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While the Estée Lauder Cos.’ confirmation of new chief executive officer Stéphane de La Faverie wasn’t much of a surprise after days of heavy speculation, news of William P. Lauder’s departure as executive chairman came as a shock to industry insiders.
William Lauder’s transition to chairman of the board will mark the first time since the company’s inception 75 years ago that it has not had a family member actively involved in day-to-day operations.
“My decision to focus solely on my role as chair of the board represents an important evolution for the Lauder family,” he said in a statement. “Our family’s long-standing day-to-day management of the company is evolving and reflects my desire to focus more on the overall strategic direction of the company.”
After Jane Lauder’s Sunday announcement that she will be departing her role of executive vice president of enterprise marketing and chief data officer at the company, this means that there will be no family members working in daily operations.
In an internal memo sent by William P. Lauder and current CEO Fabrizio Freda seen by WWD, the duo further explained family involvement going forward.
“As ELC begins this next chapter, the Lauder family intends to remain meaningful stockholders, ensuring that their values and approach to long-term patient capital continue to play a vital role in the company’s governance,” it said.
Jane Lauder, Gary Lauder, Ronald Lauder and William Lauder will continue to serve on the board; Leonard Lauder will remain chairman emeritus, and Aerin Lauder will continue as founder and creator of Aerin, and style and design director of Estée Lauder Re-Nutriv.
Multiple sources with close ties to the family and the company called the move “very shocking.”
“It’s huge that the family is not involved in the day-to-day running of the business,” said one person, noting that the move signals that Lauder’s board is holding Freda and William P. Lauder accountable for the decline in performance.
Another source agreed and speculated that the move was made to appease jittery investors. This person contends that a successor will be revealed by yearend to serve as executive chairman, noting that de La Faverie is a talented executive but lacks experience in the CEO seat. “He will need a strong executive chairman to help guide him,” said this source.
De La Faverie will take the reins on Jan. 1 from Freda, about six months earlier than Freda’s previously announced retirement date, the company confirmed in a statement early Wednesday.
“As we work together to return to our preeminent position as the leader in global prestige beauty, we will draw on our family heritage, extraordinary brands, exceptional talent, consumer-centric approach and creativity — core elements that reflect our very DNA,” said de La Faverie of his appointment.
De La Faverie joined Lauder in 2011 as senior vice president, global general manager, Aramis and designer fragrances. Most recently, as executive group president, his portfolio of brands includes Estée Lauder and Aerin Beauty; Jo Malone London; Le Labo and Deciem, among others.
He has been credited as playing a pivotal role in enhancing the company’s fragrance portfolio and was also a co-lead, alongside Jane Lauder, of the company’s Profit Recovery and Growth Plan.
Of de La Faverie’s appointment, William Lauder said, “His strategic vision will position the company to drive long-term growth in the face of its current challenges, as he deploys transformational new approaches for the future.”
The stock market appeared indifferent, though, to the news, with the share price closing down 1.8 percent at $87.15.
In a note earlier this week, Oliver Chen, a retail analyst at TD Cowen, noted that while de La Faverie’s background at L’Oréal, fragrance expertise and successful track record of building brands is favorable, he believes some investors may have preferred an outside candidate “as a fresh perspective could yield a faster and larger impact.”
But while several analysts noted that an outside candidate would have been favorable, one source stressed that such a move would have held back the company’s recovery by a year or even longer as they onboarded themselves and ingrained themself into a very specific company with a very specific culture.
In a statement, Charlene Barshefsky, presiding director of the board, said: “Following a comprehensive CEO succession planning process, and a thorough review of external and internal candidates, Stéphane was the clear choice of the board for his mix of strategic vision, global industry knowledge and experience, profound ambition for the company and its remarkable brands, and unique ability to address the challenges facing the company to revitalize growth.”
On the retail side, the reaction was positive.
“Throughout the years, Stéphane has shown unwavering support for Sephora,” said Artemis Patrick, president and CEO of Sephora North America. “His collaborative spirit has been one of the many leadership qualities we value, and together, we will continue to lead in this dynamic and exciting industry.”
Still, de La Faverie will have his work cut out for him. Under Freda’s tenure, Lauder became the top prestige beauty business in the world, but recently lost that status to L’Oréal.
Lauder’s share price jumped from $16.75 in 2009 when Freda became CEO to a peak of more than $370 in January 2022, giving it a market capitalization of more than $133 billion.
But the stock price has subsequently tumbled as the company struggled to bounce back after the pandemic, and the Asia travel retail market and its Chinese business did not recover as quickly as it hoped. At the same time, analysts have pointed to a recent lack of innovation around product development and marketing, as well as weakness in its home market of the U.S.
Fiscal 2025 is lining up to be another tricky year. Reported and organic net sales are forecast to decrease between 1 and 2 percent, versus the prior year. The company will release its first-quarter assessment Thursday.
Both analysts and industry insiders stressed that Lauder needs to focus on innovation, tapping into a younger audience and tightening brand messaging.
“We believe the stock could continue to trade sideways until results improve materially under de La Faverie. This may require executing on a new strategy that leans into EL’s core competencies, including its heritage of M&A, innovation and R&D, personalized marketing, and brand development,” said Chen.
Beyond management changes, the troubles have brought into question Lauder’s future on the public markets, including a possible delisting of the company.
Other scenarios involve M&A, with Unilever, L’Oréal and LVMH Moët Hennessy Louis Vuitton being put in the mix, although this could spark antitrust concerns.
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