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Josephine Esther married young, to a Mr. Joseph Lauter, whose father, on moving to the United States, had had his original name - Lauder – mis-spelt by the immigration officer. The couple decided to re-adopt the original family and Esther took the opportunity to nuance her own name. Estée and Joseph Lauder would between them rewrite the rules of the beauty business and create a global empire generating $10 billion a year sales.
Estée continued her uncle’s work in her own kitchen with Joseph’s support. She was a born saleswoman, in touch with the needs and wants of her target market - women - and with an unshakeable faith in her own judgement. Now, promoting a range of four products, including her uncle’s original cream, she used her salon job to sample the miracle cream to her customers while they were under the hairdryer. In most cases, she made a sale by the time their hair was done. It was in the salon she hit on the big idea that would live on in the company to this day: the free gift with a purchase. Every woman who bought something from her in the salon would also get a sample of one of her other make-up products.
Estée Lauder’s added-value hairdressing experience was a hit and she was soon asked to demonstrate her products at another beauty salon. Estée’s reaction was, why stop at two? She immediately realised that while she had great products, sales were more down to her personal touch. To expand she needed to recruit and train saleswomen moulded into her own style. Right from the beginning, Estée set her standards high. Of the first twenty applicants to demonstrate and sell her products in salons, only one was deemed good enough. Next came the packaging. Estée reasoned that her products would sit in the bathroom, where she wanted the face cream jar to look special. It could not have a label that would peel off in steam from the shower. So her name would be engraved on the bottle, its pale turquoise colour chosen to match by Estée after an exhaustive survey of as many bathrooms to which she could gain access.
While business through the two salons was good, Estée realised that her sales were limited by her reliance on unplanned purchases. In an era before credit or debit cards, she was losing sales because many clients simply didn’t have enough money with them. She needed to be in the big department stores where many customers came planning to buy cosmetics and could pay on their store charge cards. Most of all, Estée wanted to sell her products in Saks Fifth Avenue. She was determined to break down the barriers specifically designed to stop people like her reaching Saks buyers. The Saks cosmetics buyer eventually wilted under the human tornado that was Estée Lauder. They gave her an order for $800 worth of merchandise. Based on this one order, Estée pulled out of the two salons and, with Joseph’s full support, invested their entire savings into buying a former restaurant as their first factory. Joseph and Estée prepared the creams on the restaurant’s gas burners (one of which she kept for the rest of her life) and then set about talking the buyer into a promotional campaign. This was unheard of from Saks’ more traditional suppliers. Everyone with a charge account at Saks was sent a card announcing Saks Fifth Avenue is proud to present the Estée Lauder line of cosmetics: now available at our cosmetics department. And of course, every item sold came with that all-important free gift.
Her business grew steadily at Saks and, on the back of the reputation that a Saks listing bestowed, it was soon expanding into any and every department store she could talk her way into. Estée realised from the beginning that where her products were sold would dictate what her name stood for. Department stores capable of lending her products exclusivity and a premium aura were cultivated: those precious attributes would surely be lost if Estée found herself on the shelves in the local drugstore. She formulated four golden rules from this early department store experience:
· She would open every new concession herself, spending a week in the store to get everything absolutely right
· Her salespeople needed to be not just walking advertisements for her products, but be gushing enthusiasts for their efficacy
· The counter had to be a turquoise magnet, a ‘tiny, shining spa’
· The gift with purchase was mandatory, whatever the store’s policy regarding other cosmetic counters
All this was revolutionary for the time.
Always one to think big, Estée approached New York’s advertising agencies. She was rebuffed, no-one wanted to know. So she ploughed her advertising budget into more free samples, this time to department store customers whether they had bought a product or not. Postcards were sent out saying, Madam, because you are one of our preferred customers, please stop by the Estée Lauder counter and present this card for a free gift. Estée also insisted that the free gift was prime merchandise, not last season’s failures. But she soon realised that, good though her face cream was, it would not cause women to make a special trip. Face cream was at the more mundane end of the cosmetics spectrum. What they would beat down the doors for was a brilliant new lipstick colour, and this became the subsequent giveaway of choice. In 1947, The Estée Lauder Company Inc. was formed.
How Did They Evolve?
Although Estée had a growing business built around a miracle face cream and some good lipsticks and blushers, it was at this stage still a niche business. All around her counters in the major department stores were the counters of the French perfumers. If Estée was to make it big, she needed a killer perfume. Her opportunity came via an insight from her still obsessive safaris through the nation’s boudoirs: that makers made their money from perfume that evaporated away while sitting rarely used on the dressing table. In those days, perfume was then the perfect gift from the man to his loved one(s), but Estée saw this little piece of sociology as a market killer. She wanted women to buy their own perfume and use it every day. She would sell it like lipstick, not like rarely proffered diamond rings or large boxes of chocolate.
For her scent, she went back to one of her uncle’s early concoctions and tinkered with it until she was happy she had the ideal aroma. That was the easy part: the trick was in persuading women to buy and use it frequently. Estée’s first step was to not call it a perfume at all. Her Youth Dew was called a perfumed bath oil. Next came the packaging: she opted for a screw top rather than the more usual cellophane wrapping: she wanted browsers to unscrew and sniff in-store. Indeed Estée was not beyond splashing some on the floor near her counters, prompting shoppers to ask, what was that marvellous scent?
Youth Dew, launched in 1953, was immediately a huge success for the Estée Lauder Company. Selling 5,000 units a week, it became a long-term best-seller, still clearing $30 million a year in the 1980s. It also gave the company a caché for scent that could be used to launch actual perfumes. Estée and then Azurée were launched with names conjuring up the appeal of the French perfumes but packaged and sold with none of their stuffiness. In Saks, Estée Lauder was now number three behind Helena Rubinstein and Elizabeth Arden and consequently, Estée was now coming to her rivals’ attention. Meeting Helena Rubinstein for the first time, Estée made an impact by telling Madame R that her neck would benefit from Estée’s Crème Pack. She didn’t trust her local competitor, Charles Revlon, in the slightest. She was constantly on her guard against industrial espionage, and insisted that either she or Joseph, personally and in secret, add the last few secret ingredients to every batch of perfume produced in her factory.
While Joe ran the business side of things, Estée was constantly on the road: opening stores and cementing relationships with store buyers. In 1958, annual sales hit the magic $1 million, which was all achieved through Estée’s vision and force of personality. The US cosmetics market was booming – sales would nearly treble between 1955 and 1965. Estée Lauder was now a leading name in the American cosmetics industry, a position she had cemented with the launch of Re-Nutriv in 1957, selling for a heart-stopping $115 a jar. As the business grew, seasoned industry executives were recruited into the business, particularly anyone who had fallen out with Charles Revson. There was no love lost in either direction. In the ten years from 1958, company sales grew at an average
of 45% a year, helped by two of its biggest successes. These would transform the company into an industry powerhouse.
How Did They Build the Modern Business?
When the Estée Lauder Company finally adopted advertising in 1962, their different approach changed the industry. The existing industry convention was to use a variety of models in ads. This made sense: the product was the hero and the model’s role was to accentuate the benefits of whatever product was being advertised.
Estée Lauder took an obverse view. She would use only one model, who would be the face of the company. She would appear on every product over several years. The first face of Estée Lauder was Karen Harris. Estée took the precaution of not naming her in the ads in order not to divert attention from the brand. Indeed, many assumed that Karen was Estée Lauder herself. Karen lasted throughout the 1960s before a new face of the brand, Karen Graham, took over duties.
Estée Lauder’s second revolution was in the area of men’s fragrance. This was the orphan of the industry. It was dominated by Shulton’s Old Spice, a brand ageing as rapidly as its customer base. Even the more upmarket brands failed to excite Estée. She found Joseph’s preferred after-shave brand to be less than pleasing, and the lotions slapped on in the barbershop to be positively nauseating. Ignoring the advice ringing in her ears to stick to what she knew – women’s cosmetics - Estée ploughed on. She believed she was a skin expert rather than a cosmetics expert. Roping in every male employee in the company, i.e. Joseph and eight others, she spent months trying out an endless stream of concoctions. The outcome was Aramis, launched in 1965.
Sales results were uninspiring. It was launched as a fragrance, a cologne and an after-shave lotion. It featured a large dollop of Estée Lauder branding across the otherwise plain brown packaging, Estée decided she had made the mistake of pulling her punches. For this to work, she had to reinvent men’s grooming. That meant the product and not a house name that was known for high end female cosmetics. The outcome, in 1967, was a brand re-launch. Estée now presented an entire range of products: after-shave, eye pads and a face mask. Although clothed in the now familiar brown and gold tortoiseshell livery (taken from one of Estée’s oriental fans), the Estée Lauder name was relegated to small print and soon dropped altogether. The first advertisement for the brand ran in The New Yorker featuring the All-Weather Hand Cream – Estée was selling to metrosexuals thirty years before the term came into common parlance.
The significance for the company of this successful re-launch cannot be overstated. It showed that Estée Lauder was no one-trick-pony. They were now a fully-fledged cosmetics company, which had moved beyond one brand aimed at a subset of one sex. They could appeal to both sexes and all ages by developing products that did not rely on the Estée Lauder brand equity. The sky was the limit.
The next major initiative that would transform both the industry and the company was, for once, not powered by Estée, but by her son. Leonard had joined the business in 1958, fresh from completing his Columbia MBA. Leonard was an adherent of Schumpert’s creative destruction. He constantly told his parents that if ever there was to be a concept that could knock an Estée Lauder brand off its perch, he wanted the Estée Lauder Company to introduce it. That concept, although it would not quite deliver a knockout punch to Estée Lauder, was Clinique.
Major brand cosmetics companies had long understood that their products sometimes caused allergic reactions in some customers. But it was seen as a niche area. Several companies had tried to capture the market but the strategy of eliminating known sensitising ingredients also eliminated most of the appeal and allure of the category itself. Charles Revson kept his Revlon company out of it altogether, declaring hypoallergenic cosmetics to be ‘a drag’. Leonard thought differently. Rather than just be watered down version of the real thing, if properly developed from the ground up, it could be even bigger than Youth Dew. His insight was that, while relatively few had genuine allergic reactions to cosmetics, most women believed that skin, particularly their own, was a sensitive and delicate thing.
Leonard accepted that some of the glamour and allure of high-end cosmetics would be lost with a hypoallergenic claim. But the concept was grounded in the appeal of something else: medical reassurance. This reassurance would infuse every aspect of the brand. The products themselves were developed in partnership with Dr. Norman Orentreich, a widely acknowledged expert in the field of skin sensitivities, and in his laboratories. Estée Lauder herself conjured up the name, out of her fertile brain and intuitive understanding of customers. Very few American women might speak French, yet they would all appreciate that Clinique persuasively recalled images of salons where one went for a facial.
Leonard’s wife, Evelyn, made Clinique the complete family effort. She equipped sales staff with penlights in their white lab coats. Clinique’s counter was not just easily up to the standards expected in a department store: it stood out not just for its bright, clean lines; the artist’s lamp for examining customers’ skin; and a question-and-answer board (later a computer) to take the guesswork out of the process. The packaging was deliberately not too clinical; this still had to sit comfortably on the nation’s dressing tables. The boldest moves were to go 100% fragrance-free when sold in a part of the store primarily selling fragrances; and to position Clinique as being completely separate from Estée Lauder. It had its own counter, its own staff and would compete for customers with Estée Lauder as would Elizabeth Arden.
Launch day approached for what had been codenamed Project Miss Estée. Then a trademark search turned up a product sold by the little-known firm of Jacquet and Jacquet called Astringent Clinique. Lawyers informed Leonard that if they came to court, they would lose. Leonard saddled up and went to the Jacquet and Jacquet’s owners with a $5,000 offer. He came back with the name but was $100,000 poorer. He declared it the best deal he had ever made. Not that those early sales justified Leonard’s assertion. Launched in 1968, the brand lost $3 million in its first seven years; no mean sum for a company with a $40 million a year turnover. Also, competitors piled into the category, led by the man who had declared the whole thing to be a drag. Revlon quickly launched Etherea, as did another 179 competitors around the world. But the competition all missed the point. Clinique would be the driving force behind a ten-fold expansion in Estée Lauder sales in the coming years.
The 1970s saw much change in the industry, and two of Estée Lauder’s main competitors suffered badly. The deaths of both Elizabeth Arden and Helena Rubinstein in the mid-1960s cost a loss of drive. More fundamentally, these firms lost direction when acquired by pharmaceutical companies (Elizabeth Arden in 1970 by Eli Lily; Helene Rubinstein by Colgate Palmolive in 1973). Despite many offers to follow suit, the Lauder family, now increasingly led by Leonard (who became President in 1973), decided to keep control. This gave them a definite edge as the others floundered in the grip of conglomerates.
While Clinique powered on, increasingly the company saw its main competition as being Revlon and Avon - both much larger companies with differing distribution strategies - and French fashion designers who were moving their brand equities into cosmetics. Estée passionately believed that the department store was the only place to be, whereas Revlon’s heartland was the more downmarket, yet much more numerous, drug stores. By 1973, Estée Lauder had only 2,000 points of distribution in the United States while Revlon had 15,000. Avon had countless more due to selling in customers’ homes. There they were able to outdo Estée Lauder in personalised selling, which had been a core company strength.
Revlon had a big hit in 1973 with the launch of Charlie. This made the Estée Lauder brand seem behind the times - what your mum wore. Then, from the top end of the market, Yves Saint Laurent’s Opium launched in the US in 1978. Estée Lauder was being squeezed, and, for the first time, the company was on the back foot. It showed when the launches of Soft Youth Dew and Cinnabar were rushed, and both fell well short of past standards of success. Still, by 1978, annual sales had reached cl
ose to $250 million, with Clinique and Aramis together accounting for almost half the total. On the back of Clinique’s runaway success, the concept was taken even further in 1979 with Prescriptives. Here every customer got a full one-hour consultation, in which a custom-coloured make-up was developed to exactly match skin-type and tone. However, Prescriptives gave Estée Lauder a long and deep financial haircut, soaking up $40 million of investment and losses before finally coming good in the late 1980s. More immediate success came from White Linen, launched in 1978 as part of a trio of fragrances called New Romantics. These were designed to be worn in tandem, with advertisements urging Wear one. Wear two. Wear all three together. Customers were quite happy wearing just White Linen.
The company returned to its skin care roots in 1983 with the launch of Night Repair, trumpeted in ads as a biological breakthrough. Unfortunately, the message was undermined by the Clinique collaborator, Dr Orentreich, going rogue, and debunking the whole idea in the press. Estée herself had mostly taken a back seat, and the company powered its fragrance new-product pipeline with a well-staffed and funded R&D function. Their Beautiful, launched in 1985, was a blockbuster that became another long-term success. Estée Lauder were now undisputed kings of the department store cosmetics floor, and second only to Avon in sales of fragrances.
In 1990, Leonard Lauder recruited a new head of the company’s domestic US division. Robin Burns had been the brain, which propelled Calvin Klein from nowhere to become a major competitor, with launches such as Obsession and Eternity. Under Burns’ leadership, the now slightly ageing portfolio and advertising was updated. A notable development was Origins, which was run as a separate entity and headed by Leonard’s son, William. Origins was a range of botanically based products aimed at heading off the threat posed by the rise of Body Shop. It was sold either through stand-alone company-owned stores, or stores-within-a-store in selected major outlets. William described Origins’ mission as ‘trying to rewrite the book on how a cosmetics company operates and thinks in the 21st-century’. Then, in 1993, the company responded to the rise of the designer-fragrance phenomenon and signed a deal with Tommy Hilfiger to license his name on cosmetics.