance your brand but don’t reposition it.”

“Up until then, every cosmetic ad was designed to sell a product. I decided that rather than selling only a product, our ads would sell the brand.. All our advertising would be orientated toward the brand. Focusing on the brand would hone our identity and be our North Star. Marketing a brand gives you more pricing power. If a product is a musical instrument, a brand is the entire orchestra.”

The launch of Clinique was a classic case of leveraging market segmentation. Looking back, this was probably the most important lesson I learned in my career: if you understood market segmentation, you understood everything.”

“Its well known in our industry that when customers like one product from one brand, they’re willing to try - and maybe buy - other products. Fragrance, in other words, broadened the profit stream for the entire Estée Lauder brand.”

“Fragrance became an intrinsic part of the all-round concept of being an Estée Lauder woman. Our fragrance advertising sold romance and prestige. You can’t sell romance with an anti-wrinkle cream.”

“A few years earlier, I had retained Harvard Business School professor Michael Porter to consult on the future of Estée Lauder. His advice: ‘Never get stuck in the middle.’ If you’re in the middle you’re nowhere. You’re neither value line nor the prestige line, so what are you?”

Brands have their own DNA and don't always follow the story you script for them. It’s like when a child is born: you think she's going to become a doctor and she decides instead to become an astronaut or an actor. We thought [with Prescriptives] we were launching another treatment line - another anti-Lauder line, a’la Clinique—but that morphed into a cosmetics/colour line driven by the Calyx fragrance.”

“I had an epiphany: I realised we needed new brands to understudy our existing brands as well as to fill in the gaps and expand the company as a whole. We needed to launch or acquire competitors so that as newer consumers came into the market, they could discover new brands and make them their own.”

“Creating a new brand that really is new is very difficult to do. It’s even more difficult to do from inside an established organisation. Outsiders are all about blowing up conventions: ‘I’ve got to beat the old guys.’ People inside the organisation, however, hesitate: ‘Let’s be careful in creating something new, so we don’t destroy what we have.’ Playing it safe sabotages boldness.”

I’m a risk taker and I always have been. In order to survive, you have to take chances. But I don’t believe you should destroy the old before building the new, you’ll have no ground to build on. Brands need to change to stay relevant. Consumers are constantly evolving in ways you can’t even imagine.”

“As I saw it, acquiring brands was - and remains - a great way to expand our customer base. In order to grow, we needed to acquire not just new brands but new thinking. The best way to acquire new thinking was to acquire a company with the founders, who could then, with our help, drive their original creation to new heights.”

“There’s nothing more high-touch that a freestanding store, no better way to protect the brand and control the customer experience.”

Autonomy

“M.A.C Cosmetics would have an organisation all of its own, from top to bottom. They would be able to create their own world without anyone saying, ‘You can’t do that.’ There wouldn’t be any naysayers around.”

Distribution

One of our most important epiphanies was, ‘You’re defined by your distribution.’ For us, that meant luxury department and specialty stores, pure and simple.”

You’re known as much by where you don’t sell as by where you do sell.”

I’ve said it a thousand times: you’re defined by your distribution. If you’re in luxury, stay in the luxury segment. Don’t be bewitched by the volume that can be gleaned by selling in a distribution channel that does not match the equity of your brand.”

In the prestige sector, no brand is strong enough to withstand over-distribution. Distribution is forever.”

“Financial analysts always praise ‘distribution expansion.’ But without realising it, they’re encouraging slow death because over-distribution kills a luxury brand. Over-distribution certainly killed the Prescriptives stores. And that is especially poignant, because over-distribution went against everything we stood for. We had become a prisoner of our P/E.”

Growth

I decided to focus on growth: growth of market share and rate of growth. America loves growth. Growth is a story that gets people excited.”

Keep it Simple

Our formula was simple; limited distribution in prestige specialty and department stores accompanied by the personal touch of a beauty advisor.”

Hiring & Firing

“[The Navy taught me the greatest lesson of my life…] no matter how smart you think you are, there’s always someone who’s smarter. No matter how good you are, there’s always someone better. I vowed that when I got out of the Navy and went into business, I would search out and hire exactly those people. So if they were the head of sales, they would sell better than me. If they were a copywriter, they would write better copy. They all had to be better. I would respect and celebrate their abilities and never be threatened by them. This belief would play an enormous role in the growth of Estée Lauder and help us build a company of the greatest people in the world.”

“Don’t hire your best friend and don’t hire former classmates. In short, don’t hire people that you can’t fire. Friendship is friendship but business is business.”

“My father had a saying when he had to fire someone: ‘Better a sharp pain in the end than pain without end.’ If you’re having trouble with a person who looks like they will not be able to improve, it’s better to help them to leave than to suffer with them. There is a point beyond which patience becomes neglect, Fail fast. Cut your losses.”

Everyone in the world has worth. If you cannot get someone to produce for you in a satisfactory manner, it is almost always your fault and you should acknowledge that, honestly and with respect. When I have to fire someone, I’ll say to them, ‘It’s really not your fault, it’s our fault." We probably didn’t train you right, we didn’t supervise you well, we didn’t work with you properly, and we didn’t put you in the job most suited to your talents. The reason I’m asking you to leave is not because you are no good. It’s because we’re not good enough to be able to use the great talents you have.”

Win-Win

During our promotions the first floor of the stores reported sales increases well over 100 percent. Thanks to limited distribution, the stores got a fantastic return on investment.”

The intimacy of our relationship with our stores was crucial to our growth... It’s often said that you can only be as good as the people who work for you want you to be. I would add, we could only be as good as the people we are selling to want us to be, too. Our message: ‘Support Estée Lauder and you support your store.’ To enable them to support us, we supported them with a lot of work behind the scenes. Each store was given an annual program, broken down month by month, of what we would do to improve our business - and theirs.”

We’d always had a partnership with our stores: more than a partnership, the stores were part of the extended Estée Lauder family.”

Diversity / Women

Almost the entire Clinique leadership team was composed of women. (Over the years, when Clinique was run by women, its P&L was always higher than any of our other P&L’s). This was the secret sauce. In fact, I would turn it into a management formula. Every time I set up a new international office, I always wanted to have two people in charge: a man and a woman.”

Our great strength has derived from the fact that from the beginning, we had women giving women the products and knowledge to make themselves feel beautiful, as opposed to Charles Revson [Revlon] telling women that he, as a man, knew what would make women desirable to men. Today, this is what is called ‘mirroring’ the market.

The last thing you want is a team of mini-mes. Difference - whether it’s a different background, different ethnicity, age, or different gender - is a source of strength.

Committees

I never relied on a committee for a final decision. Committees are the death of creativity and productivity.”

Mistakes

Never be afraid to admit you’ve made a mistake. It shows you’re human and people will respect you more.”

Market Share / Private Company

“I never, ever forgot that once you've lost market share, you can't get it back again so easily. And I was always going to protect our market share, no matter how much it cost. As a private company, we had a huge advantage over our publicly held rivals: we could spend years nursing along a new brand or spending to gather market share because we didn't have to answer to our shareholders.”

“We were always contrarian. When the competition tightened its budget, we increased ours: we doubled down to protect out market share.”

It would have been difficult to sustain the flexibility that nurtured Clinique and Origins if we had shareholders demanding a steady stream of profits and growth. The hard fact is, I don’t think we would have been able to maintain either brand if we had been a public company.”

“Getting ahead of the curve also means imaging and preparing for what might go wrong. Don’t wait for bad things to happen to you. Don’t wait to defend your market share. Fight for every percentage point while you’re growing because by the time you lose it, it will be too expensive to get it back.”

Frugality

My wife liked to regale people with stories of my frugality. For example, I couldn’t understand why she had to take a taxi to visit stores in Brooklyn. ‘Why can’t you take the subway?’ I’d gripe. Anyway, because our overhead was so low, we could afford to use - in fact, we could insist on using - expensive ingredients.”

“I am the legendary Scrooge-in-Chief.”

Instinct

“As I established my place at Estée Lauder, I learned the most important lesson that would shape my career and life inside and outside the company: to trust my instincts. Instinct is something that is natural and ingrained: however, instinct has its foundation in experience. If you have enough experience, somewhere along the line, instinct will kick in. If we’re making a decision to buy a company, my experience helps me connect the dots faster and see bellwethers others might not. Then my instinct will take over and make the decision.”

First to Market

First to market always wins.”

“My dream was to put our stake in the ground. We had a once-in-a-lifetime opportunity: to be the first brand of prestige cosmetics in what could become an enormous market. Deep in my gut, I knew that Europe was ready for Estée Lauder.”

Clinique Computer (Source: Estée Lauder Companies)

Launch first, launch strong, and stay strong: it worked for us then and continues to work for us today.”Whenever possible, we created product lines that would open new market segments where Estée Lauder would be first.”

“My radar was honed for overlooked demographics. That led to the 1963 launch of Aramis, the first prestige men’s fragrance and the cornerstone of a collection of men’s grooming aids.”

When you launch first, you have no competition to sweep aside. You automatically become the authority.”

“We became the first prestige brand to advertise on television.”

“Our objective was to have at least 33 percent of our business each year be totally new products.”

Walk the Floor

Listen to and learn from people on the ground. They’re the ones who really know what’s going on.”

“It taught me a valuable lesson: to listen to our customers and the people who worked behind the counter. They were my consumer research. And it was free.”

“One of the most rewarding - and certainly one of my favourite - activities in helping build the Estée Lauder business was visiting our stores. These visits had several objectives. The first was to listen to our consultants and buyers and learn what was really going on. The second was to let the people in the trenches know that their work was recognised and appreciated, and inspire them to do better. The third was to send a message to everyone who worked for us that store visits were an important thing to do.”

“Retailers in the ‘mass business’ call these ‘store checks.’ However, I don’t consider these visits check-ups. They are a learning tool for management and a motivational tool for everyone.”

“If you study military history, you'll find that the most effective leaders are those who engage with their troops on the eve of battle: Henry V speaking to his ‘band of brothers’ before Agincourt; Vice Admiral Horatio Nelson signalling the British fleet that ‘England expects every man to do his duty" as the Battle of Trafalgar commenced; General Dwight D. Eisenhower shaking the hands of the paratroopers before they jumped on D-Day. We at Estée Lauder were fighting a war on two fronts—our ‘class’ competitors in prestige stores and our ‘mass’ rivals elsewhere. We needed to do more than just ‘check the store.’ We needed to learn and inspire our employees, our stores, and ourselves.”

I’d ask the counter manager questions: What was the best-seller at that particular moment? What were people asking for? What were people liking - and not liking? Which products would she like to see us add to the line?”

Store visits were deep dives that delivered ideas in droves. I loved those van trips. They were the oil that helped our company run smoothly and built Estée Lauder and Clinique into powerhouse brands.”

When I visited a store, my job was to connect with people and listen.”

Tone at the Top

It’s very important for a leader to send the right message through his actions. For example, on one of the van trips I was having breakfast at a swanky hotel with two friends who were art dealers. The discussion drifted to the fact that I would only fly economy. ‘'Economy?’ they asked, shocked that the president of a luxury beauty company would take a seat in the back of the plane. ‘How can you fly only economy?’ I answered, ‘If I'm going to make all our executives fly economy, then I'll fly economy, too.’ That's how we were able to build a fast-growing business without ever having to borrow one dollar from the bank—and they knew it.”

When I walk through the hall of the company, if I see a piece of paper on the floor, I pick it up. It’s important for employees to see you doing that. Because if you don’t care, why should they?

Crisis

Crisis can be a means of fusing the company together. Laughter helped smooth the path through hard times.”

Tactical versus Strategic Mistakes

When it comes to strategy, you can make tactical mistakes but you cannot afford to make a strategic mistake. What do I mean? A tactical mistake is one that, if you make it today, will only cost you today. A strategic mistake is one that, if you make it today, will cost you tomorrow - and tomorrow and tomorrow.”

Long Term

“I’ve always felt that you can’t deal with the day after tomorrow. You have to deal with the decades after decades. One of the things that made Estée Lauder so successful in my thinking is that we think in decades, not in the short term.”

We prided ourselves on our patience. My son William likes to use the term ‘patient capital,’ shorthand for how we allocate our resources. Knowing that it often takes years for a new brand to become profitable, we could afford to invest the time and money [when we were a private company] to let a brand grow at its own pace and mature in particular markets.”

Patient capital enables you to launch for the long term. Some people think that if you introduce a new product today, you need to make money immediately or have to pull the plug. After you’ve been around a while, you know that if the product makes money year one, you can almost guarantee it won’t make money in the future. It’s a flash in the pan. But if you hang in until year three, it will pay off for the long term.”

Invert

I always work backward to move forward. I start imaging what I want to see happen in three to five or even ten years from now, and then I worked backward to articulate steps I have to take today and tomorrow and next year and the year after.”

IPO

I felt the price [of the initial public offering] should be modest, so that the aftermarket would see strong growth and give our investors confidence that the company was a good investment.”

Wall Street Journal 1989 (Source: Estée Lauder Companies)

Wall Street Journal 1989 (Source: Estée Lauder Companies)

“The scrutiny you face from being in the public eye is a different experience than you've ever had if you've been a privately held, family company. Instead of steering the ship on our own, we'd have to answer to partners. The aims and considerations of outside shareholders are often very different from your own. They tend to eschew the long-term good for the immediate reward of short-term gains.”I swore to myself and my colleagues that we would continue to run Estée Lauder as a privately held company: Our decisions would be steered by what was good for either market share, long-term profits, and/or brand equity, rather than what Wall Street wanted.”

Acquisitions

I think of myself not as a brand buyer but as a brand builder.”

The first two acquisitions sparked a sea change in my thinking: from then on, I would look to the entrepreneurs to come up with ideas that we couldn't imagine. We would try to enlist and support these new creators, make their operations more efficient, but never change their DNA. In return, we would offer them a chance to expand their company's name and footprint and their life. We could make them and their employees richer and happier.”

My strategy was to target brands that were either beating us in a particular category or pioneering a new path in the luxury market. I looked for companies that showed a track record and momentum, had an infrastructure that was working, and understood their distribution and how that distribution supported their brand. We could build upon and boost what their founders had started. I avoided big companies with entrenched identities. I wanted small businesses with plenty of room to grow - with our help. I’d rather buy a $1m company and build it to $100m than try push a $100m company to $200m.”

We only bought companies that already had momentum. Newton's law of inertia says that an object in motion tends to stay in motion. Look for brands and products that are growing; the consumer is giving you millions of dollars of market research that you don't need to purchase.”

I was never interested in turnarounds. I didn’t have the patience to bring the troubled brand to health, and they were probably in trouble for good reason.”

“We’ve since expanded our portfolio of acquisitions to include more than twenty-five brands. It’s a carefully constructed collection that gives us balance - in the brands we own, in the markets where we do business, and in the diversity a global company needs to protect itself from the ebb and flow of world economies. This balance gives us competitive strength and consumer appeal.”

Summary

The Estée Lauder Companies have survived and thrived in a constantly evolving and intensely competitive industry through empowering and engaging their salespeople, supplementing existing brands with new ones and exercising the patience required for them to succeed. While the business has recognised and engaged many of the psychological tools of influence, long term sustainability comes from pleasing an ever changing customer.

Leonard’s engaging book sheds light on many of the qualitative characteristics we’ve witnessed in the other great businesses we’ve studied; factors that have been creating competitive advantages in companies for decades. When you find a combination, you’ll often see the lollapalooza outcomes; so desired by Charlie Munger.

Many of the timeless lessons espoused by Leonard and his mother will be as relevant tomorrow as they have been through the more than 70 years The Estée Lauder Companies have been thriving in business. Leonard has been generous to share them with us and if we listen, it should allow our investments to harness a beauty of their own.

Source:

The Company I Keep - My Life in Beauty,’ Leonard A. Lauder, HarperCollins 2020.

‘Key Moments of History,’ Estée Lauder Companies - website.

'The Estée Story,’ Estée Lauder Companies - website.

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