Has Estée Lauder forgotten about advertising?

By Simon Pitman contact

- Last updated on GMT

Has Estée Lauder forgotten about advertising?

Related tags: Estée lauder, Brand, Advertising

Estée Lauder was powering ahead of its competitors with breakneck speed until recently, but an analyst’s note underlines the need to spend more on promotional activities to secure a return to growth.

According to a note from Citigroup analyst Wendy Nicholson, the company may be looking at a period of slower growth for its two main brands, Estée Lauder and Clinique.

The company has been investing heavily in brand acquisitions, but has that been at the expense of advertising and promotional spend?

Nicholson's note to investors highlights that the problems the company has been facing with its brand portfolio have been compounded by a lack of spending on marketing and advertising, an unfavorable channel mix and an insufficient innovation pipeline.

Spend more on advertising and promotions

The solution? Nicholson suggests that beyond the recent acquisition trail and resulting diversification, the company should be looking to increase its spend on advertising because it is well below the company’s historic averages.

According to Nicholson, the problem of falling revenues stems from the company’s exposure of its main brands, which currently account for 50% of its total revenues, which has put pressure on the company to expand and diversify its portfolio.

In line with this, the company has been on the acquisition trail, buying up a number of luxury brands, including fragrance brand Editions de Parfums Frederic Malle and luxury skin care player Rodin olio lusso, both announced in early November 2014, together with the acquisition of Le Labo prestige fragrances in October 2014.

Latest acquisitions need to add big to revenues

The acquisitions came off the back of a prolonged period of growth, but that growth was already showing distinct signs of slowing when the company announced its first quarter results in November of last year, underlining that revenues slipped 2% to $2.63bn.

The fall in sales was mainly attributable to slower skin care revenues, derived from its Estée Lauder and Clinique brands. And according to Nicholson, this is putting significant pressure on the performance of its other brands, which include the new acquisitions.

Estée Lauder announces its second quarter results on May 2nd, 2015.

Related topics: Business & Financial

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