Estée Lauder looks to China

09 May 2011

BEIJING: Estée Lauder, the cosmetics company, is boosting its advertising outlay in China, tapping rising demand and affluence among shoppers.

"We have chosen to play in areas which are the fastest growing areas. We put our boat in the wind very well, and the wind is coming from China," Fabrizio Freda, Estée Lauder's chief executive, said on a conference call.

"The wind is coming from the other emerging markets. The wind is coming from multi-cultural, multi-ethnic consumers. The wind is coming from high-quality brands."

Estée Lauder recently assumed the global licence for Zegna, something it believes can yield advantages across the Chinese fragrance category.

The firm's Origins line has also opened a dedicated outlet in Shanghai, and M-A-C was the latest offering from the multinational's stable to be made available locally via the web.

"Through nine of our brands, we now have a presence in department stores, freestanding stores, and Sephora, in 38 cities in China," said Freda.

"Our online initiative in the country extends our reach to more than 346 [cities]. Estée Lauder remains the top-ranked Prestige brand in its distribution in China."

Estée Lauder enhanced its total advertising expenditure levels by 140 basis points during the last quarter, prioritising various areas.

"We are taking the opportunity to build and consolidate our strong market share gains in places like China and travel retail now that we can, now that the market is strong," said Freda.

"The nature of the spending is basically advertising and sampling, a key merchandising activity on the biggest new initiatives and launches on the biggest brands in the main markets like China or the US."

"And so, yes, you are going to see a certain, important increase in advertising investment."

Having beaten sales projections over the current financial year, Estée Lauder is choosing to devote incremental funding to promoting its products, creating a potentially virtuous circle.

"Our growth has been ahead of what we actually thought we would achieve this fiscal year," said Freda.

"What we are doing is very effectively controlling our costs associated with that, and at the same time, taking some of that additional profitability and investing it in advertising, in particular, magazine and television advertising, which is helping drive our business, especially in markets like China."

More broadly, this strategy can prove fruitful outside China, given that an increasing number of Chinese shoppers are visiting places abroad, and regularly purchase high-end goods while doing so.

As such, Olivier Bottrie, Estée Lauder's president of travel retailing, worldwide, reported marketing campaigns run in the Asian nation exerted knock-on benefits among the 18m people going overseas.

"Air travellers are growing at a rapid pace of 11% annually and the stronger feel of our brand in mainland China makes us uniquely positioned to exploit their appetite for high-quality skincare brands," he said.

The travel retail sector has been expanding by around 7% per year in the last decade, a figure hitting 10% regarding the beauty segment, and Bottrie expressed confidence these positive shifts would be maintained.

"That trend will be perceived continuing in the future if only due to the rise of Asian travellers and, more specifically, Chinese travellers, who happen to be avid consumers of skincare brands and spend much more on average than the typical American consumer," he said.

Data sourced from SeekingAlpha; additional content by Warc staff