Estee Lauder 2011 Annual Report Download - page 100

98 THE EST{E LAUDER COMPANIES INC.
In order to meet the demands of consumers, we continu-
ally introduce new products, support new and established
products through advertising, sampling and merchandis-
ing and phase out existing products that no longer meet
the needs of our consumers. The economics of develop-
ing, producing, launching and supporting products
impact our sales and operating performance each period.
The introduction of new products may have some canni-
balizing effect on sales of existing products, which we
take into account in our business planning.
We operate on a global basis, with the majority of our
net sales generated outside the United States. Accord-
ingly, fluctuations in foreign currency exchange rates can
affect our results of operations. Therefore, we present cer-
tain net sales information excluding the effect of foreign
currency rate fluctuations to provide a framework for
assessing the performance of our underlying business
outside the United States. Constant currency information
compares results between periods as if exchange rates
had remained constant period-over-period. We calculate
constant currency information by translating current-
period results using prior year weighted average foreign
currency exchange rates.
OVERVIEW
We believe that the best way to continue to increase
stockholder value is to provide our customers and con-
sumers with the products and services that they have
come to expect from us in the most efficient and profit-
able manner while recognizing their changing shopping
habits. To be the global leader in prestige beauty, we are
implementing a long-term strategy that is guiding us
through fiscal 2014. The strategy has numerous initiatives
across geographic regions, product categories, brands
and functions that are designed to leverage our strengths,
make us more productive and grow our sales.
We believe we have a strong, diverse brand portfolio
with global reach and potential. Our strategy continues to
build on and leverage our history of outstanding creativ-
ity, innovation and entrepreneurship. We have succeeded
in expanding our “High-Touch” service model and will
continue to look for ways to expand it in newer channels
and within geographic regions. We are expanding our
efforts to evolve our e-commerce-based online strategy
into a multi-pronged digital strategy encompassing
e-commerce, as well as digital and social media. We are
leveraging our regional organization in an effort to assure
that we are locally relevant in each market.
As part of our strategy, we are continuing to shift
our category mix towards higher margin categories
with greater global growth potential. Skin care, our most
profitable product category, is a strategic priority for our
innovation and investment spending, particularly in the
Asia/Pacific region. We also focused our attention on
luxury consumers across all categories and have seen an
improvement in the net sales of many of our higher-end
prestige products, due to an improvement in the luxury
retail environment.
We are strengthening our geographic presence by
seeking share growth in large, image-building cities within
core markets such as the United States, the United King-
dom, France, Italy and Japan. In addition, we continue to
prioritize efforts to expand our presence and accelerate
share growth in emerging markets such as China, Russia,
the Middle East, Eastern Europe and Brazil. We continue
to expand our digital presence which resulted in contin-
ued growth in net sales of our products sold over the
Internet. In North America, we recognized the need to
drive profitable growth in our traditional department store
channel and saw many benefits from the changes we
implemented in prior years and continued to reshape our
organization to meet the needs of the changing retail
landscape. Internationally, we took actions to continue
profitable growth in European perfumeries and pharma-
cies and in department stores in Asia, while emphasizing
our skin care and makeup initiatives to boost our travel
retail business and continuing efforts to grow our online,
specialty retailer and prestige salon businesses. The travel
retail business continues to be a source of sales growth
and profitability. Our business in this channel is benefiting
from the implementation of programs we designed to
enhance consumers “High-Touch” experiences and con-
vert travelers into purchasers. In addition, we see travel
retail as another way to capture the attention of travelers
from emerging markets, who either buy in the channel,
in stores at their destination or when they return to
their homes.
Our “High-Touch” approach to marketing our products
is a key component of our strategy. It is designed to pro-
mote the total value we offer, by leveraging our in-person
and virtual assets, as well as merchandising and educa-
tion, to provide a customized consumer experience.
In fiscal 2011, we continued to invest in “High-Touch”
service capabilities in existing channels, such as the roll-
out of new department store formats, as well as newer
channels, such as m-commerce.
While most of the focus is on increasing sales and tak-
ing advantage of appropriate opportunities in each mar-
ket, we continued to implement other initiatives designed
to drive out non-value added costs, optimize productivity
and increase financial discipline. To optimize our portfo-
lio, we are continuing to focus on improving our margins