Big Changes at Estee Lauder, Including Layoffs

Posted on February 6, 2009

Estee Lauder is cutting 2,000 jobs as part of a restructuring process to enable the company to thrive during the economic downturn. All brands will be evaluated for their profitability and some could be discontinued entirely.
In lock step, the firm's chief executive officer William Lauder and Fabrizio Freda, president and chief operating officer, delivered a clear message targeted to company employees and Wall Street, that change was afloat at the 64-year-old, family-run company. The pair outlined a multipronged, four-year restructuring effort that is expected to wring out $450 million to $550 million in costs.

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Its cost-cutting measures also include a continuation of the hiring freeze announced last quarter and an immediate freeze in merit-based pay increases. The plan could result in one-time charges of $350 million to $450 million over the next few years. "We are cutting costs much deeper than this company has ever done," Freda told WWD following Lauder's earnings call.

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Richard Kunes, executive vice president and chief financial officer, referred to the holiday selling season as “one of the worst in decades,” noting that average same-store sales of U.S. prestige department stores fell 12 percent, and beauty sales in that channel dropped 7 percent. As retailers continued efforts to de-stock inventory levels, Lauder’s shipments fell 19 percent, said Kunes.

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The job cuts will affect mostly manufacturing and distribution workers, white collar positions and back-office operations, said Lauder. It will not affect employees at the store level, who account for an approximate one-third of the firm's 32,000-person workforce.
Consumers' new attitudes about the value of thrift and buying downmarket items has caught many prestige cosmetics and luxury brands by surprise. Look for new marketing strategies based on the value and effectiveness of cosmetics products in future campaigns.
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