European Community Internet Sales Deregulation Causes Estee Lauder CEO To Speak Out

• On 8:10 am EDT, Wednesday September 16, 2009

67 WALL STREET, New York - September 16, 2009 - The Wall Street Transcript has just published its Specialty Retail Report offering a timely review of the sector to serious investors and industry executives. This 52 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Consumer Electronics -- Innovation -- Appliance Category -- Housing Market -- Video Games -- Growth of Amazon -- International Growth -- Positives of the Downturn -- Cross-Shopping -- Buying Trends -- Competition in Specialty Retailing -- Department Stores -- Balance in Merchandise -- Underselling -- Promotions -- Informed Customers -- Internet Stores -- Change in the Consumer -- Top-Line Expansion -- Lower Cost Structure -- Teen Consumers -- Back to School -- Stablization -- Consumer Spending Trends -- Shifts in Consumer Shopping Habits -- Comparable Store Sales -- Holiday Expectations -- Retailers Reaction to Shifts in the Economy -- Value

Companies include: Amazon (AMZN); Best Buy (BBY); Estee Lauder (EL); hhgregg (HHG); Conns (CONN); GameStop (GME); Staples (SPLS); OfficeMax (OMX); Office Depot (ODP); Abercrombie and Fitch (ANF); AnnTaylor Stores (ANN); American Eagle Outfitters (AEO); Buckle (BKE); Chico's FAS (CHS); Bebe Stores (BEBE); Ann Taylor (ANN); Coach (COH); Coldwater Creek (CWTR); Nordstrom (JWN); Dicks Sporting Goods (DKS); Foot Locker (FL); Steve Madden (SHOO); Skechers (SKX); Deckers (DECK); Hibbetts (HIBB); Shoe Carnival (SCVL); Target (TGT); Genesco (GCO); Urban Outfitters Inc. (URBN); True Religion Apparel Inc. (TRLG); GUESS? Inc. (GES); Lululemon (LULU); J.Crew (JCG); Hot Topic, (HOTT); Talbots (TLB); Chico's (CHS); Pacific Sunwear (PSUN); Kohl's (KSS); JCPenney (JCP); BJ's Wholesale (BJ); GUESS? (GES); Tween Brands (TWB); Gymboree (GYMB); Men’s Wearhouse (MW)

In the following brief excerpt from just one of the 11 interviews in the 52 page report, Estee Lauder CEO William Lauder discusses the outlook for his company and the sector.

William P. Lauder is Executive Chairman and Chairman of The Estee Lauder Companies' board of directors. The company is one of the world's leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products, with annual sales of nearly $8 billion in fiscal 2008. Its products are sold in more than 140 countries and territories under 29 well-recognized brand names. Mr. Lauder held the position of Chief Executive Officer from July 2004 until July 2009. Under his leadership, he expanded the company's international presence and distribution channels, and greatly strengthened the brand's portfolio. Previously, he served as Chief Operating Officer, responsible for the oversight of all of the company's global operations, including manufacturing, research and development and human resources. In that role, he also oversaw nine of the company's specialty brands, including Prescriptives, Aveda and Bobbi Brown, as well as retail store operations and all activities for the company's international business. Earlier Mr. Lauder held several other senior executive positions, led the global businesses for Clinique and Origins, and oversaw the company's freestanding stores and Internet businesses. Mr. Lauder has earned many brand and industry distinctions. Under his leadership, Clinique's Dramatically Different Moisturizing Lotion became the best-selling prestige skin care product in U.S. department stores, and Clinique launched its first anti-aging product, Stop Signs Visible Anti-Aging Serum, which won the Cosmetic Executive Women Award for "Best Skin Care Product in Limited Distribution" in 2000. Mr. Lauder led the development of the Origins brand and helped create its innovative store-within-a-store concept. He joined The Estee Lauder Companies in 1986 as Regional Marketing Director of Clinique U.S.A. in the New York Metro area. Prior to joining The Estee Lauder Companies, he completed Macy's executive training program in New York City and became Associate Merchandising Manager of the New York Division/Dallas store at the time of its opening in September 1985. Mr. Lauder is on the boards of directors of The University of Pennsylvania, The Fresh Air Fund and The 92nd Street Y. He is on the board of trustees of The Trinity School in New York City. A graduate of the Wharton School of the University of Pennsylvania, he studied at the University of Grenoble in France. An avid golfer, skier, tennis player and hiker, he resides in New York City with his family. He is a grandson of Mrs. Estee Lauder, the company's founder.

TWST: What about your involvement as CEO?

Mr. Lauder: I was CEO for five years. My predecessor CEO, Fred Langhammer, was also the CEO for five years. And my father was really the first official CEO; we didn't have the title before my father. He was active in that capacity for decades but, in fact, had the title from 1982 until he stepped down as CEO in 1999 and became solely Chairman of the Board. This July he became Chairman Emeritus. There's a number of different things that I really tried to make sure we were doing very well as a company. This company has grown organically, dramatically. A lot of what we needed to do was to ensure that our infrastructure to support our broad, complex company's growth actually matched the size of the company. There was somewhat of a mismatch in the infrastructure on the systems, operations and human resources system side. And in an ever-competing environment, having effectively operating systems and infrastructure support allows you to be more effective and more competitive. Secondly, we really felt very strongly that it was our mission to grow our international business at an accelerated rate. There were a number of overlying macro factors, which made it more attractive for us to be investing internationally, as well as micro factors within the company that made it really very interesting for us to be disproportionately investing in regions such as Asia, Europe, travel retail and others, where we felt we'd get a very good return on our investment and meaningfully improve our share, as well as the footprint and platform of a number of our different brands. In addition, I felt very strongly that we needed to continue to broaden our presence from a distribution standpoint, and we entered a number of new distribution environments that previously we were not in, starting with retail stores, our own branded retail stores and a series of single-brand retail stores. We've aggressively expanded our online business as well as new alternative distribution such as - it's generically called DIRECTV, but it's really QVC, HSN as well as the infomercial space, where I felt there was a consumer shopping in that environment within the price and aspirational branding spectrum that we and the consumer who shops in that space both know so well.

TWST: Rather than the more broad, open-ended Internet sales?

Mr. Lauder: Well, no, our Internet sales are really aimed at our brands within retail environments that are the same as our retail store environment and are mostly controlled by us. We own our own brands, we own our own brand Internet sales. More to the point, there is always a popular belief amongst the more aspirational exclusive retail environments that the consumer who shopped in these alternative channels was perhaps a different kind of consumer. And what we've learned in making our brands available in these alternative channels with a similar experience and proposition for the consumer as she gets in the more exclusive retail environment, she shops just as easily and just as well. Alternative distribution is very nice, it's very attractive. It is an important ancillary to our core distribution model, which continues to be the aspirational department store, specialty store and perfumeries.

TWST: You've recently spoken about the European Community's deregulation of the Internet sales space.

Mr. Lauder: That's somewhat of an esoteric point because of the requirements of European law. There is a piece of law in the European Community that governs the selective distribution contract, and that basically allows us, as a brand manufacturer, to establish a set of selective distribution criteria, which allows us to say that you, as a retailer, must meet these qualitative criteria in order for us to allow you, as the retailer, to sell our brand. That allows us to say we expect certain standards of cleanliness, ambience, service and other factors that all meet these criteria. And if you, as a retailer, meet these criteria, we sell to you; and if you don't, we don't. It's somewhat egalitarian in that sense. The issue at hand before the European Community right now is that the selective distribution contract that's supported by the European Community allows us to hold the same standards for Internet sales, which means that you, as the retailer, must meet a certain set of standards in order to sell our brands on the Internet. The question in front of the Community right now about the proposed change in the law is whether or not the selective distribution contract criteria, which applies to four-walled retail stores that are on streets, ought to have those same or similar standards applied to Internet sales. And we feel very strongly that they ought to be, because you cannot separate the experience of buying our brands in a store that creates the right environment, where you get the right service level, with an online shop run out of the back of a warehouse in rural Poland - I mean no disrespect to Poland. This is an example, because what it does is it undermines that retailer who sells in central Paris, where the rents are very, very high, and puts them in an enormous disadvantage to an Internet retailer who does not have the same expense base and is in effect "free-riding" on the investment of that retailer in Paris. So we are not advocating the control of retail price, we would never do that. We're just saying that there is a potential disincentive we would not want to have happen to our key retailers, where the consumer comes in and shops and is serviced by that retailer in central Paris, she says, "Thank you very much," and leaves, and orders that product online from somebody else in another country, where all of the rates are much lower.

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