While beauty is resilient amid a chaotic backdrop, there are structural changes happening that the industry needs to take seriously, said Stéphane de La Faverie, chief executive officer of the Estée Lauder Cos., at WWD Beauty CEO Summit. 

In his first non-investor speaking engagement since taking the reins of the beauty company as CEO at the beginning of the year, he discussed the importance of differentiating between cyclical and structural changes during a fireside chat with Beauty Inc editor Jenny B. Fine.

In terms of cyclical changes, during his 25-year-long career in beauty, de La Faverie has seen the internet bubble, 9/11, SARS, the financial crisis, as well as the pandemic. 

“Every single time there was some uncertainty and a lot of volatility, every single time we came out as an industry stronger than the moment before. So these are cycles. They are not structural,” he noted.

That being said, he stressed that there are significant structural changes happening in beauty that will impact the industry.

“From a consumer standpoint, we see close to 900 million consumers who are going to enter the middle class around the world. It’s led by China, by India, Mexico, Southeast Asia. We have to learn to connect with these consumers in a different way,” de La Faverie said.

This includes a significant demographic evolution in the company’s home market of the U.S. 

“The second largest racial group in the United States is the Latina community. In 2060 it will be the number-one racial group in the United States, and that creates a lot of opportunity to connect differently with consumers,” he said. “In the U.K., you have the Middle Eastern consumers also growing so in so many ways, the consumer is evolving.”

Distribution is also evolving, with Lauder recently seeing success from putting several of its brands on Amazon after years of eschewing the platform. Most recently, Origins joined Amazon, following the likes of Clinique, Too Faced and Estée Lauder among others.

“I do believe all these structural changes are good and make us stronger, and that’s why I believe the industry is extremely resilient,” he said.

Since taking the helm at Lauder, de la Faverie has launched his Beauty Reimagined strategy to breathe life into the company, which struggled after the pandemic on the back of weakening demand in Asia and the U.S., while its travel retail business has failed to bounce back.

“The vision is to reestablish the company as the leading and the best consumer centric beauty company in the world,” de La Faverie said of his plan. “This vision is articulated around five key pillars. The first one is for us to really accelerate the consumer coverage. There’s a lot more opportunities from a distribution standpoint. We’ve been too slow to move to some of the new distribution and today, we are moving extremely fast to new distribution channels. There’s plenty of opportunity, and it creates opportunities in different places around the world, but in any given market to connect differently with the consumer.”

The second pillar is accelerating innovation, while the third one is making sure that the company invests in a broader way with consumers. 

“Consumers are moving faster than ever before, and you have to put the consumer at the center. We’re moving from the concept of a brand-led organization to a consumer centricity,” he said. “It may sound like a simple thing to say, but often the brand is at the center of the decision, or the region.”

Fourth is creating efficiencies across the company, which has entailed reducing the workforce by as many as 7,000 positions. Lastly is changing the way Lauder operates internally and externally to be more agile.

On when investors will begin to see the impact of this new strategy on earnings, de la Faverie said: “The reality is we have a lot of work to do, but we are seeing some improvement already. I’m very proud to announce that we have now gained market share in the U.S. for the first time in many years, and we’ve done it in three of the four categories. We’ve gained share in China in four categories. In some emerging markets, we have lots of work to do. There’s so many markets like the U.K., continental Europe, where we have some work to do, but I’m seeing some acceleration.”

As for travel retail, de La Faverie is thinking about evolving it from purely transactional to experiential. “We are in the process and well advanced in the reset of travel retail and reducing the dependency of the channel to make sure that we reduce the volatility of all that this channel also creates because of the world that we are living in,” he said.

AI is also a very important part of the executive’s overall strategy. “AI ultimately is the best companion,” he said. “The biggest fear out there is AI going to replace us. No….AI is going to just create so much potential growth, but it needs to be through proprietary information.”

As for persistent rumors that Lauder could divest underperforming assets, de la Faverie said: “We are looking always at our portfolios of brands, and we are just making sure that they are always in the right position. I’m passionate about every single one of our brands.”

Asked if there’s a possibility for acquisitions on the horizon, he joked: “If any of the indie brands wants to talk to me at the break, I’m here to listen.”

On how he defines modern leadership, he believes it’s very different even versus a decade ago, given the amount of volatility and risk CEOs face currently.

“It’s no longer enough to just be a good strategic thinker,” de La Faverie said. “You have to have a very strong emotional intelligence. This is something we need to be talking about — agility, staking, speed of decision. This is absolutely critical.”

As for his particular role at Lauder, he sees it as unifying one team around one purpose and one mission.

“To be able to achieve that as leaders around the world, we need to establish a lot more trust than we had before,” he said.