William Lauder Defends Dept. Stores as Group Net Soars 26%

Estée Lauder Cos. saw earnings rise 26.2 percent to $98.3 million in the third quarter, while sales rose 15.2 percent to $1.42 billion.

“We are concerned primarily about the company’s dependence on prestige department stores as a distribution channel, given what we view as the volatility and economic sensitivity of the department store channel,” said Nicholson in her report.

It’s an argument that Lauder told WWD he’s heard before, and one without evidence.

“This seems to be one of those consistent fantasies that doesn’t want to seem to go away,” said Lauder. “The fact of the matter is that we feel very strongly that the prestige department store in North America is still a highly relevant and competitive retail environment for upscale aspirational brands in cosmetics, fashion and accessories. [Upscale department stores] continue to demonstrate that, when the consumer has disposable income and wishes to spend money on aspirational brands, this is the retail environment of choice they will go to.” Proof of the trend, said Lauder, has been evident with high-end department stores rebounding stronger and earlier than the general department store population.

“You’ll see over a five-year period of time, growth of the cosmetics business in the prestige channel has significantly outpaced the growth of the cosmetics business in the mass channel,” continued Lauder.

Lauder said he isn’t surprised by the growth. “I wouldn’t say there’s anything surprising about a five-year trend. What’s surprising is that analysts and other people who are intelligent and look at numbers, ignore those numbers. They speak about emotions and use emotion to back into numbers justification. There’s nothing surprising about a five-year trend. The only thing that’s surprising is if you read it and don’t listen to the numbers.”

Lauder’s bullish stance on department stores comes despite his earlier position as founding president of Origins, which marked the groups first foray into freestanding stores. He also overaw its Web site.

Regarding quarterly results, increased volume toward the end of the quarter helped drive sales for the period up 15.2 percent to $1.42 billion from $1.23 billion. However, excluding currency exchange benefits resulting from the weak U.S. dollar, sales rose 10 percent.

Makeup led all product categories with a gain of 22 percent to $591 million on a reported basis and 17 percent excluding currency exchange benefits. MAC and Bobbi Brown products in particular were robust, said Lauder during the company conference call, posting double-digit growth. Launches from the Clinique and Estée Lauder brands also helped drive sales.
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