India is extremely strategic for us: Stéphane de La Faverie, President & CEO, The Estée Lauder Companies

The Estée Lauder Companies is going through a period of churn as the global beauty conglomerate—the parent of La Mer, Jo Malone London, Tom Ford, Aerin Beauty, Le Labo, Estée Lauder, and Kilian Paris brands—looks to turn things around amid loss of market share and slowing sales in China. Stéphane de La Faverie, the 51-year-old President and CEO of the $15.6 billion company, took on the task of reviving the brand’s fortunes in January. During a recent visit to India, de La Faverie spoke to Business Today’s Krishna Gopalan on the India strategy, emerging trends and what keeps growth going. Edited excerpts:

Q: How different is India from the other markets where you operate?

A: The more time I spend here, the more excited I am about the opportunity. First, it is extremely strategic for us. We have been here for 20 years, and our approach is to innovate constantly. It could be through our partnership with StartUp India to strengthen the innovation ecosystem and empower the next generation of Indian entrepreneurs or launching La Mer or touching consumers through a multitude of pin codes. I see a lot of potential here because of the rise of the middle class.

Just look at the pre-Covid phase and what we have today. The big change in India has been digitalisation. What we see here is almost unheard of in any other part of the world. Things are growing faster and getting bigger, making the opportunity very large. We work with our retail partners like Nykaa or Tira (owned by Reliance Retail). There is a lot that can be done both online as well as in the brick-and-mortar format.

Q: The word strategy is mentioned multiple times in your annual report.

A: You must know where consumers are going. They are at the centre of the story, and one must understand how and where they are evolving. We have a concept called Compass (a long-range planning tool), where we look at each market—its consumers, the middle class or just how they are behaving. Once you become consumer centric, a lot of things become clear, be it product categories, brands or innovation. Over the last 77 years, the objective has been to create the most amazing portfolio of prestige and luxury brands. In India, we invested in Forest Essentials, and now it’s about bringing that to the forefront for the Indian consumer.

Q: Why is this moment so exciting for you?

A: We have a presence in prestige and luxury segments but remain affordable. We tap into the emerging middle class and upper middle class, depending on the brand we sell. The middle class is growing the fastest in India, which is very interesting. Plus, beauty is a part of culture everywhere. Everybody uses a perfume, a skincare/hair product or make-up.

Q: What do you like about the retail space in India?

A: I think what you see in India is absolutely fascinating. Let’s draw a parallel to a market like the US or Europe, where they started with brick-and-mortar and digital came at a much later stage. Now, let’s look at China, where there is concentrated distribution with few points-of-sale, accompanied by quick expansion.

India is leapfrogging that because of digitalisation. Yes, you do have beautiful and luxurious malls in large cities, but there is also a rapid expansion of digital and online markets. We sell in 45 cities online; we serve close to 19,000 pin codes. Digitalisation has taken decades in other countries but less than a decade in India. That allows us to tap into a large part of India’s population. We are committed to India and want to be the leader in the prestige segment in every city.

We need to keep fine-tuning the strategy in every country as markets evolve. They are influenced by social media and, today, it is a two-way conversation. It was one-way earlier, where the brand spoke to the consumer. Now, we constantly listen to what consumers are telling us. So, there is a constant refinement based on how trends are evolving.

Q: You recently unveiled Beauty Reimagined, with a focus on restoring the company’s sustainable sales growth and achieve stronger profitability. Tell us more about it.

A: This is something very close to my heart. We have been in the business for 77 years and intend to be there for many, many more decades. Beauty Reimagined is about putting the consumer at the centre of everything we do.

There are five pillars to this. One is consumer coverage or where we want to access the consumer, who is constantly on the move. We need to go where they go as waiting for them to come to you is not good enough. The second is accelerating innovation. People want to know what is new. A significant part of our new offerings is the result of innovation. I have publicly stated that we will treble the number of innovation-led products over the next 12 months. Coming to the third pillar, the world is becoming more competitive, and so we must be more consumer-facing. It allows me to reach out to consumers on the platforms where they are.

Then, there is a need to take bold decisions. We have had challenges as a company since some agility has been lost. We need to regain that. We are simplifying the organisation to be leaner and faster in responding to the consumer’s evolution. Finally, we must understand how we work internally and externally.

Q: Speaking of innovation, has the time taken to launch a new product reduced?

A: Absolutely. I just want to go back to the point on trebling innovation over the next 12 months. We will do this across categories. I remember having this discussion with my team about one product launch. The plan was to bring it to the market in less than a year.

Innovation has multiple fronts—it is about different ways of portraying a product that people love. Lipsticks from the Wedding Party Collection, launched exclusively with Nykaa, was our first product made in India. We took eight months to develop the concept and bring it out in the market. Normally, it would have taken more than a year. It comes down to how we are changing our processes. By that I mean faster decision-making, leveraging external partners and using artificial intelligence (AI) in a much bigger way. Personally, I am very passionate about AI. For instance, we have seen a dramatic increase in weighted forecast accuracy. We have several decades of insights and proprietary data. Now, we are fitting that into a system. Recently, we had a partnership with Microsoft (to build a generative AI ecosystem) that had our proprietary AI tool, ConsumerIQ, with data on every product and brand. That’s where the second part of Estée Lauder’s generative AI ecosystem, Trend Studio, comes in. The two create a match that is made in heaven. Now, we can pick up a trend and marry that with insight. It allows us to create better products much faster and with a greater understanding; we know what the consumer wants.

Q: In that sense, is it both an art and a science?

A: We call it the math and the magic. The magic is in the creation of the product. Behind all that there is math—creating the insight, and with that, we take the data available, which helps in bringing products to the market that consumers will love.

Q: Does that mean that you have to think like a start-up?

A: Yes, we have to. While we have been around for many years, I always ask my team to think with the mind of an entrepreneur. When our founder started this company, she went door-to-door selling her products. We are promoting entrepreneurship apart from guiding and supporting it. The world is moving quickly as are the consumers and you must think like an entrepreneur or a start-up. That means you must be able to take risks. High risk is about high reward.

Q: You make minority investments through New Incubation Ventures. What is the thought process there?

A: We launched this incubator three years ago. Look at our latest acquisition of DECIEM (Estée Lauder first invested in the Canadian company in 2017 before making a complete buyout last year), a player in skincare formulations. There is something about identifying the sharp early-stage entrepreneurs with great ideas. Take the case a minority stake in Forest Essentials (in 2008).

We did become the majority owner of DECIEM—it was a case of a small idea that became one of the largest brands in the world. We have multiple investments in the UK, the US, and China. We identify brands that could complement our portfolio.

Q: What is the plan as far as the investment in Forest Essentials is concerned?

A: When we invested in Forest Essentials in 2008, it had two stores. Today, there are 170 D2C (direct-to-consumer) stores. We are guiding them to look beyond India, at the Middle East and the UK. It is important to internationalise the brand. Today, you have a big brand in India that is loved in the world of Ayurveda, and it is so relevant here. Also, we see the opportunity for Ayurveda in other parts of the world.

It’s not just about the money that we put in. Rather, there is a partnership with insights, guidance and a lot of effort. We have a very long history and that is our biggest trademark. A young entrepreneur comes to us not only because we can do a great product; it’s about where to go, how consumers are behaving, what channel to look at, how to market in a world that has transformed remarkably and is digital now. We can bring a great idea at scale very quickly.

Q: You took over the company at a difficult time. What was your mandate?

A: This company has had a long journey and will be around. There is a need to make it more agile and be the best when it comes to being consumer-centric. Innovation is at the core and simplification must be part of how we work. We must touch every single consumer wherever they are. The MoU that we recently signed with the Indian Ministry of Commerce is about promoting women entrepreneurs. Globally, 80% of our workforce is women. In India, it is two-thirds.

Q: You obviously like innovation and what it can do. Can you think of innovation without technology?

A: Technology is playing a much bigger role than ever before. Think about it. There is a big evolution in consumer behaviour. Experience is at the core of everything that the consumer wants. It is not only about the product but also how they interact with it. Technology helps with that. Today, we have a virtual trial for make-up where you can just look at your face through an AI tool on your phone or iPad. Beauty is not just about satisfying a need, it has to go with the occasion—for instance, is it for office or when you step out for dinner?

Technology reduces the pain points, and you will see much more of it. AI allows us to mine this data and bring products in a more meaningful way to the consumer. But technology can’t solve everything. It is an enabler but cannot be a replacement for how we create the magic.

In prestige and luxury, one thing that defines us is retention. People come back to our brands over and over again. When you use it, you touch and feel it. That is very important. Our role is not just to meet the demand but also surprise the consumer. 

@krishnagopalan