Estee Lauder Eyes Growth Through Distribution

Beauty giant Estee Lauder is putting increased corporate focus on its smaller brands and lines associated with specific makeup artists, while expanding distribution of some of its fastest-growing cosmetic names.

Estee Lauder plans to add 30 new company-owned M.A.C. and Bobbi Brown freestanding stores during this fiscal year, CEO William Lauder said last week at a shareholders' meeting. Lauder already has 140 M.A.C. stores, so the expansion by June would give it 170 total freestanding outlets, which typically produce stronger results than department stores.

Estee Lauder has also been trying to pump up its flagship brand with more youthful offers and a recent partnership and new line with designer Tom Ford. Its successful makeup artist brands each grew at a rate of 20 percent a year for the last five years, according to analysts.

Another source of expansion for Bobbi Brown will be the retail travel channel, with an increase in distribution at airport duty-free shops. Lauder will also move Bobbi Brown and M.A.C. into new markets, such as China, where it plans to expand its Origins presence sometime in fiscal 2008.



Citigroup analyst Wendy Nicholson said such additional distribution is generally a plus, especially given these brands' higher margins.

The company's expansion plans come in a shrinking department store environment--the most recent of which were store closings connected with Federated's acquisition of May Department Stores last year.

In terms of other distribution changes, Estee Lauder also said recently that it is expanding Clinique into the mass market in Canada, with the brand to be sold at Shoppers Drug Mart there. In the U.S., it has expanded into the mass-market retailer Kohl's, with a specially created, exclusive Estee Lauder brand for Kohl's fronted by actress Ashley Judd.

Estee Lauder has also announced a partnership between Mattel's Barbie brand and the urban-positioned M.A.C. A seemingly atypical pairing, they will jointly develop a Barbie brand of color cosmetics for adults.

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