CTFA Synopsis: Reinvent Or Disappear

BOCA RATON, Fla. -- In a groundbreaking appearance at the Cosmetic, Toiletry and Fragrance Association's annual...

BOCA RATON, Fla. -- In a groundbreaking appearance at the Cosmetic, Toiletry and Fragrance Association's annual meeting last Friday, Leonard Lauder laid down a challenge to the beauty industry -- innovate or else.

Lauder's comments came at a time when leading executives were wrestling with the thorny problem of how to revive a flagging fragrance industry, which has just weathered one of the worst Christmas selling seasons in a decade. The four-day meeting ended Saturday evening.

The speech by Lauder, chairman of the Estee Lauder Cos., marked the first time in memory that the industry organization had featured a prominent cosmetics executive to speak candidly about the state of the actual beauty business. Past CTFA speakers traditionally have been well-known figures from politics, journalism, and economic and management affairs, in addition to speakers focusing on product legislation and regulatory matters.

"One of the things that worries me is the loss of reputation of U.S.-made goods," said Lauder, pointing to the image of American beauty products and packaging across the globe. "The [global business community] thinks that we're great marketers, but not necessarily delivering great quality. If we're trying to preach American quality, that starts in this room. If we're going to be together in this room again, prosperous and well, we need to focus on how we can have a quality reputation unrivaled around the world." Two factors working against American quality, he said, are lower prices of American goods at retail -- "That means there's pressure to make the cost lower" -- and the rush of talent to "industries other than manufacturing."

As well, retailers need to shape up, he said. For instance, Lauder said, American department stores are, per square foot, generally less productive than their European counterparts. "People ask, 'Are we overstored?' We are underproductive," he said. For instance, he pointed out, Lauder's freestanding Aveda, MAC and Origins stores are four to five times more productive than the company's department store counters, and their comp-store numbers are better than those of department stores. "Part of that is because we are paying rent on these spaces," he said, noting that after World War II, many department stores were given what he called "sweetheart deals" to anchor shopping malls -- deals that still exist to this day and that, in his opinion, don't motivate stores to perform efficiently.

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