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  • 1. RESOURCE: www.elcompanies.com Estée Lauder – 2008 Forest David: Francis Marion UniversityA. Case Abstract Estée Lauder (www.elcompanies.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end June 2007 financial statements, competitor information and more. The case time setting is the year 2008. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in New York City, Estée Lauder’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol EL. Estée Lauder produces a diverse line of shampoo, perfumes, lip gloss and other skin care products. A small sampling of the brand names marketed by Estée Lauder include: Estée Lauder, Clinique, American Beauty, and Flirt. The products are sold through various distribution channels, including specialty stores, department stores, pharmacies, the and Web. Estée Lauder operates in the Americas, Europe, Middle East, Asia, and Africa. The company has over 28,000 employees and is led by CEO William Lauder whose base pay was over $3.5M in 2007. The firm’s two major competitors are conglomerate giant Procter & Gamble and L’Oreal.B. Vision Statement (proposed) PROPOSE A VISION STATEMENT FOR ESTÉE LAUDERC. Mission Statement (actual) PROPOSE A MISSION STATEMENT FOR ESTÉE LAUDERD. External Audit Opportunities 1. Weak US Dollar makes US based products more affordable to customers in Canada and Europe. 2. Interest rates remain low in the US. Copyright © 2009 Pearson Education
  • 2. 3. Increasing numbers of people are buying products online for convenience, cost savings, and confidentiality. 4. Men are increasingly becoming more concerned with their looks and stereotypes of men using skin care products are diminishing. 5. In 2006, China experienced a 15 percent growth in professional skin care sales. 6. The Hispanic population in the US is rapidly growing. 7. Customers are demanding products not tested on animals and which are environmentally friendly. 8. Customers are becoming more interested in herbal products that are derived from natural sources. 9. Aging US population opens new markets for developing skin care products for the elderly. 10. Many new start up companies with specialty products are created each year. Threats 1. Consumer complaints and inquires into the use of animal testing for new products. 2. FDA plans to require cosmetic corporations to add a label stating “the safety of this product has not been determined.” 3. Many new start up companies with specialty products are created each year. 4. Concerns about the use of aerosols, fluorocarbons and other chemicals in the production of cosmetic products. 5. Top competitors in the cosmetics industry are diversified with many brand names and a wide range of products. 6. Products can be purchased at significantly lower cost over the Internet, harming revenues and traditional distributors. 7. Growing trend among sections of the population for a more natural look and reduction in their use of make up and related products. 8. Customers tend to be extremely brand loyal.CPM – Competitive Profile Matrix* Estimates for Procter & Gamble focused on similar product lines they share with Estée Lauder not thecompany as a whole. Estée Lauder Revlon Procter & GambleCritical Success Weight Rating Weighted Rating Weighted Rating WeightedFactors Score Score ScoreMarket Share 0.20 4 0.80 4 0.80 3 0.60Price 0.10 2 0.20 3 0.30 4 0.40Financial Position 0.20 3 0.60 1 0.20 4 0.80Product Quality 0.15 4 0.60 2 0.30 2 0.30Product Lines 0.10 4 0.40 3 0.30 4 0.40Consumer Loyalty 0.20 4 0.80 3 0.60 2 0.40Employees 0.05 4 0.20 4 0.20 4 0.20TOTAL 1.00 3.60 2.70 3.10 Copyright © 2009 Pearson Education
  • 3. External Factor Evaluation (EFE) MatrixKey External Factors Weight Rating Weighted ScoreOpportunities1. Weak US Dollar makes US based products more 0.05 3 0.15 affordable to customers in Canada and Europe.2. Interest rates remain low in the US. 0.08 3 0.243. Increasing numbers of people are buying 0.12 3 0.36 products online for convenience, cost savings, and confidentiality.4. Men are increasing becoming more concerned 0.05 4 0.20 with their looks and the stereotypes of men using skin care products are diminishing.5. In 2006, China experienced a 15 percent growth 0.05 4 0.20 in professional skin care sales.6. Hispanic population in the US is rapidly 0.05 3 0.15 growing.7. Customers are demanding products not tested on 0.03 3 0.09 animals and which are environmentally friendly.8. Customers are becoming more interested in herbal products that are derived from natural 0.03 4 0.12 sources.9. Aging US population opens new markets for 0.05 3 0.15 developing skin care products for the elderly.10. Many new start up companies with specialty 0.05 2 0.10 products are created each year.Threats1. Consumer complaints and inquires into the use of animal testing for new products. 0.03 3 0.092. FDA plans to enforce cosmetic corporations to add a label stating “the safety of this product has 0.02 1 0.02 not been determined.”3. Many new start up companies with specialty 0.05 2 0.10 products are created each year.4. Concerns about the use of aerosols, fluorocarbons and other chemicals in the 0.03 4 0.12 production of cosmetic products.5. Top competitors in the cosmetics industry are diversified with many brand names and a wide 0.10 2 0.20 range of products.6. Products can be purchased at significantly lower cost over the Internet cutting into revenues and 0.12 1 0.12 harming traditional distributors.7. Growing trend among sections of the population for a more natural look and reduction in their use 0.04 3 0.12 of make up and related products.8. Customers tend to be extremely brand loyal. 0.05 3 0.15TOTAL 1.00 2.68 Copyright © 2009 Pearson Education
  • 4. E. Internal Audit Strengths 1. Wholly owned and operated offices in 43 countries and territories and products sold in over 135 countries. 2. Test products on animals only when required by law. 3. Estée Lauder operates under numerous brand names including Clinique, Origins, Bobbi Brown, Flirt! among others. 4. Detailed succession plan in place for Fabrizio Freda to take over as CEO in March of 2010. 5. The company has global rights to products sold under several name brands including Tommy Hilfiger, Donna Karan, Missoni, and Sean John. 6. Company continues to purchase interest in start up and established companies such as Bumble and Bumble Products LLC in June 30, 2007. 7. Revenue has increased 40 percent from $5 billion to $7 billion in the five year period dating fiscal years 2003-2007. 8. Company specializes in mid-level and upper end cosmetics products; markets over 9,000 products. Weaknesses 1. In 1990, 75 nameplate department stores sold Estée Lauder; today that number is only 17. 2. Stock price has been stuck between $25 and $50 trading range since 1996. 3. Estée Lauder lacks a clear mission and vision statements. 4. Confusing organizational structure; it is unclear whether group presidents have control over the product lines or geographic areas. 5. Net sales of fragrance products decreased 4 percent to $1.2B as the company continues to struggle in this segment. 6. Company does not offer enough brand names tailored to lower budget consumers.Financial Ratio Analysis (June 2007) Growth Rates % Estée Lauder Industry SP-500 Sales (Qtr vs year ago qtr) 7.30 8.70 15.30 Net Income (YTD vs YTD) -32.60 22.20 17.50 Net Income (Qtr vs year ago qtr) -32.60 18.40 24.70 Sales (5-Year Annual Avg.) 8.36 10.99 12.35 Net Income (5-Year Annual Avg.) 18.81 13.50 21.79 Dividends (5-Year Annual Avg.) 20.11 12.66 9.47 Price Ratios Current P/E Ratio 20.8 22.1 22.5 P/E Ratio 5-Year High NA 25.1 20.2 P/E Ratio 5-Year Low NA 15.8 4.3 Price/Sales Ratio 1.17 2.63 2.53 Price/Book Value 6.82 6.98 4.15 Price/Cash Flow Ratio 12.80 16.60 13.70 Copyright © 2009 Pearson Education
  • 5. Profit Margins Gross Margin 74.8 50.3 36.0 Pre-Tax Margin 9.5 16.7 18.3 Net Profit Margin 6.1 12.2 12.9 5Yr Gross Margin (5-Year Avg.) 74.4 51.2 34.6 5Yr PreTax Margin (5-Year Avg.) 10.2 16.1 16.2 5Yr Net Profit Margin (5-Year Avg.) 6.3 11.0 11.2 Financial Condition Debt/Equity Ratio 1.19 0.90 1.32 Current Ratio 1.4 0.9 1.2 Quick Ratio 0.9 0.7 1.0 Interest Coverage 14.4 15.6 37.1 Leverage Ratio 3.8 2.9 4.0 Book Value/Share 6.34 16.62 20.17 Investment Returns % Return On Equity 30.6 30.5 28.4 Return On Assets 10.2 9.3 8.4 Return On Capital 17.0 12.7 11.1 Return On Equity (5-Year Avg.) 23.9 48.9 20.7 Return On Assets (5-Year Avg.) 10.4 10.4 7.0 Return On Capital (5-Year Avg.) 16.3 13.0 9.3 Management Efficiency Income/Employee 15,242 63,525 112,357 Revenue/Employee 251,021 495,679 954,553 Receivable Turnover 7.0 10.3 14.3 Inventory Turnover 2.0 5.0 9.3 Asset Turnover 1.7 0.8 0.8 Adapted from www.moneycentral.msn.com Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%) 06/07 19.80 1.34 7.38 6.4 06/06 24.80 1.30 5.05 5.0 06/05 24.20 1.42 5.09 6.5 06/04 24.30 1.97 6.40 6.6 06/03 23.10 1.54 4.28 5.9 Date Book Value/ Share Debt/Equity ROE (%) ROA (%) Interest Coverage 06/07 $6.17 0.91 37.4 10.9 NA 06/06 $7.66 0.32 20.0 8.6 NA 06/05 $7.68 0.42 24.2 10.5 NA 06/04 $7.62 0.31 21.8 10.2 NA 06/03 $7.84 0.16 18.3 9.7 NA Adapted from www.moneycentral.msn.comNet Worth Analysis (June 2007 in millions)1. Stockholders’ Equity + Goodwill = 1,200 + 0 $1,2002. Net income x 5 = $450 x 5= $ 2,2503. Share price = $40.00/EPS 2.11 =$18.95 x Net Income $450= $ 8,5304. Number of Shares Outstanding x Share Price = 193 x $40.00 = $ 7,720Method Average $4,925WRITE A PARAGRAPH ON THE FINANCIAL STATE OF ESTÉE LAUDER Copyright © 2009 Pearson Education
  • 6. Internal Factor Evaluation (IFE) MatrixKey Internal Factors Weight Rating Weighted ScoreStrengths1. Wholly owned and operated offices in 43 countries and 0.12 4 0.48 territories and sold in over 135 countries.2. Test products on animals only when required by law. 0.03 4 0.123. Estée Lauder operates under numerous brand names including Clinique, Origins, Bobbi Brown, Flirt! among 0.10 4 0.40 others.4. Detailed succession plan in place for Fabrizio Freda to 0.05 4 0.20 take over as CEO in March of 2010.5. The company as global rights to products sold under several name brands including Tommy Hilfiger, Donna 0.10 4 0.40 Karan, Missoni, and Sean John.6. Company continues to purchase interest in start up and established companies such as Bumble and Bumble 0.05 4 0.20 Products LLC in June 30, 2007.7. Revenue has increased 40 percent from $5 billion to $7 billion in the five year period dating fiscal years 0.15 4 0.60 2003-2007.8. Company specializes in mid level and upper end 0.05 4 0.20 cosmetics products; markets over 9,000 products.Weaknesses1. In 1990, 75 nameplate department stores sold Estée 0.10 2 0.20 Lauder; today that number is only 17.2. Stock price has been stuck between $25 and $50 trading 0.05 1 0.05 range since 1996.3. Estée Lauder lacks clear mission and vision statements. 0.05 1 0.054. Confusing organizational structure; it is unclear whether group presidents have control over product lines or 0.05 1 0.05 geographic areas.5. Net sales of fragrance products decreased 4 percent to 0.05 1 0.05 $1,213B; company continues to struggle in this segment.6. Company does not offer enough brand names tailored to 0.05 1 0.05 lower budget consumers.TOTAL 1.00 3.05F. SWOT Strategies SO Strategies 1. Expand product offerings in foreign nations (S1, S8, O1). 2. Continue to acquire interest in start up companies (S6, S7, O2, O4, O5). WO Strategies 1. Continue to expand the respective brand name websites and offer incentives to customers (W1, W3). 2. Introduce new fragrance products for men and boys (W5, O4). Copyright © 2009 Pearson Education
  • 7. ST Strategies 1. Offer rebates to customers to compete with black and gray market distributors (S7, S8, T5, T6). 2. Market new soaps and skin care products that tailor to the natural look (S7, S8, T7). WT Strategies 1. Draft new vision and mission statements along with a new clearer corporate structure to compete with current competition (W3, W4, T3, T5, T6). 2. Create a new line of products tailored to customers on smaller budgets (W6, T8).G. SPACE Matrix FS Conservative Aggressive 6 5 4 3 2 1 CA IS -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 -1 -2 -3 -4 -5 -6 Defensive Competitive ES Copyright © 2009 Pearson Education
  • 8. Financial Strength (FS) Environmental Stability (ES)Return on Equity (ROE) 6 Rate of Inflation -3Leverage 5 Technological Changes -4Liquidity 5 Price Elasticity of Demand -3Income/Employee 2 Competitive Pressure -6Inventory Turnover 2 Barriers to Entry into Market -4Financial Strength (FS) Average 4.0 Environmental Stability (ES) Average -4.0Competitive Advantage (CA) Industry Strength (IS)Market Share -1 Growth Potential 5Product Quality -1 Financial Stability 3Customer Loyalty -2 Ease of Entry into Market 4Technological know-how -1 Resource Utilization 4Control over Suppliers and Distributors -4 Profit Potential 6Competitive Advantage (CA) Average -1.8 Industry Strength (IS) Average 4.4x-axis: 4.4 + -1.8 = 2.6y-axis: 4.0 + -4.0 = 0.0H. Grand Strategy Matrix RpdM ktGo t ai a e rw r h Qa r n I u da t I Qa r n I u da t Wk ea Sr n tog Cmei i e o pt t v Cmei i e o pt t v Psto oi i n Psto oi i n Qa r n I I u da t I Qa r n I u da t V So M ktGo t l w a e rw r h Copyright © 2009 Pearson Education
  • 9. I. The Internal-External (IE) Matrix The IFE Total Weighted Score Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99 High I II III 3.0 to 3.99 Medium IV V VIThe EFE Total 2.0 to 2.99Weighted Score Estée Lauder Low VII VIII IX 1.0 to 1.99Grow and BuildJ. QSPMStrategic Alternatives Introduce new Continue to expand products for non into new geographic traditional marketsKey Internal Factors Weight customersStrengths AS TAS AS TAS1. Wholly owned and operated offices in 43 countries 0.12 2 0.24 4 0.48 and territories and sold in over 135 countries.2. Test products on animals only when required by law. 0.03 --- --- --- ---3. Estée Lauder operates under numerous brand Copyright © 2009 Pearson Education
  • 10. names including Clinique, Origins, Bobbi Brown, 0.10 3 0.30 2 0.20 Flirt! among others.4. Detailed succession plan in place for Fabrizio 0.05 --- --- --- --- Freda to take over as CEO in March of 2010.5. The company as global rights to products sold under several name brands including Tommy 0.10 3 0.30 4 0.40 Hilfiger, Donna Karan, Missoni, and Sean John.6. Company continues to purchase interest in start up and established companies such as Bumble and 0.05 4 0.20 3 0.15 Bumble Products LLC in June 30, 2007.7. Revenue has increased 40 percent from $5 billion to $7 billion in the five year period dating fiscal 0.15 3 0.45 4 0.60 years 2003-2007.8. Company specializes in mid level and upper end 0.05 4 0.20 3 0.15 cosmetics products; markets over 9,000 products.Weaknesses1. In 1990, 75 nameplate department stores sold Estée 0.10 2 0.20 3 0.30 Lauder; today that number is only 17.2. Stock price has been stuck between $25 and $50 0.05 --- --- --- --- trading range since 1996.3. Estée Lauder lacks a clear mission vision 0.05 --- --- --- --- statements.4. Confusing organizational structure where it is unclear weather group presidents have control over 0.05 --- --- --- --- the product lines or geographic areas.5. Net sales of fragrance products decreased 4 percent to $1,213 million as the company continues to 0.05 --- --- --- --- struggle in this segment.6. Company does not offer enough brand names 0.05 4 0.20 2 0.10 tailored to lower budget consumers.SUBTOTAL 1.00 2.09 2.38 Introduce new Continue to expand products for non into new traditional geographicKey External Factors Weight customers marketsOpportunities AS TAS AS TAS1. Weak US Dollar makes US based products more 0.05 1 0.05 4 0.20 affordable to customers in Canada and Europe.2. Interest rates remain low in the US. 0.08 2 0.16 4 0.243. Increasing numbers of people are buying products online for convenience, cost savings, and 0.12 3 0.36 1 0.12 confidentiality.4. Men are increasing becoming more concerned with their looks and the stereotypes of men using skin care 0.05 4 0.20 1 0.05 products are diminishing.5. In 2006, China experienced a 15 percent growth in 0.05 2 0.10 4 0.20 professional skin care sales.6. Hispanic population in the US is rapidly growing. 0.05 1 0.05 4 0.207. Customers are demanding products not tested on 0.03 --- --- --- --- animals and which are environmentally friendly.8. Customers are becoming more interested in herbal 0.03 3 0.09 1 0.03 products that are derived from natural sources.9. Aging US population opens new markets for 0.05 --- --- --- --- Copyright © 2009 Pearson Education
  • 11. developing skin care products for the elderly.10. Many new start up companies with specialty 0.05 --- --- --- --- products are created each year.Threats1. Consumer complaints and inquires into the use of 0.03 --- --- --- --- animal testing for new products.2. FDA plans to enforce cosmetic corporations to add a label stating “the safety of this product has not been 0.02 --- --- --- --- determined.”3. Many new start up companies with specialty 0.05 --- --- --- --- products are created each year.4. Concerns about the use of aerosols, fluorocarbons and other chemicals in the production of cosmetic 0.03 --- --- --- --- products.5. Top competitors in the cosmetics industry are diversified with many brand names and a wide range 0.10 --- --- --- --- of products.6. Products are sold at significantly lower cost over the Internet cut into revenues and harm traditional 0.12 --- --- --- --- distributors.7. Growing trend among sections of the population for a more natural look and reduction in their use of make 0.04 4 0.16 1 0.04 up and related products.8. Customers tend to be extremely brand loyal. 0.05 --- --- --- ---SUBTOTAL 1.17 1.08SUM TOTAL ATTRACTIVENESS SCORE 3.26 3.46K. Recommendations COMMENT ON EXISTING STRATEGY AND MAKE RECOMMENDATIONS FOR A 3 YEAR STRATEGIC PLANM. Epilogue COMMENT ON ANY FACTORS YOUR RESEARCH SHOWS THAT OCCURRED AFTER 2007 WHICH WOULD HAVE SHOWN THAT YOUR RECOMMENDATIONS WERE CORRECT/INCORRECT Copyright © 2009 Pearson Education