Consumer Nation

Consumers Lack Conviction: Estee Lauder Chairman


What does it take to win over consumers in this environment?

A lot of coaxing, if the actions and comments of Estee Lauderare any measure.

The cosmetics company's outlook for fiscal 2011 was lower than analysts were expecting. Much of the shortfall was owed to the company increasing its advertising, merchandising and sampling costs more than analysts had forecast.

In an interview with CNBC, William Lauder, the company's executive chairman, said that customers need to see product innovation and service in order to come back to the stores.

"We've spent a great deal of time improving our cost basis and advertising those things that will drive her in," Lauder said. "Ultimately, that's the most important thing."

According to Lauder, U.S. consumers are beginning to return to department stores.

The Business of Beauty

"The consumer is back on the upper end, but she's not back with both feet. She's back with a certain conviction, but not a strong conviction, and...we're not certain how committed she will be, certainly going into the first half 2011," he said.

Estee Lauder swung to a profit in its fiscal fourth quarter, owing to pockets of strength around the world. In the U.S., brands like Clinique, MAC and Estee Lauder performed well, but the company also relied on growth in Asia to fuel its performance.

Steps the company has taken over the past year to whittle down underperforming products also improved its costs. That effort will continue into next year. Even so, the company is planning to increase its work force by about 2 percent around the world, Lauder said.

The company's shares fell after its forecast called for next year's earnings to be between $2.62 and $2.90 a share, on revenue growth of between 3 percent to 6 percent. Analysts surveyed by Thomson Reuters had expected a profit of about $3.16 a share, on average, on sales of $8.08 billion.

Still, Lauder said he was happy that his products are more upscale.

"We see the mass (cosmetics) business as more challenging," Lauder said.

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