Are Estee Lauder’s Ecommerce Initiatives Paying Off ?

Estee Lauder‘s (NYSE:EL)  management expects its online sales from brand sites and retailer sites to exceed $1 billion in fiscal year 2016, double the number three years ago. Revenues from online sales would represent more than 15% of the company’s total revenues, which were around $11 billion in the last fiscal year. (Fiscal years end with June.) During the holiday season of 2015, the company saw a significant increase in its online sales. On Cyber Monday, sales of its North America brand sites went up by  50% compared to the previous year. And on the comparable Singles Day in China, sales of its five flagship sites on Tmall more than doubled. While Estee Lauder sells 14 of its brands directly to consumers online through approximately 120 of its own e-commerce and mobile commerce sites, it also has a mobile application under its Clinique brand. We believe that the company’s digital initiatives are showing results and that a focus on online initiatives should drive revenues for the company in future.

Focus on Omni Channel, Continuing To Explore Various Digital Approaches

As Estee Lauder’s online sales increase, the company is continuing to build on its digital initiatives. Accordingly the mobile channel is becoming a large part of the business, accounting for more than 30% of its online sales.  In Q2 2016 the company launched several pilot programs and is building its omni channel capability to seamlessly connect consumers across its brand sites to its free standing stores globally. Since retailers have found that the omni channel experience enhances customer satisfaction, Estee Lauder is working on developing this evolving retail trend. The company also launched online booking for scheduling make-up services in the U.S. and U.K. In fact management has found that nearly 50% of its appointments at the M.A.C. new makeup studio in Manhattan were made online.  Cross channel gift cards that can be redeemed online and in stores and interactive beauty classes on social media are just two of the other digital initiatives which the company is testing.

E-commerce Initiatives Will Drive Revenues In China

Estee Lauder’s e-commerce sales in China grew by 80% in Q2 2016, partly due to its success on Singles Day. As we noted, its sales doubled compared to the previous year, making online sales nearly 13% of its total sales in China. According to a report by Kline group, the beauty online market in China grew by 200% between 2006 and 2013 to become the biggest internet cosmetic market in the world. Sized at $ 1.35 billion at the beginning of 2014, it equals the size of the whole beauty market in France. Online retail sales in China are the highest in the world.  While Estee Lauder is already seeing high e-commerce sales in the region, its digital initiatives should provide a boost to its revenues from China. According to Boston Consulting, China is entering a new era and consumption growth will be driven by the rise of upper middle class.  In fact, the number of affluent households  is projected to double to 100 million by 2020. As services become the economic engine of the Chinese economy and affluent households drive faster growth, demand for luxury goods including prestige cosmetics should increase.  Estee Lauder is sure to benefit from this growth.

We believe Estee Lauder’s digital initiatives are showing results.  As the company continues to innovate in this space, it should be able to capture a bigger market share in the online beauty industry, especially in China.

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research