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NEW YORK — Leonard Lauder, whose Estee Lauder Cos. commands more than 40 percent of department store beauty sales, sounded a warning this week that the out-of-control fragrance launch machine could run off the tracks.
"Diversion has become almost a fact of life, because we're living in the era of the megalaunch. Two or three million dollars is no longer enough to launch a fragrance," he said, during a speech Monday night to the Cosmetic Executive Women group.
"The megalaunches have unleashed a whole new dynamic: How am I going to get my money back?" he continued. "If your rankings don't hold up, your [positioning] is moved, and if you can't get the early part of your investment back early, you're stuck with a loser."
He was referring to the resultant flood of prestige products into the mass market as manufacturers struggle to recoup their launch investments.
When asked later where growth can come from in a relatively mature U.S. cosmetics market, in which vendors are trading market share with each other, Lauder answered, "We are looking at a worldwide phenomenon of basic flatness. The business is there, but it's flowing in a different direction. We have got to be more value-conscious and more clever."
To illustrate his point, Lauder cited the opening in July of a Clinique store in the Pittsburgh airport, where, he noted, "half of the customers there are new Clinique customers." The store reportedly is expected to have first-year sales of about $1.5 million.
Staying a step ahead of consumer whims is another avenue for growth, Lauder said, primarily in the development of "second-tier lines."
Pointing to the advent of makeup artist lines as an example, he noted, "Many of us were caught unaware of a younger consumer who was disenfranchised by the department store lines and didn't what to use the same cosmetics her mother uses. We missed the beat, missed seeing the need."
Lauder — whose anecdotes about his beginnings in the beauty business kept the audience of about 400 chuckling during his 45-minute speech — also tackled the subject of international expansion.
"The U.S. market is just one market for us. There is a big wide world of underdevelopment," he said. "We're not in Brazil or India and hardly in Latin America. China also represents huge opportunities. I'm very optimistic."