Estee Lauder 2008 Annual Report Download - page 62

60 THE EST{E LAUDER COMPANIES INC.
As part of our international pharmacy channel business
initiative, several distributor markets for Darphin products
will now be serviced by our own affi liates and Origins
opened more than 20 new pharmacies in France.
Tri-Aktiline by Good Skin™ launched in over 500 Sephora
doors throughout Europe and exclusively in Cosmed’s
250 pharmacies in Taiwan, our fi rst entry in Taiwan’s
pharmacy channel. In January 2008, we formed a strate-
gic collaboration with Allergan, Inc., a global medical
aesthetics company, to develop a Clinique-branded skin
care line, Clinique Medical, to be sold exclusively through
physicians’ offi ces in the United States.
We continued to make progress on our Strategic
Modernization Initiative (“SMI”). During fiscal 2008,
Demand Planning for select business units began using
SAP software, a critical part of SMI. We anticipate SMI
implementation will continue at additional primary
locations in fi scal 2009, with the majority of our business
to be implemented through fi scal 2012.
Despite the rise in energy and raw material prices in
the current year, we were able to maintain our overall cost
of sales margin through other effi ciencies achieved from
our ongoing savings initiatives. We also opened a new
distribution center in Singapore to improve service levels
in the fast-growing Asia/Pacifi c region. In December
2007, we entered into agreements to ensure that the
equivalent of all electricity utilized by our Global Opera-
tions division is generated from green sources. We now
rank 22nd on the EPA’s list of leading Fortune 500 compa-
nies in alternative power usage.
During fi scal 2008, we also faced challenges, many of
which we expect to be ongoing in fi scal 2009. We believe
that economic uncertainty in the United States has
affected our business, particularly in the department store
channel. We continue to see softness in the United States,
including the impact of the consolidation and changes
taking place among retailers. In addition, the fragrance
category continues to be highly competitive. These chal-
lenges have been mitigated through sales in alternative
channels, such as freestanding retail stores, internet distri-
bution, self-select distribution and DRTV. Efforts to expand
geographically are complicated by increasing regulatory
issues and cultural barriers.
As we continue to implement our strategic imperatives,
we expect to make selective investments, embark on new
business endeavors, and pursue initiatives that we believe
will have long-term benefi ts. The timing, impact and mag-
nitude of any particular actions, such as an acquisition to
strengthen our product categories and/or diversify our
distribution channels, are subject to numerous factors and
one-time charges that cannot be predicted.
Our faster growing M.A.C, Bobbi Brown, La Mer and
Jo Malone brands continued to increase their net sales in
all of our geographic regions. The recent launch of Sean
John Unforgivable Woman generated signifi cant incre-
mental net sales to our fragrance product category.
In July 2007, we acquired Ojon Corporation, a privately
held hair care and skin care company based in Canada
that sells its products primarily through direct response
television (“DRTV”) and specialty stores. We also recently
announced that we purchased a minority interest in a pri-
vately held company that manufactures, markets and sells
beauty products in India under the Forest Essentials brand.
This past year we continued to build on our strength in
research and development. For example, we further
improved the Estée Lauder Re-Nutriv product line with
the introduction of Re-Nutriv Ultimate Youth Crème.
Clinique launched a “dermatologist-certifi ed” line called
Redness Solutions to reduce the appearance of skin red-
ness. Origins recently launched Origins Organics, the fi rst
full line of skin, body and hair care products to be certifi ed
under the USDA National Organic Program.
Again in fi scal 2008, the majority of our net sales came
from outside the United States. We generated growth in
sales and profi ts in our travel retail business, including
accelerated growth from downtown locations in Asian cit-
ies, border stores in Latin America and shops on cruise
ships. We continued to increase our presence in China
and Russia and recently established affi liates in the Middle
East and India. In an effort to improve the return on our
media investment abroad, we consolidated the work of
several media agencies into one by selecting M2M, a
media company of Omnicom Media Group, to be our
media agency in eight European and four Asian/Pacifi c
countries. By doing so, we anticipate integrating tradi-
tional media and expanding the use of Internet and digital
advertising in these areas.
In alternative distribution channels, we continued to
grow our online business in the United States, where we
sell products from 15 of our brands on Company-owned
websites. With the recent expansion of our online business
into Korea, we now sell products on our own e-commerce
sites in fi ve foreign countries. In fi scal 2008, we also
expanded our presence in the DRTV distribution channel,
most signifi cantly with the acquisition of Ojon in July
2007. In the United States, Clinique debuted on QVC,
where Bobbi Brown, Origins and Ojon currently have
regular shows. BeautyBank created Eyes by Design, a
brand which is currently being sold exclusively on HSN.
Internationally, Ojon debuted on QVC in Germany while
Bobbi Brown and Prescriptives aired on QVC in the
United Kingdom. Origins and Good Skin™ have also had
shows on DRTV in Korea.