A. Case Abstract

Brief Profile and History

Estée Lauder is a major American corporation based in New York City. Estée Lauder is one of the world’s leading a manufacturer and marketer of quality 1) skin care, 2) makeup, 3) fragrance and 4) hair care products. The Companies was established in 1946 and has been public since November 1995. Presently, Estée Lauder Companies has 29 brands, sells products in over 140 countries and territories, and employed 32,000 people worldwide. For financial year (FY) 2008, net sales were USD$7.9 billion and net earnings from continuing operations were USD$474 million, which recorded a rose of 12.4% in the net sales volume and 5.6% in the net earnings from continuing operations compared to FY2007. As at FY2008, the Companies paid up capital and retained earnings stood at USD$979 million and USD$3,085.1 million respectively. In 2008, Estee Lauder appears in the 2008 Fortune 500 company listing. Beauty, youth, and being forever young are common themes in the personal products industry. A young entrepreneur named Estée Lauder felt that she could provides a product that espoused those qualities. In accordance with above belief, Estée Lauder Companies was established in 1946 by Estée Lauder and her husband, Joseph Lauder. Estée was always interested in beauty and began her business selling the skin care products, meanwhile her chemist uncle, John Schotz was concentrate in the product development. Her first products were sold to beauty salons and hotels.

In the early years, Estée was unable to convince Madison Avenue to carry her products. Facing this rejection, she began to market her products directly to customers. With that success, the Lauders began targeting high-class customers by selling products exclusively through boutiques and departments stores. In 1948, Estée Lauder established their first department store account with Saks Fifth Avenue in New York. During the next 15 years, the products were selectively distributed in other stores in the United States. In 1960 the Companies globalized their operations with he introduction of Estée Lauder products at Harrods in London, with the Hong Kong market opening the following year.

Marketing & Distributions

Estée Lauder prices vary from product to product and from brand to brand, but tend to be in the mid-high to high range of the industry. Prestige pricing appears to be an effective strategy given their target markets. Estée Lauder sells its products mainly through upscale department stores, specialty retailers, upscale perfumeries and pharmacies, and prestige salons and spas. In addition, its products are sold in freestanding company-owned stores and spas as well as its own and other authorized retailers’ Web sites. Estée Lauder also available at stores on cruise ships, on television direct marketing channels, and at in-flight and duty-free shops.

Estée Lauder was the first cosmetics company to offer free samples and gift-with- purchase and continues this strategy today. The Companies was also the first in the industry to introduce consistent brand imagery around the world. For this purpose, the Companies uses celebrities as endorsers in testimonial advertising for commercials on TV, as well as in magazines. It is also notable, unlike other cosmetic company, Estée Lauder concentrated on a single international image, they didn’t have different advertisement campaigns in each country and the image was the same worldwide.

Management and Ownership

Estée Lauder Companies is managed primarily by Lauder family members and a majority of stock is owned by members of Lauder family which controls about 70% of voting shares. Estée’s son Leonard Lauder is Chairman Emeritus of the Board of Directors. William P. Lauder, a grandson, is Chairman of the Board and Executive Chairman. On 1st July 2009, Fabrizio Freda became President and CEO, who will be responsible for developing the Companies’ overall vision, strategy, financial objectives and investment priorities. The Companies’ Board of Directors consists of 13 Directors, four of which are members of the Lauder family.

Financial Highlights

Append below are the Estée Lauder Companies’ sales according to the four (4) product segment and regional sales contribution (as per FY2008):

Estée Lauder’s 2008 sales increased 12.4% to USD$7.9 billion due to growth in all the product segments in all geographic regions, notably strong performance in European and Asian market each of which increased 21% in net sales compare to FY2007 performance. Operation income also hitting the new history high point recorded USD$810.7 million, an increase of 8% from previous FY. However, by region, the operating income from Americas has dropped 32% or USD$108.1 million from 2007 which revealed the Americas market was affected by the softness of the global retail environment due to economic recession. It’s variety of globally recognized brands in specialized market niches such as the professional makeup industry and high-end market has helped to offset its losses from the global slowdown, besides, the operation income from Hair Care products also slipped 73% or USD$31 million from USD$42.5 million in FY2007 to USD$11.5 million which giving explanations that the operating expenses for hair care products rather high against to it’s sales revenue.

Industry Factors and Competitors

Much of the expected growth in the personal products industry will be fueled by the rising demand from emerging and developing markets. Estimates have shown that in “the next 20 years… 70 million people across the globe [will] reach an income level that allows purchasing of cosmetic products. The world’s aging population will multiple by 2.5 times in the next 40 years, representing over 33 percent of the total population. Additionally, the life expectancy of the aging population will continue to improve, with the difference between men and women gradually diminishing.

The men cosmetics market is booming, specialists predicted in a medium-term, i.e. five years, the male market for the care will account for 15% of the market for the women. China’s cosmetic market is estimated to climb up to 100 billion RMB by 2010, as in year 2008 total cosmetic sales recorded 70 billion RMB. The Companies will continue to devote substantial sums to research and development of new and appealing products. However, given the competitive pricing at megastore, the Companies may be challenged to continue their patterns of innovative research. Additionally, there have been consumer complaints and inquiries into the use of animal for new product testing. Authorities has notified manufacturers that it would start to enforce labeling that included the statement “Warning-the safety of this product has not been determined”. However, these issues are not new and having affected the industry for more than 100 years.

Concerns about the use of aerosols and fluorocarbons which first emerged in the mid-1960s and recent restrictions on products that can be carried in-flight have created uncertainty in the outlook for the travel retail business, which in FY2006, the travel retail business comprised approximately 7% of the total net sales, and accounted for approximately 20% of operation income. Top competitors in the cosmetics business are diversified with many brand names and a wide range of products. Basically, the Companies faced direct and significant competition from L’Oreal, Avon, Revlon, Elizabeth Arden and Bare Escentuals which targeting the similar market segment and product orientation.

Latest Development and Other Progress

Estée Lauder’s has acquired Ojon Corporation, a privately held hair care and skin care company based in Canada that sells its products primarily through direct response TV and specialty stores in July 2007. The acquisition also providing economic opportunity for indigenous peoples in Central America, is a good example of the Companies’ commitment to social responsibility. The Companies also recently announced that they purchased a minority interest in a privately held company that manufactures, markets and sells beauty products in India under the Forest Essentials brand. Forest Essentials is a prestige Indian beauty brand based on ancient naturalistic Ayurvedic principles, to in a greater understanding of Indian beauty traditions. On the recent market news, Procter & Gamble Co. was predicted to acquire Estée Lauder and Shiseido in order for the world’s largest consumer products company to add more beauty products and increase penetration in emerging markets, which has been determined to has strongest sales growth. Estée Lauder kicked off its largest sampling program to date-America’s Night to Repair. 250,000 10-day samples of NEW advanced Night Repair Synchronized Recover Complex distributed at all Estée Lauder department and specialty store counters in nationwide. Night Repair was an innovative, award-winning formula that targeted damaged skin and helped visibly repair it during the restorative hours of sleep. Estée Lauder was also among the first skincare companies to understand the fundamental link between DNA damage and skin aging, and the importance of skin's ability to repair its own DNA. Breast cancer activist-the Estée Lauder Companies’ annual Breast Cancer Awareness Campaign involves all of the 18 brands that make up the Estée Lauder Companies. They collectively represent The Breast Cancer Research Foundation’s (BCRF) first and largest corporate supporter. Estée’s daughter-in- law was the creator of BCRF’s signature pink ribbon. Over USD$35 million has been raised for the BCRF with its retail partners.

Citizenship and excellence have long been a hallmark of the Estée Lauder Companies. Estée Lauder herself was post-humously awarded the President Medal of Freedom, the United States’ highest civilian award. Their commitment to excellence, innovation and community support had won they various of awards and recognition, namely: 1) Fortune Magazine-Most Admired Companies & 2008 Forbes-America’s Most Admired Companies, ranked No. 2, 2) Marie Claire-Prixe D’Excellence, 3) Cosmetics/Personal Care Packaging Magazine-Editors’ Choice Awards, 4) Human Rights Campaign’s Corporate Equality Index for GLBT Employees, 5) AmeriStar Packaging Awards, 6) The 3M Integrity Award, 7) amfAR Award of Courage and etc, which reflecting the Companies are not only business oriented but also very much on social, environment and public concern.

Vision Statement

“Bringing the best to everyone we touch”. By "The best", Estée Lauder means the best products, the best people and the best ideas. These three pillars have been the hallmarks of the Companies since it was founded by Mrs. Estee Lauder in 1946. They remain the foundation upon which the Companies continue to build our success today . In the Companies’s 2008 annual report, the Companies vision has been clearly sound as follow:-

“The global leader in prestige beauty: a well diversified, brand-building powerhouse of unrivaled creativity and innovation”.

Mission Statement / Work Principles/ Citizenship

The employees of the Estée Lauder Companies are committed to working together with uncompromising ethics and integrity. They strive to always:

Being responsible citizens in every community we serve Understanding that we are part of a larger whole and that our actions have

consequences Striving to continuously look for new and better ways to do things to

constantly raise our standards Providing consumers with innovative cosmetic products of the highest quality

and safety standards Delivering outstanding service by treating each individual as we ourselves

would like to be treated Building partnerships with our stakeholders based on fairness and trust Pursuing profit-but never at the expense of quality, service or reputation Eliminate waste and reduce inefficiencies in order to provide maximum value

to our customer Enhance our reputation of image, style and prestige Create an environment that fosters personal growth and well being Most of all, staying committed to working safely together with

uncompromising ethics and integrity

External Audit

Opportunities 1. International expansion. Estée Lauder has earned extensive experiences in new international market expansion coupled with its well-known brand and quality products which reach out to customers of all income ranges therefore the Companies will not facing much difficulty for the new market development. As at today, the Companies successful enter to 140 countries, further expansion will gain and enhance the Companies’ market share and business volume.

2. Increase of worldwide disposable income, as estimated, 70 million people across the globe will reach an income level that allows purchasing of cosmetic. This is happening now in BRIC, European region Africa, where the people spending power has increase and demanding for more upscale personal products. Both China and Russia, for example, exceeded USD$100 million in sales for the first time and European region topped the USD$3 billion sales mark in FY2008. As recorded, Russian women boast one of the highest spends on beauty products in the world.

3. World aging population will multiple by 2.5 times in the next 40 years, representing over 33% of the total population. Regardless of European or Eastern countries, the trend is inevitable. Many skin care manufacturers have been aiming for this portion and market, eg: in Japan, well known cosmetic brand-SK II has been targeting old folks for their skin smooth series, of which managed to capture the Asian market.

4. Despite softness economic globally, but the emerging market, BRIC has cushioned down the effect and continuously growing. As per China 2009 Quarter 1 GDP’s grew 6.1%, which is higher than the economics’ prediction, and the nation 2009’s GDP is expected to hit 7.5-8% and India is expected to reach a GDP grow of 6-7% in 2009.

5. Global warming and environment pollution effects, lead to more demand on clinical and preventive cosmetics products, especially in growing countries like China and India. The Companies’ hall mark brand, Clinique and Origins has gained the top market share in this category.

6. The market of the cosmetics for men is constantly increase and forecasted world growth rate of 2.3% per year between 2005-2010. The Companies has been stepped into men’s cosmetic market in 20 years back, the increasing trend definitely an opportunities for the Companies to expand its market shares and sales revenue.

7. Constantly increasing of online purchase trend, as Nielsen Global Online Survey, 875 million consumers worldwide have made a purchase on the internet. South Korea tops the list on a per capita basis, with 99 percent of Internet users making an online purchase, followed by the United Kingdom, Germany and Japan. This shopping channel is foreseen to increase double digit yearly with the more easy access and upgrading of connection facilities everywhere.

8. Availability of other quality local and international cosmetic brands for acquisition. Eg, Japanese’ Shiseido Co. Ltd and China’s Beijing San Lu Factory which is locally well known and having consistent customer base. The well experiences and techniques of the Companies in acquisition exercise since 1968 when Estée Lauder acquired the main competitor, Clinique, should be an additional advantage to the Companies.

9. Opportunities in fashion related industry, Eg: handbags and jewellery which is another profitable business to do with women and brands. This might be another opportunities for the Companies’ business expansion and diversification, as the Companies have superb expertise in the upscale luxury market and large distribution channel.

10. More high aims stores/counters distribution and exclusive air ports exist. Eg, South East Asia’s luxury goods shopping paradise-Singapore, on it most famous upscale shopping area, Orchard Road, 3 new upscale shopping arcade have and will be opened in 2009, namely: ION Orchard and Orchard Centre. Besides, more large and impressive air ports with exclusive shopping zone been in operation in recent years, all this provide the expansion of marketing and distribution channels for the Companies’ products. International air port in Dubai, Singapore and Amsterdam provides exclusive shopping environment for travelers to pick up luxury goods before depart, which the sales are expected to be increased significantly.

11. Constantly growing in global fashion and entertainment industry. Its M.A.C has been closely associated with the Bollywood film community since 2005, and has teamed up with hair and makeup stylist-to-the-stars, Mickey Contractor, to bring a touch of cinematic glamour to Indian consumers. Also, good co-operation experience and rapport with world fashion indicator, eg: Karl Lagerfeld and Proenza Schouler has benefited the Companies in grabbing the cosmetic markets.

Threats

1. Aggressive competition from the competitors who targeting the same market segments. Estée Lauder’s brands face substantial competition in the cosmetics industry. For example, although its professional makeup brands such as M.A.C and Bobbi Brown face little competition due to the specialized clientele that it targets, its all-natural brands face competition from Bare Escentuals, and its most popular mid-end brands such as Estee Lauder face competition from the myriad of products of Revlon, Avon, and Elizabeth Arden. In addition, the cosmetics industry faces challenges from small, private companies with specialized offerings that can also fight for market share,

2. Changed of spending atmosphere and pattern of the luxury goods’ consumers in amidst the economic downturn, conspicuously in US and UK, many of white collar or so called well paid office ladies/ executives have been retrenched or paid cut thus switched their preferential to middle or low cost products. As predicted by Bain & Company on the “Luxury Goods Worldwide Marketing Study, April 209, the luxury goods market is expected to decrease 10% to total volume of EURO$153 billion compared to 2008’s EURO$170 billion.

Competitive pricing of other similar effect or substitute products, almost 60% price lower coupled with threats of counterfeit or imitation products. Eg, In Singapore, OLAY (P&G)-Total Effects 7 in 1 Anti-aging formula (at selling price of less than USD$30), challenge the consumers to test and check the product’s contain and effect, which claimed consumer can pay less but get the same effective result but with lower price (Estée Lauder’s similar products cost USD$85 and above). In Jun 2008, Estée Lauder has filed a lawsuit against fragrance maker, Preferred Fragrance for alleged trademarks infringements, false advertising, diluting trademarks and unfair competition of its Clinique brand perfume products.

Internet security threat on its e-commerce, consumer database and company website. The ‘hacking’ culture has been split widely coupled with more high and complicated techniques, computer and internet virus are contagion everywhere which will giving great impact to the company on internet and e- commerce protection and security.

Rise in energy and raw material prices worldwide, higher costs of global information technology systems and infrastructure, and increase cost of new technique and mode of products testing. The threat is unavoidable and it test and challenge the management’s efficiency and effectiveness on maximum usage of the resources.

6. Foreign currency fluctuations affecting the Company’s results of operations and the value of its foreign assets, the relative prices at which the Company and its foreign competitors sell products in the same markets and the Company’s operating and manufacturing costs outside of the US.

7. Consolidations, restructurings, bankruptcies, reorganizations and destocking in the retail industry causing a decrease in the number of stores that sells the Companies’ products, eg. During fiscal 2006, Federated Department Stores, Inc. acquired The May Department Stores Company, resulting in the merger of their previous two largest customers (collectively “Macy’s, Inc.”-primarily within North America) resulting shut stores to consolidate after its acquisition of May Department Stores, leaving it with fewer sales outlets, of which caused the net sales derived from Macy’s consecutive dropped from 16% in fiscal 2006 to 12% in fiscal 2008.

8. Interest rates are expected to grow 1.7% annually, which giving impact to the Companies’ interest expenses resulting from the high liabilities outstanding which stood at USD$3,331.4 million in fiscal 2008.

9. Changes in the laws, regulations and policies (including the interpretation and enforcement thereof) that affect, or will affect, the Company’s business, including those relating to its products, changes in accounting standards, tax laws and regulations, trade rules and customs regulations, and the outcome and expense of legal or regulatory proceedings, and any action the Company may take as a result. Also, some conservative culture or religion issue in certain countries might give effect on the A&P activities.

10. Public boycott reaction due to political and spokesperson influence. Eg. in 2001, pro-Palestinian took up boycott campaign named: “EstéeSlaughter” due to the pro-Israel activities of Ronald Lauder, Chairman of Clinique Lab., and infamous advertisement statement on its official website make by M.A.C spokesperson, Sandar Bernhard caused the Companies apologized to public and video was removed from the official site.

11. The Companies might become acquisition target of other giant market players. It was came out in the financial news, some analyst predicted, Estée Lauder Companies may be possible acquisition target if Procter & Gamble Co. (P&G) wants to add more beauty products and increase penetration in emerging markets of which the emerging markets expected to provide a higher-than- average normalized growth rate for companies like P&G.

12. Real estate rates which may affect the Company’s ability to increase or maintain the number of retail locations at which the Company sells its products and the costs associated with the Company’s other facilities.

Internal Audit

Strengths

1. Icon of reputable upscale/prestige pricing cosmetic products with quality, brand imagery, creatively and innovative as the hallmark for more than 60 years. The Companies’ name representing the products’ quality and value.

2. Owned 29 worldwide well-known and favorable brands of upscale and quality cosmetic products coupled with strong market penetration over 140 countries giving the Companies a strong and solid foundation to continue grow and expand. Those brands are the Companies’ biggest assets and well speak on behalf of the Companies.

3. Managed to conquer the internet market since 1996, for FY2008 itself, the online sales soared 40%. Today, the on line sales is the Companies’ fastest growing channel. The Companies is doing well compared to its competitor, its on line purchase system policies and transaction security has assured consumer’s worries.

4. Actively involved in acquisition of other quality and well doing cosmetic brands and products to further enhance the Companies’ products, brands and market share. Its recent acquisition of Ojon in July 2007, not only added a well-known brand under the Companies flag, but also provides an opportunities to the Companies to have a stronger presence in direct response TV channel, which the brand markets products primarily through direct response TV. The 13.3% increased in hair care category, primarily reflected the inclusion of the Ojon wildcrafted beauty brand.

5. Sales revenue soared 12.4% amounted to USD$7,910 million and net earning from continuing operations up 5.8% amounted to USD$473 million in FY2008. The grew is due to increase of sales revenues in all regions and product category. Especially sales in Europe, the Middle East and Africa, and Asia/Pacific area soared 20.6% and 21.3% respectively compared to year 2007. Meanwhile, care products sales volume also rose 15% from last year’s USD$2,601 to USD$2,996.8.

6. High share dividends growth at 22.42% compare to the industry normal practice of 12.18% and good return on capital at 16.7% to shareholders.

7. Notable current P/E (as at 22.07.2009) at 18.9% and with highest at 34.1% in last 5 years. Which industry’s current P/E is average at 15.3% and highest average is only at 17.3%. However, it is notable that the Companies average P/E has been deteriorate compared to last five years’ figure.

8. Great leadership and management from the founder till the latest successors. CEO-William Lauder’s 3 multi principles: 1) Multi-national, 2) Multi-channel and 3) Multi-brand strategies lead the Companies hit another miles storm and Fabriozio Freda, the President and COO), who earned two decades of experiences in global consumer products and luxury goods companies is now servicing the Companies. Besides, the Companies also has a well top management successor planning, Eg: William Lauder (CEO) had mapped out a succession plan that anticipates Fabrizio becoming CEO within two years of his hire, the plan is ensuring the Companies’ directions and strategies are constantly and consistently on going.

9. The Companies has embedded the entrepreneurship and friendly work principles from the founder to the beauty experts. The staffs are work under high morale spirit who willing to contribute and work hard for the Companies, by delivering better services to consumers thus sustain and grow the market shares.

10. Managed to create iconic products’ spokesman via famous and well known celebrities and models. Eg, Gwyneth Paltrow and Hihary Rhoda are representing the Companies’ Tom Ford Beauty’s products, with success to boot up the sales of the respective brand’s products.

11. Pioneer in creating new innovation products coupled with creative marketing and packaging technique. Although has been classified as the global cosmetic giant, the Companies consistently design and manufacture new innovative products, eg: its recent kick off of the industry first breakthrough technology revolutionized night-time facial skin repair, received warm response from the public, 250,000 10-day samples of the products has been distributed at all Estée Lauder department and specialty store nationwide.

12. Fast and early stepped in to constantly growing market and ability to understand the needs and aspirations of India and China markets. This strength has make the expansion on the respective counties without much barriers, as the local distributors and management can identify and capture the market demand.

13. Worldwide R&D facilities focused on creating and enhancing the products that cater to consumers in specific markets and regions, based on their cultural preferences, skin tones and beauty habits. This is obviously worked in Asian countries’ markets which are very much different with Americas and European countries due to the climate, environment and etc vary.

14. The name of Estée Lauder has mean more than just cosmetic but also a social concern and responsible company, its various social concern activities earned public’s appreciation, respects and recognition. It’s Breast Cancer Awareness Campaign since 1992, till October 2008 have distributed more than 80 million pink ribbons and informational brochures and managed to raise USD$35 million for research and awareness programs, meanwhile M.A.C AIDS Fund has raised over USD$140 million through sales of the VIVA GLAM lipstick line and other initiatives. Several of recognition received by the Companies through out the years, it is kind of intangible goodwill and image for the Companies instead.

Weaknesses

1. Low R&D expenses compare to other competitors, which only amounted to USD$80.9 million or approximately 1% of the total sales for FY2008, which is lower than the other competitors who are usually spend 1.5-3% of the total safes revenue for R&D expenditure.

2. Low net income growth at 9.19% for last 5 years average compare to the average industry rate at 11.71%. The net income has been offset by big portion increase of operational cost and cost of sales. The company’s latest (as at 31.03.09) YTD to YTD net income has dropped 33.20% and compare to FY2008’s third quarter, present quarter’s net income has tremendously decreased 69.80% due to the global economic softness effect and high operations cost.

3. Current (as at 22.07.2009) net profit margin much lower then the industry standard of 12.7%, only recorded 4.8%. This reflected the Companies’ operational costs and cost of sales are high.

4. Low inventory return at only 2.2 times while industry practices are 4.8 times. This is mainly due to the increased of its inventory from some of the shut down departmental stores and promotional merchandise.

5. The Companies’ total liabilities are on increase trend, from 2007’s total of USD$2,905 million to 2008’s USD$3,331 million conspicuously in non current liabilities. The high liabilities will due to higher interest payable to financial institution and indirectly lower the net income generation, eg, in year 2008, the total interest expenses rose 72% or USD$27.9 million from 2007’s USD$38 million.

6. 2008 operation income by region-the Americans has dropped 32% or USD$108 million reflected although sales in the Americans had rose USD$150 million to USD$3.71 billion but it was insufficient to cover the overall operational expenses.

7. Hair care product has generated the less operation income, yet, recorded a dropped of 73% to USD$11.5 million in 2008 from FY2007’ USD$42.5 million.

8. During the discounting period, the margins on the retailers get squeezed, thus retailers will demand for bigger discount, thus giving effect to the Companies’ revenues. 9. Almost 40% of the Companies’ sales are contributed from the US market and Americas luxury market’s is expected to drop 15% in year 2009. For an established international company it was unfavorable and discourages a single market contributed more than 30% of the total revenue, which will caused the dependent. Ideally, the portion shall be in the range of 25-30%.

10. Since the establishment of the Companies, the Estée Lauder concentrated on a single international image and didn’t have different advertisement campaigns in each country, although ever one of the Companies’ competitors did. The image was the same worldwide. This might created a barrier to some international markets as they might not familiar with the spokesperson and the some advertisements design and materials might not suitable globally.

IFE

STRENGTH

1. Icon of reputable upscale cosmetic products with quality, brand imagery, creatively & innovative for more than 60years

2. Owned 29 worldwide well-known brands of cosmetic products coupled with market penetration over 140 countries

3. Managed to conquer the internet market since 1996 & for FY2008, the online sales soared 40%

4. Actively involved in acquisition activities

5. Sales revenue soared 12.4% & net earning rose 5.8% in 2008

6. Share dividends growth at 22.4% & return on capital at 16.7%

7. High current P/E ratio for at 18.9%

8. Great leadership and management & well successors planning

9. Talented staffs embedded with entrepreneurship

10. Iconic products’ spokesman via famous celebrities & models

11. Pioneer in creating new innovation products coupled with creative marketing and packaging technique.

WEAKNESSES1. Low R&D expenses, only approximately 1% of the total sales 2. Low net income growth at 9.19% for last 5 years average 3. Net profit margin only recorded 4.8% 4. Low inventory return at only 2.2 times 5. Total liabilities increase to USD$3,331 million 6. Americas’ operation income has dropped 32% or USD$108 million although sales in rose USD$150 million 7. Hair care product’s operating income dropped 73% to USD$11.5 million 8. During discounting time, retailers will ask for higher discount 9. Almost 40% of total sales are from the US market10. Concentrated on a single international image.

SWOT Matrix Strategies SO Strategies

1. Continue to create innovative and quality cosmetic products, and distribute or sales via the effective marketing way (S1, S2, S3, S10, S11, O3, O5, O6, O7, O9) 2. Further consolidate and conquer the existing oversea markets, conspicuously in BRIC, Middle East and Europe, and exploit other new potential markets (S2, S5, S9, S12, S13, O1, O2, O4, O9, O11) 3. Enhance existing internet markets’ sales and gain public confidence on the safety of internet transaction (S2, S3, 02, 07) 4. Worldwide R&D center playing important role on the success of the Companies’ products to match the local markets need and aspiration (S4, S13,O1, O3, O5, O9, O12) 5. Ongoing social concern activities will up lifted the Companies image which directly giving the extensive promotion to the Companies (S1, S8, S14, O1,010)

WO Strategies

1. Increase the R&D expenditure (W1, O3, O5, O6, O9) 2. Reduce the expenses in Cost of Sales and Operating Cost, conspicuously in America’s markets, eg: purchase through internet, production based on demand (W2, W3, W4, W5, W6, W7, W9, O1, O2, O7, O9)

ST Strategies

1. Continue products revolution and enhancement and diversification without compromise the quality, packaging, innovative, creativity and unique (S1, S2, S11, S13, T1, T2, T3) 2. Continue to expand international business into new countries and localities (S1, S2, S9, S12, T1, T2) 3. Experience and actively involved in acquisition (S2, S4, T1, T3, T7, T9, T12) 4. Stability and consistency of the management team and talented staffs ensuring the Companies objectives and policies are in line and moving forward (S5, S6, S7, S8, S9, S14, T3, T4, T5, T9, T10)

WT Strategies

1. Effort to reduce the Companies’ liabilities, conspicuously the long term liabilities, thus the interest expenses will reduce accordingly (W2, W5, T5, T8) 2. To reduce the operational cost and effectively resources usage in the cost rising environment (W2, W3, W4, W6, W7, T3, T5) 3. Less depending on US & UK markets’ sales, thus the business will not too depending on particular locality (W6, W9, T2, T7)

EXPLAINATION ON SPACE MATRIX

According to the SPACE matrix model and based on the scores, Estée Lauder’s directional vector is located in the aggressive quadrant of the matrix

Indicated the Companies is in excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses and avoid external threat

Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, diversification,

or a combination strategy can be feasible, depending on the specifi circumstances that faced by the Companies

This is absolutely in line and supported by the earlier SWOT Matrix Strategy’s

EXPLAINATION ON GRAND STRATEGY MATRIX

Estée Lauder Companies’ directional vector is located in Quadrant 1 of the Grand Strategy Matrix, which technically recognized as an excellent strategic position.

The position also reflected the Companies afford to take advantage of external opportunities in several areas and the Companies shall continued concentration on current markets (market penetration and market development), products development, backward integration, forward integration, horizontal integration, diversification, or a combination strategy can be feasible, depending on the specific circumstances that face the Companies.

This is also in line with earlier strategies proposed in section F: SWOT Matrix Strategies and section G: SPACE Matrix

EXPLAINATION ON IE MATRIX

Based on the EFE and IFE’s total weighted scores, Estée Lauder’s directional vector is located into cells I

which can be described as grow and build direction Intensive (market penetration, market development, and product development) or

integrative (backward integration, forward integration, and horizontal integration) strategies can be most appropriate for the Companies.

Again, this is in line and matched with earlier 3 matrix or techniques

Recommendations

Above 4 techniques/ matrix indicated market penetration, market development, product development, backward integration, forward integration, horizontal integration, diversification, or a combination strategy are the most appropriate strategies for the company, thus following recommendations are convincingly proposed:

1. Continue to expand, focus and exploit the market of BRIC, Middle East, Europe, Africa and South East Asia which the economic growing is prolonged and will led and changed the spending power and pattern from middle range to high middle and high aim products. Population trends on the mentioned location are constantly increase, huge market opportunities are available.

2. Study and research the possibility of the opportunities in the mass market, which presently have been conquered by P&G, Unilever & Colgate-Palmolive, with out compromised the Companies’ existing portfolio. Eg: the Beauty Bank and Clinique. Also, to consider the business opportunities in other areas of luxury goods, eg: leather goods, clothing and jewelry, as the Companies is well experienced and penetration of upscale products market pattern and marketing, furthermore, the huge network distribution channel and the well know icon name will be an invaluable advantage for the Companies.

3. Intense competition is the major threat for Estée Lauder. Therefore, it needs to be aware of what the competitors are doing, and respond accordingly to retain its market share.

4. Continue to nurture the traditional department store channel by creating innovative programs designed to bring consumers to the counters, as globally, department stores still account for more than 50% of the Companies net sales.

5. Continue to make progress on its’ Strategic Modernization Initiative (SMI). By uniting the Companies’ global organization with common systems, functions and practices, SMI will help maximize efficiency, unlock shared innovation and enable superior quality and customer service.

6. Identifying the underperforming brands and products, then plan for effective improvement plan and effort to reduce the inventory turn over days.

7. Reduce and control the Companies high liabilities condition, especially the longterm liabilities.

8. Belt-tightening plan in order to further cut down the Companies’ operational cost, eg: hiring freeze, reduction on travel and entertainment

Conclusions

Although the Companies has been established for more than 60 years, penetrated 140 counties, sales reached an all-time record of nearly USD$8 billion and earned the world recognize on the brands, products, management and many other areas, but the Companies never seen to be satisfied. Estée Lauder Companies still aggressive expand and explore new market and opportunities either in local or internationally. The brands portfolio will continue to expand via own R&D results or via acquisition of other brands and products.

Although the Companies is principally managed and owned by the Lauder’s family, but the Companies has never taking out any prevention or restriction for talented people to join and contribute, however, their talents and contributions been appreciate and acknowledged, thus better opportunities and challenge awaiting for them.

Besides, making better return to the shareholders, the Companies also taking care for its stakeholders and social concerned by providing best working opportunities and working place for staffs, provide better shopping experience and environmentto the customers and actively participate in public welfare and concern activities.

In amidst of the world uncertainty economic climate, the Companies has to apply the precaution steps in order to further sustain and enhance the Companies position and competitive advantages