The company announced its impressive second quarter results on Feb 6, which reported that its net sales increased 16%, excluding the impact of currency translation.
This strong momentum continued in the first three weeks of January 2020, but the company has since experienced a significant decline due to the coronavirus outbreak.
In China, around two-thirds of the company’s department store doors were shuttered, and the remaining doors had their hours reduced.
Fabrizio Freda, president, CEO & Director of the Estée Lauder Companies, was quick to address the situation during the company’s Q2 earnings call.
He announced that the company has pledged RMB5m (USD716,004) to support coronavirus relief efforts in China.
“We are pledging RMB 5 million to support coronavirus relief effort for needs across China and we are matching donations of US-based employees to assist with the outbreak. We are working on various support initiatives to support people and their recovery.”
Fedra added that the company was ready to tackle the challenges and make a prompt recovery once the situation is resolved.
“We stand ready to invest, to facilitate the recovery as soon as the market supports it, leveraging the flexibility of our resource allocation and our multiple growth drivers.”
While the situation would affect the firm’s financial results in the near term, Freda said he expected things to return to the status quo by the next year.
“We do expect to recover our momentum at the end of the health crisis and in term of our assumption today… we assume the two quarters to be affected by the impact, and we expect a normalisation in fiscal year 2021.”
Travel retail will bear the brunt of impact
Among all its business, Freda expected travel retail to be the most impacted channel due to the travel suspension in China, the overall dip in tourism and even business travel.
“In this moment, the amount of travel in airports is reduced and traffic is significantly reduced. So that's the biggest impact.”
In order to mitigate the heavy blows to the travel retail channel, Freda said the company would focus on pushing conversion.
“Travel Retail is built by traffic and by conversion. Conversion is an area where we're making many improvements. So, in this period of transition where traffic will be low, we are reworking our plans to use conversion as a key mitigating element of the dip,” he said.
He added that the company would work closely with its partners to help the entire industry to recover quickly as well.
“We are going to stay close to them to contribute to the recovery of the Travel Retail business to make sure that our long-term retail partners will benefit from the recovery as much as possible and to start this all again to restart the right process and to regain momentum not only for us but for the entire industry.”
ELC reinforces commitment to China
Aside from travel retail, the company expects China itself to bear significant losses as well.
“Chinese consumers in many big cities are staying home and retailers are closing stores or limiting hours in an effort to help contain the spread of the virus… the behaviours of the entire population is fundamentally changed. And because of this, this is the second area, where in the short term, we expect an impact.”
Additionally, its online business was, at least in the short-term, having the same issues as brick-and-mortar.
This is due to the fact that most people have not returned to work in China, bringing activities in factories and distribution centres to a grinding halt.
However, he expects the online business to aid in the company’s recovery. “In term of the role of online in the recovery in the future, we are optimistic that online will play a very strong role in the recovery when the recovery will happen.”
Freda stressed that the company does not see the path to recovery as solely a business endeavour.
“We don't want just to look this as a business, we want to look at this as a contribution to the recovery of the country and really supporting our employees and the country in this.”
He concluded: “We remain committed to China and to the Chinese consumers for the long-term and plan to increase our R&D investment in the market in order to drive both breakthrough prestige beauty innovations for China, the Asia Pacific region and the rest of the world.”