Like his mother before him, Leonard Lauder knows that business is about relationships. It's about making people feel important. He travels compulsively, greeting the women who sell his makeup, checking up on cosmetics counters everywhere. Last year he racked up 165,000 air miles, which is about equal to traveling around the world six and a half times.
Why Women Find Lauder Mesmerizing
Selling cosmetics works best if you get intimate with the customer. Estee Lauder knew that; so does her son Leonard.
The year is 1950. Harry Truman is President. The Father of the Bride, starring Spencer Tracy and the 18-year-old Elizabeth Taylor, has opened in movie theaters. And Mrs. Estee Lauder, fortysomething years old, is determined to get her creams and lotions into Neiman Marcus. "She came to see me late one afternoon as I was on my way home, and she introduced herself," recalls Stanley Marcus, then president of Neiman Marcus. " 'I'm Estee Lauder and I have the most wonderful beauty products in the world and they must be in your store.' "
"Well," Marcus continues, "we already had Elizabeth Arden and Germaine Monteil and Charles of the Ritz. We didn't need another line. So I said to her, Why don't you go and talk to so-and-so, who was our merchandising manager at the time. And Estee replied, 'I have done that, and he said that I should come back another day. But you see, Mr. Marcus, I don't have time for that because my products must be in your store right away.'"
Marcus, now 93 and chairman emeritus of Neiman Marcus, remembers the day perfectly. "I asked her, 'How much space do you need?' 'That's not important,' she replied. 'Four or five feet will do.' 'When can you have your merchandise here?' I said. Well, by God, she had it all with her. She had brought a big bag filled with merchandise, and the very next day she set it up and she was in business at Neiman Marcus. Stopping everyone who came in the door, she said, 'Try this. I'm Estee Lauder and these are the most wonderful beauty products in the world.' "
"Yes," says Marcus. "She was a very determined salesperson; she pushed her way into acceptance. She was determined—and gracious and lovely through it all. It was easier to say yes to Estee than to say no."
Determined, gracious, and lovely Estee Lauder began life as Josephine Esther Mentzer living above her father's hardware store in Corona, Queens. Today the company she founded in 1946 controls over 45% of the cosmetics market in U.S. department stores—three times the volume of its closest competitor, L'Oreal, which owns Lancome and holds fragrance licenses for Ralph Lauren and Giorgio Armani, among others. According to market researchers at NPD Beauty Trends, the four best-selling prestige (industry rhetoric for "expensive") perfumes in the U.S. belong to Estee Lauder. When it comes to prestige makeup (mascara, lipstick, foundation, you name it), seven of the top ten products are Estee Lauder's. Of the ten best-selling prestige skin care products, eight belong to Estee Lauder. Overseas, Estee Lauder products are sold in 118 countries. In Japan, Estee Lauder's Clinique brand outsells Shiseido in the 110 doors, or outlets, it's sold in. The British and the Germans adore Estee Lauder. In Eastern Europe and Russia, it is said that Estee Lauder is as well known as Coca-Cola.
This fiscal year, which ends in June, the Estee Lauder Cos. will likely earn $236 million, after taxes, on revenues of $3.6 billion. The Lauder family—including the 'ageless' Estee, who, it is rumored, turns 90 this year—controls 77% of the common stock and 96% of the votes; the family's stake is now worth some $6.2 billion.
Most people assume that cosmetics are an easy sell, that women are suckers for anything that promises to make them look better, younger, more attractive. But the truth is, selling cosmetics is a tricky business, in part because you're selling a product that no one really needs. That's why the Estee Lauder Cos.' performance is so remarkable: Few companies are as canny at persuading women to spend and spend and keep spending on the unessential. Selling cosmetics is a subtle art; to do it well, you have to tap into something bigger, wider, more abstract than the product itself. A lipstick is more than a lipstick; it'll change your life. And perfume? It's a stairway to paradise. No one understands this better than Estee's eldest son, Leonard Lauder, now 65, who has turned his mother's cream and lotion business into a global cosmetics empire.
While Estee strove to make her eponymous brand a giant used by all, Leonard has recognized that cosmetics are personal, intimate; that increasingly the trend is toward specialization, toward brands that make a woman feel she's buying something that's made just for her, that conforms to her unique style, her "very special" look. Leonard Lauder's goal is to own not one single brand with mass appeal but instead a collection of dozens and dozens of brands, each targeting a different kind of customer.
To grasp how thoroughly he has accomplished this goal, wander through Bloomingdale's flagship store in Manhattan. On the first floor, as far as the eye can see, there are women, women, women (and a few men) in tasteful uniforms promoting goods for the Estee Lauder Cos. "Beauty advisers" for the original Estee Lauder brand, with its classic gold-and-blue packaging, are stationed front and center. Discreet, a little dull perhaps, the Estee Lauder brand seems best suited to the 49-year-old woman still active in the Junior League. Just behind, wearing white lab coats, are the Clinique "consultants" hawking a simple beauty regimen perfect for the 36-year-old mom with a GMC Suburban and no time to waste. To the right are the Prescriptives "analysts." Prescriptives plays to the urban, multiethnic crowd; its advertisements feature Ling, a stunning Asian model, with shimmering eyelids and lacquered lips. Behind Prescriptives, to the right of Clinique, there's the counter for Bobbi Brown Essentials, a cult brand driven by one Bobbi Brown herself, a regular Connecticut mom/makeup artist who skillfully balances family and career and manages to look good too. Still farther back stands a row of M.A.C. makeup artists, all in basic black. M.A.C.'s spokesmodels are RuPaul, a 6-foot 7-inch drag queen, and k.d. lang, the talented lesbian singer once featured on the cover of Vanity Fair being shaved by Cindy Crawford. On the far right, against a wall, is Origins. With its earthy packaging and botanical theme, Origins appeals to the environmentally concerned.
Every one of these brands, and more (see chart), is owned by the Estee Lauder Cos. Of course, hardly anyone knows that. A 23-year-old who's loyal to M.A.C. would never dream of buying a gold-cased Estee Lauder lipstick (uncool). There's no way she knows it's the same company. There's no way she knows that for all that choice she's being offered, there is virtually no choice at all. Oh, sure, other manufacturers have counters set up at Bloomingdale's, but they're nowhere near so visible—this is Estee Lauder territory, and Bloomingdale's knows it. "When I go to parties and people ask what I do, I tease and say, 'I work for Leonard Lauder,' " quips Michael Gould, chief executive of Bloomingdale's. "And there are times when I really think I do work for Leonard Lauder."
A few months ago, in early February, ABC News' 20/20 program sent an investigative team to uncover the truth about makeup. What, if any, difference is there between a $6 Revlon lipstick sold at Walgreens and a $16 Estee Lauder lipstick sold at Saks Fifth Avenue? Not very much, declared the 20/20 team. Of course, 20/20 missed the whole point. The difference is this: If you go to Walgreens for a Revlon lipstick, you'll leave with a $6 lipstick and maybe a roll of Life Savers. On the other hand, if you go to Saks for an Estee Lauder lipstick, there's a pretty good chance you'll leave with a $16 lipstick, a $13 lip liner, a $15 lip gloss, and maybe even a $25 tube of LipZone to help prevent your new lipstick from "feathering." The sales technique is called "link selling." You ask the salesperson for a foundation; you wind up with foundation, plus concealer, plus powder. You ask for eye shadow; you wind up with eye shadow, plus eye shadow remover and maybe an eyeliner.
Nobody is better at link selling than Estee Lauder. Which helps explain why, in a relatively stagnant industry, Estee Lauder's revenues have increased 50% in five years. Link selling is partly why earnings have grown at a compound annual rate of 22% for the past five years. To persuade any woman to buy three products when she intended to buy just one is an art. If the salesperson gets pushy, even for a moment, she's finished. That's why the Estee Lauder Cos. places so much emphasis on training.
In early March, at a Marriott hotel in Maryland, Clinique organized a three-day seminar for its consultants. Notebooks ready, pens in hand, 25 women in white lab coats and sheer hose, their lips perfectly lined, listened as Leslie, a Clinique "education manager," coached them on ways to build a rapport with customers.
"What are the words you will never say?" asks Leslie.
"Can I help you," comes the chorused response.
"Right!" says Leslie. " 'Can I help you' makes it sound like we just want to take her money! What should you say instead?"
Eager hands go up. " 'Hello. My name is Tress, I'm a Clinique skin-care expert. Would you like me to assess your skin today?' "
"Great! Good job, Tress!" says Leslie.
Working on a volunteer, Leslie demonstrates Clinique's skin assessment technique. "Using these three fingers, touch the skin on her face—her forehead, her cheeks, her chin, her eye area—but be sure to ask for permission. Say, 'In order to assess your skin, Colleen, I'd like to touch your skin. Is that okay with you?' Share your observations with her. Bring up her good features before you discuss the trouble spots. Customers may be intimidated, so if you point out one or two things that are terrific, they'll feel good about themselves. 'Colleen, you have such delicate skin, such brilliant blue eyes. Your skin is very smooth, but I can feel a touch of dehydration here; have you felt that yourself?'"
Teaching saleswomen to sell is pointless if you don't first drive customers to the counter. To attract busy women, you must convince them that what you're selling is more than just another cream. You have to offer a little escapism, make women hope, believe, even for a moment, that they can look like Elizabeth Hurley. Here's where "aspirational marketing" comes in. You must have seen Estee Lauder's advertisement for its fragrance Pleasures, the one where Elizabeth Hurley, curled up in a pale-pink twin set, sitting in a field of pink flowers, two golden Labrador puppies at her side, smiles sweetly at the camera. It's an aspirational ad: Apparently women aspire to certain identifiable things, and that is largely the reason Pleasures is the No. 1-selling prestige perfume in America. "Pleasures is a lifestyle aspiration," explains Robin Burns, 45, who heads the Estee Lauder brand. "It's about family, children, outdoors, the puppy dog, the sunshine, relaxation, the hammock. Aspiration is the reason that all those magazines like Martha Stewart Living and all the garden books are [doing so well], because it's about pleasure, it's about the one thing that people don't have enough of."
You must have seen the ad for Estee Lauder's Beautiful, the one that features the perfect bride in the perfect gown with the perfect little bridesmaid on her perfect wedding day. I asked Burns to translate that one. "Beautiful has a brilliant positioning," she explains. "When you think about it—a bride—it's timeless, it's positive in every woman's life, in every country of the world, and that's true whether it's this year or 30 years from now." After 13 years on the market, Beautiful remains a bestseller around the world.
Burns is a master marketer. In the 1980s, when she was president of Calvin Klein Cosmetics, she launched the perfumes Eternity and Obsession, two huge success stories. "Fragrance has to drive you emotionally. It's not just a glass bottle with liquid in it. There's an emotion that draws you into it," she explains. "If I were to show you a photograph of babies, clean and smiling, outdoors in the sunshine, I could then give you a fragrance that a perfumer might say is an Oriental, a heavy fragrance, and you would probably smell it and think it's fresh and clean. It's the power of the imagery that you smell."
So important is the power of imagery in this business that in its last fiscal year the Estee Lauder Cos. spent $980 million, or almost 30% of sales, on advertising and promotions. (As a point of comparison, the firm spent just $35 million on research and development.) Revlon, by contrast, spent only $397 million, or 17% of sales, on advertising. Such sums help explain why Estee Lauder's net income last year was just 5.8% of sales. The creams and lotions and lipsticks that Estee Lauder sells cost very little to make—so little that last year the company reported an awesome 77% gross profit margin. But Lauder spends so much on advertising, on training, and on luring customers with free samples that at the end of the year there's almost nothing left. From that splendid gross margin, Lauder is left with an unimpressive net margin. That's the nature of the business. And it helps explain why Estee Lauder rules the prestige cosmetics market. Who can compete with that budget? "They have such deep pockets that we can't fight them [in advertising and promotions]," sighs an executive at Lancome who prefers to remain nameless. "Our only option is to be more strategic."
The bad news for competitors, however, is that few companies are as strategic as Estee Lauder. Only a year ago the word on the Street was that the company was going nowhere fast. Analysts had two major concerns: One, Lauder's products were primarily sold in department stores; and two, Lauder's competitors in the cheap mass market were stealing market share.
For years Leonard Lauder had scoffed at the idea of selling his products anywhere but in department stores (and, overseas, in classy perfumeries). But in department store retailing, things have turned on their head. In the old days, the '50s and '60s say, when people came to department stores, they came to buy the best clothes, to get service, to eat an elegant chicken salad. Cosmetics companies benefited from this customer traffic: A woman might buy a Charles of the Ritz lipstick, maybe an eye shadow, on her way to the fur department. Today the situation is reversed, and cosmetics companies, namely the Estee Lauder Cos., drive department store traffic. Now, after buying a new face cream, a woman may visit the shoe department. But attracting women to department stores gets harder all the time; it's the mass market and specialty stores that draw them in now. And when you already control over 45% of cosmetics sales at department stores, how much room is left for growth? In 1997, largely because department store retailing is no longer where it's at, Estee Lauder's stock fell from $50 in January to $39 in late October.
Like his mother, however, Leonard Lauder is a relentless, determined promoter with no tolerance for failure. Leaning forward in his chair a few weeks ago, his head somehow out of proportion to his slender body, he made his ambitions clear: "Every time I talk to our people, every time I go to a sales meeting, every time I meet with beauty advisers, I say to the people, 'Listen, I simply want this to be the best company in the world. And being the best means being the best. Being the best sales, being the best profits, being the best products, being the best advertising, being the best people, being the best everything.'"
Being the best also means making it easier for people to buy your product. Cosmetics are impulse purchases. To encourage women to be more impulsive, the Estee Lauder Cos. is replacing traditional glass counters in department stores with open displays that let women browse, touch bottles, and test products without having to ask for help. In the first year this new open format was introduced at Macy's in Paramus, N.J., sales increased 22%. To reach new customers, Clinique has placed counters in 18 college bookstores and is now infiltrating the workplace, setting up temporary stalls in offices. The Estee Lauder brand has opened two freestanding stores, including one in Las Vegas. This year, an Estee Lauder spa opened on Long Island. Origins now has a catalog. M.A.C. has 30 stand-alone stores. Sales in airports are growing fast.
But none of these initiatives are big enough to wow analysts who fret about the future of department stores. So last Halloween, Lauder's company bought Jane by Sassaby, a scrappy little makeup line (estimated 1997 sales: $30 million) sold in Wal-Mart, Target, and Rite Aid. A modest purchase, yes, but hugely significant, for it suggests that the Estee Lauder Cos. is determined to crack the mass market. A few weeks later, just before Thanksgiving, Lauder announced that it had paid $300 million cash for Aveda, an ecologically correct line of shampoo, hair conditioners, perfume, scented candles, and makeup. Aveda is sold through thousands of independent hair salons and through its own freestanding "lifestyle stores." In one short month the Estee Lauder Cos. had jumped into two new, big channels of distribution. This has pleased the analysts: Estee Lauder's stock has gone from $39 last October to a recent $67, a dizzying 37 times forward earnings.
At the Estee Lauder headquarters in Manhattan's General Motors Building, at the elevator banks, near entrance ways, you'll find little frosted squares of pale green glass engraved with a motto: "Bringing the best to everyone we touch." That motivational cliche is to be interpreted literally. Estee Lauder herself understood that selling cosmetics works best if you can get intimate with the customer. Intimacy means not groping but touching—lightly placing those three fingers on someone's forehead, smoothing lotions on her cheeks, applying gloss to her lips. In her 1985 autobiography, now out of print, Estee Lauder explains the technique in a passage about her early days selling at the House of Ash Blondes beauty salon:
"A woman sitting under the dryer would be rather bored with the time it took to dry her hair. Her restlessness would work for me. I'd ask her to let me try a special cream on her face—free of charge. I promised it would make her skin feel pampered and soft, would make her skin feel silky. Of course, she would agree. She had nothing else to do under that dryer. When her hair dried, but before it was combed out, I would remove the cream and quickly make up her face before she had a chance to think about it. First the glow, then the Honey Glow powder with its own foundation base. Then a bit of turquoise eye shadow... Finally, my Duchess Crimson lipstick...I would send the woman off to get combed out. When she was finished, the total look delighted her. 'What did you do?' 'What did you use?' 'How did you do it?' was the inevitable barrage of questions...In most cases, she would leave the salon with at least some of my creams and makeup."
Leonard Lauder is his mother's son. Joseph Gubernick, who is head of research and development for the Estee Lauder Cos., has worked for the company for 26 years. So I asked him, What has changed since Leonard took over from Estee? Without hesitation he replied, "Nothing. There has been no change, because Leonard and Estee are the same person. Leonard is just a transformation of Estee. He learned from her. Everything she did, he does." Touching people, becoming intimate with customers, charming everyone he comes in contact with—no one does it better than Leonard.
Marshall Rose has been a friend to Leonard Lauder for 30 years and is a member of Estee Lauder's board of directors. "When you're talking to Leonard, even if Henry Kissinger is right behind you, he makes you feel like you are the most important person in the world," says Rose. Bobbi Brown, of Estee Lauder's Bobbi Brown Essentials line, praises Leonard Lauder in these terms: "When Leonard gives speeches, he talks about his close relationships with people, and everyone in the room thinks he's talking just about them."
That skill gives Leonard Lauder an edge over his competitors. Soon after the Estee Lauder Cos. bought Jane by Sassaby last year, Leonard Lauder started going out on sales calls with Jane's president and co-founder, Howard Katkov. Merchandising managers at drugstores and discount stores, where Jane is carried, were astounded, thrilled, that Leonard Lauder himself—a man worth billions—would take his valuable time to visit them in person on behalf of such a little brand. It was an honor and a privilege. "Leonard is the Mick Jagger of the cosmetics world," says Katkov. "When I visit stores with him, it's like I'm taking the Pope around. Everyone clamors to meet him. We now get calls from accounts who used to turn us away, and they ask, 'So when are you bringing him to our store?'"
Thanks to Leonard Lauder's sales calls to discount stores and drugstores, Jane will this year almost double the number of outlets it is sold in, from 9,200 to 15,000. Beth Kaplan is executive vice president of marketing for Rite Aid, a giant drugstore chain, and in mid-February Lauder and Katkov stopped in to visit her in Camp Hill, Pa. Kaplan explains the Lauder appeal: "He's a sweet talker. He's gracious. He's engaging. He puts his arm around you and you think, 'Sure, I'll do anything for this man.' It's very flattering—and very disarming.'
One of Leonard Lauder's sales techniques must be the oldest in the book: Within 24 hours or so of meeting someone, he invariably writes that person an intimate, often handwritten, note. In fact he's famous for his notes, for his ability to always say just the right thing and to touch people just that way. "After the meeting he called me, and then I got a beautiful letter, very personal," confides Kaplan. "I kept that letter. That seems silly, right? I mean, I get vendors' letters every day, but this was different."
Like his mother before him, Leonard Lauder knows that business is about relationships. It's about making people feel important. He travels compulsively, greeting the women who sell his makeup, checking up on cosmetics counters everywhere. Last year he racked up 165,000 air miles, which is about equal to traveling around the world six and a half times. "I'm in department stores all the time. You know, probably no one travels the way I do," he says. "You speak to retailers around the world; no one else visits them. I am the only person in the cosmetics industry that the retailers around the world know. Because my competitors don't care. I care, personally. If you asked me what would I like to do on my vacation, I'd say, I'd like to go and visit stores."
Touching people, building relationships, is a sales technique that Leonard Lauder expects every person in his company to perfect. On March 6, at Saks Fifth Avenue in New York City, Bobbi Brown made a personal appearance to meet her customers. Dozens of women lined up, and Bobbi Brown greeted each one, taking five minutes or so to recommend a new makeup palette. Karen, a 35-year-old account manager from Hackensack, N.J., told me she'd made an appointment one month earlier to meet Bobbi Brown. What was so special about Bobbi Brown's makeup? I asked. "Bobbi is so down to earth," Karen explained. "There's no glitz or phoniness. I mean, she's just like us."
While a makeup artist was giving Karen a new face, a video about Bobbi Brown looped around and around on a Panasonic television. There was Bobbi talking about fragrance, Bobbi talking about life, Bobbi on being a woman. An hour and 45 minutes after she'd arrived for her appointment, Karen was finished. She had a new look, a $566 new look. She had bought Bobbi's eye shadows in Taupe, Sable, Bone, Charcoal, Shell, Pale Silver, and Pale Pink. She'd bought Bobbi's lipsticks in Burnt Red, Soft Rose, Cranberry Stain, and Plum Stain. She'd bought Bobbi's lip shimmers in Berry and Beige Gold, and Bobbi's lip gloss in Aubergine and Petal. She'd also bought Bobbi, a $75 bottle of perfume, signed for Karen by Bobbi herself. "I didn't expect to spend this much," said Karen, a little apologetically. "But they definitely didn't push it on me." In fact, she'd brought only $300 with her and was reluctant to put additional charges on her credit cards. So we walked together down the block to an ATM machine where Karen withdrew another $300. "It was the perfume that did it," she said as we walked back to Saks. "I didn't realize how expensive it was until she'd already signed it."
Bobbi Brown was in Saks that day for three hours, from 10 A.M. to 1 P.M. In that time she sold $27,000 worth of product. Estee herself would have been proud of the performance. Leonard probably wrote her a thank-you note.