How Is Estee Lauder’s Fragrance Segment Expected To Grow And Why?

Estee Lauder’s fragrance division contributes to around 16% to its revenues and ~10% to stock price valuation for the company. The global premium cosmetics leader currently enjoys around 7% of the world’s fragrance market share. We expect Estee Lauder’s fragrance revenues to increase by a CAGR of ~4% till the end of our forecast period. Below, we outline some of the reasons for this.

Note: Retailers Average Gross Profit is the gross income earned by the distributor or retailer on account of selling. This income is used for paying expenses on rents, staff, and other logistics and admin costs, leaving the seller with a net income (profit). Estee Lauder’s Revenues are calculated after subtracting the retailer’s profit margin from its total market share. We expect the retailer’s gross profit margin to remain at around 42% over the five year period.

Reasons Behind The Expected Growth In Estee Lauder’s Fragrance Market Size

• The U.S. prestige beauty industry reached $16 billion in 2015, growing 7% in dollar sales, compared to 2014, according to the global information company, The NPD Group. At 13%, the makeup segment experienced the healthiest growth, while fragrance grew 4%, and skincare increased by 3%. Along with the growth of the fragrance segment, we can expect Estee Lauder’s growth in this division to also grow.
• Over the last couple of years Estee Lauder completed its acquisition of Le Labo, the high end fragrance and sensory lifestyle brand, Editions de Parfums Frédéric Malle, the storied fragrance brand established by the iconic perfumer Frédéric Malle, and By Kilian, the Paris-based prestige fragrance brand. The acquisitions of the high end fragrance companies will further bolster the company’s growth in this segment.
• Expansion in emerging markets: All global beauty care players such as L’Oreal, Revlon, Avon, and Estee Lauder are expanding into the emerging markets of Asia-Pacific and Latin America due to rising income levels and standards of living. The premium segment of beauty is expected to draw market share from lower-priced mass products. Between FY2010 and FY2015, Estee Lauder’s revenues in the Americas, EMEA, and Asia Pacific grew by a CAGR of 6%, 8%, and 8% respectively, showing the company’s growing strength in the emerging markets.
• Estee Lauder has capitalized on the strong growth in the travel retail channel to capture the attention of travelers from emerging markets, who either buy in the channel, in stores at their destination, or when they return to their homes.

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Have more questions about Estee Lauder? See the links below.

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• How Does Estee Lauder’s Financial State Currently Look?
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• What Are Some Of The Trends Expected To Drive The Future Of The Beauty Market?
• Estee Lauder Braved Numerous Challenges To Deliver Growth Above That Of The Prestige Beauty Market

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