Estee Lauder 2009 Annual Report Download - page 98

THE EST{E LAUDER COMPANIES INC. 97
CHARGES ASSOCIATED WITH
RESTRUCTURING ACTIVITIES
In an effort to drive down costs and achieve synergies
within our organization, in February 2009, we announced
the implementation of a multi-faceted cost savings pro-
gram (the “Program”) to position the Company to achieve
long-term profi table growth. We anticipate the Program
will result in related restructuring and other special
charges in fi scal 2009 and over the next few fi scal years
totaling between $350 million and $450 million before
taxes. We expect that the implementation of this Program,
combined with other on-going cost savings efforts,
will result in savings of approximately $450 million to
$550 million (beginning with approximately $175 million
to $200 million in fi scal 2010) including the reduction
of certain costs relative to an assumed normalized
spending pattern. Our long-range forecast for operating
margin refl ects these anticipated savings, net of strategic
reinvestments.
The Program focuses on a redesign of our organiza-
tional structure in order to integrate the Company in a
more cohesive way and operate more globally across
brands and functions. The principal aspect of the Program
is the reduction of the workforce by approximately 2,000
employees. Specific actions taken during fiscal 2009
included:
• Resize and Reorganize the Organization— We began
our realignment and optimization of our organization to
better leverage scale, improve productivity and reduce
complexity in each region and across various functions.
This included reduction of the workforce, which
occurred through the consolidation of certain functions
through a combination of normal attrition and job elim-
inations, and a rationalization of manufacturing capacity
via the scheduled closure of one of our manufacturing
and assembly plants.
• Exit Unprofi table Operations — To improve the profi t-
ability in certain of our brands and regions, we have
selectively exited certain channels of distribution, cate-
gories and markets. In doing so, we incurred costs to
reduce workforce, terminate contracts, write off fi xed
assets and discontinue certain product lines and stock-
keeping units.
• Outsourcing — In order to balance the growing need for
information technology support with our efforts to pro-
vide the most effi cient and cost effective solutions, we
initiated the outsourcing of certain information technol-
ogy processes. We incurred costs to eliminate certain
related headcount and to transition services to an out-
source provider.
U.S. dollar strengthens, there would be an adverse impact
on our future results.
We are taking actions to mitigate the impact of these
economic conditions. We believe that the best way to
increase stockholder value is to provide our customers
and consumers with the products and services that they
have come to expect from us in the most effi cient and
profitable manner while recognizing their changing
shopping habits. To achieve our goal to be the global
leader in prestige beauty, we are implementing a long-
term strategy to guide the Company through fi scal 2013.
The plan has numerous initiatives across regions, product
categories, brands and functions that are designed to
leverage our strengths, make us more cost effi cient and
grow our sales.
As part of our strategy, we plan to shift our category
mix towards higher margin categories with greater global
growth potential. Skin care, our most profi table category,
is a strategic priority for our innovation and investment
spending, particularly in the Asia/Pacifi c region. We also
plan to strengthen our geographic presence by seeking
share growth in large, image-building cities within core
markets such as the United States, the United Kingdom,
France, Italy and Japan. In addition, we will continue to
prioritize efforts to expand our presence and accelerate
share growth in emerging markets such as China, Russia,
the Middle East and Eastern Europe. While we expect the
retail environment in North America to continue to be
challenging, we recognize the need to restore profi table
growth in our traditional department store channel. We
have recently implemented changes to reshape our orga-
nization to meet the needs of the changing retail land-
scape. Internationally, we plan to achieve profitable
growth in European perfumeries and pharmacies and in
department stores in Asia, while accentuating our makeup
and skin care initiatives to boost our travel retail business.
In addition, we will continue our efforts to grow our busi-
ness online and through DRTV. To optimize our portfolio,
we will focus on improving our margins and share in our
distribution channels. We plan to re-energize certain of
our brands through the introduction of products that fea-
ture advances in research and technology. At the same
time, we will be investing in initiatives to incubate and
develop next generation products and brands, as well as
evaluating the viability of certain existing brands and
products. We intend to leverage our regional organiza-
tions to increase effectiveness and efficiencies while
utilizing strategic partnerships, alliances and licensing to
build scale in research and development, distribution and
third party manufacturing.