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How Estée Lauder Is Planning to Compete on the Korean Skincare Front

With a struggling skincare business, Estée knows it needs to up innovation in that category.

Estée Lauder reported flat revenue for the first quarter of 2015, which ended September 30, with net sales coming in at $2.63 billion relative to last year's $2.68 billion. Foreseeing a number of challenges in the coming months -- the weakness of the U.S. dollar, geopolitical tensions and softness in Hong Kong, an important market -- the company also cut its guidance for the full fiscal year. At this point, Estée expects net sales to grow 2 to 3 percent in 2015, versus its original forecast of 3 to 4 percent. 

Estée Lauder's skincare business is struggling the most at the moment, with net sales dropping 7 percent in the quarter. CEO Fabrizio Freda acknowledged on the company's earnings call Tuesday morning that his team needs to increase innovation in that area with the understanding that development is happening in more categories than ever: It's not just about serums and moisturizers any more, but also about facial oils and masks.

Which begs the question: How is Estée Lauder, a long-running American company, planning to compete against Korean brands, which have been establishing themselves as leaders in the skincare space for quite a while and are now breaking into the U.S. market? 

"We have been seeing this coming for a long time," says Freda. "The way to compete with Korea is to embrace [these trends] and to bring them around the world. Our brands -- Clinique, namely -- has been one of the first to bring BB creams and CC trends to the U.S., which was actually a Korean trend."

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That's true. And as Freda points out, MAC Cosmetics has been borrowing looks from Korean pop culture and the Estée Lauder brand itself is growing in Korea as it looks to cater more to that market. But another question: Why not just acquire a Korean brand outright? After four years without making any purchases, Estée snapped up both Le Labo and Rodin Olio Lusso -- a pretty addition to Estée's skincare portfolio -- in October, so another, larger acquisition could very well be in the cards.

As for those recent acquisitions, the company has yet to release details of the deals, which closed after the quarter ended, although Freda noted that the founders will be staying on through the transitions. According to Freda, both are targeted toward Estée's "ultra-prestige consumer, which is core to [its] strategy." The plan is to grow the two in a similar fashion to La Mer and Jo Malone, two of the company's higher end brands.