The new year marks new beginnings for many, especially at The Estée Lauder Cos., which will have a new chief executive officer at its helm for the first time since 2009.
After a whirlwind 2024 of succession rumblings, brand declines and a pulled 2025 forecast, Stéphane de La Faverie’s appointment as CEO is the latest and highest-profile executive change at the company, and goes into effect just after Akhil Shrivastava’s Nov. 1 hiring as executive vice president and chief financial officer at the beauty giant.
Though an outsider was thought to be a more favorable pick among some, analysts cited de La Faverie’s institutional knowledge, relationship with the Lauder family, and brand-building abilities, including at Le Labo. It’s also thought that an internal pick has the ability to hit the ground running, as an external hire would have a lot of learning to do.
But while his appointment marks a new era for the beleaguered company, he will be faced with the same issues that challenged his predecessor, Fabrizio Freda, who positioned Lauder as the largest prestige beauty company in the world only to lose out on that title to rival L’Oréal in 2023.
These challenges include weak demand in China, Asia travel retail and its home market of the U.S.; a share price down around 45 percent year-to-date, and what some analysts describe as a dearth of innovation. The company is also in the process of reducing its global headcount by around 3,000 staff, as well as finding other efficiencies within the business.
Needless to say, his list of resolutions is lengthy.
In an internal video message to Lauder employees obtained by WWD, de La Faverie stressed that the company needs to learn from past missteps and move fast. “Together, we are heading into 2025 with optimism and a fresh outlook. But, we also need to be honest with ourselves,” he said. “While we made the best possible decisions over the past few years, some of them worked and some didn’t. Looking back at the past is always easier than predicting the future. So there are a lot of learnings for us moving forward. We need to learn fast from these situations so we can pivot fast.”
Among the 2025 priorities he listed are dramatically increasing the company’s focus on the consumer; attracting new generations of shoppers; reigniting innovation, and doing more of what works and less of what doesn’t, including reducing time spent in preparation and meetings.
Industry sources who spoke with WWD think that on Day One the new CEO will need to communicate his strategic vision and priorities while also not diminishing the business’ current headwinds. That should include bringing together a core team and reaching out to key retailers to assure them of the transition and crowd source feedback on what should be prioritized.
“He needs to establish himself as a stand-alone executive, not in Fabrizio’s shadow, with his own agenda and own game plan,” one source said.
Internally, he’ll need to improve the company’s financial standing. In terms of driving revenue and improving gross margins, “he clearly has a lot on his plate that probably has to get done sooner rather than later,” said Mark Astrachan, an analyst at Stifel Corp., before listing a number of tasks to get de La Faverie started.
“Investing appropriately in the business. Figuring out whether all the brands they have in the portfolio today are those that they’re going to go with in the future. Is the appropriate strategy in place in each market? Is it the same for all markets? Is it unique for some where there are more challenges? How do they deal with the issues in the Chinese market? How do they position themselves to go back to gaining sustainable share and profitable growth?” Astrachan continued.
The group reported net sales of $3.36 billion for its first quarter ended Sept. 30, a decrease of 4 percent from $3.52 billion in the prior year. Skin care, the majority of the business, saw sales fall 8 percent, with double-digit declines at La Mer and Estée Lauder.
For the second quarter, Lauder expects organic net sales to decrease 6 percent to 8 percent compared to the prior year, largely due to the ongoing challenges in mainland China and in Asia. De La Faverie will no doubt be working with Shrivastava on providing new full year guidance, having previously withdrawn the group’s expectations, a red flag to investors. The company releases second quarter fiscal 2025 earnings on Feb. 4.
There are some bright spots, though: Lauder’s U-turn on selling on Amazon is performing well, according to earnings, while analysts are hopeful that the hiring of Tara Simon and Amber English as co-North America leads, which de La Faverie was heavily involved in, will reignite business in the region.
Also high on de La Faverie’s to-do list will be filling key executive positions. With his promotion, there will be a vacant executive group president position. Sources mooted that this may be an opportunity for Jane Hertzmark Hudis, executive group president, to expand her purview, although other sources believe this will be too vast a remit for one person (oversight of the brands have for some time been split between de La Faverie and Hertzmark Hudis). Whatever happens, most believe she will be elevated in some way.
At the same time, speculation continues to swirl that Peter Jueptner, group president, international, will step down, so that may be another spot to refill.
De La Faverie will also need to decide whether to replace the position of executive vice president, enterprise marketing and chief data officer, following Jane Lauder’s exit from the role and day-to-day operations at the company. She left after losing out to de La Faverie in the race to be CEO, although she remains on the Lauder board as a significant shareholder.
All this may not end up being apples to apples replacements, though, as some roles and departments could be revamped.
Sources said adding a title like chief operating officer, which Lauder never had under Freda, may be a position the new CEO wants to introduce a little further down the line.
In terms of its portfolio, sources stressed that de La Faverie will have to carry out an assessment of what’s working and what’s not. Whether or not the company would divest or shutter brands is unclear.
Sources circled the so-called California brands consisting of Glamglow, Smashbox and Too Faced — the third of which was purchased in 2016 for $1.45 billion and is least likely to be shuttered, according to sources.
Hair care brands Aveda and Bumble and bumble are also potential divestment opportunities, the sources said.
The downside of selling or shuttering such brands is it would reduce Lauder’s footprint in specialty retailers like Sephora and Ulta Beauty, which comprise makeup and skin care’s dominant channel.
In terms of divestments in the beauty industry in general, one banking source said: “You’re more likely to see closures than divestitures, at least on the beauty side. The guys on the beauty side are more likely to close brands than divest brands simply because it’s an ego thing. You do not want to sell a brand to a competitor and then have the competitor do better than you with that brand.”
Then there’s a question of when de La Faverie could make a big splash in terms of acquisitions.
Under Freda, the group’s big acquisitions were Tom Ford for $2.3 billion and Deciem for $1.7 billion. (The latter, which is home to The Ordinary, is undergoing a significant executive change as cofounder Nicola Kilmer is stepping back.)
According to analysts, significant acquisitions like these are most likely off the table for 2025 as Lauder’s balance sheet is pretty stretched. But it could still do a smaller acquisition should the opportunity present itself, at around half a billion dollars.
The rumor mill persists that it is likely Westman Atelier, the makeup brand founded by Gucci Westman, will consider coming to market in the second half of next year. It has long been thought that this would fit well within Lauder’s portfolio, but as one banker said of Westman Atelier: “It’s a crown jewel that everyone would want.”
“This is a company that needs to rethink its markets and its portfolio, and perhaps as it exits businesses it can add new ones,” said one source of Lauder’s portfolio.
