Estee Lauder 2014 Annual Report Download - page 54

52 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, merchandising and sam-
pling and phase out existing products that no longer meet
the needs of our consumers or our objectives. The eco-
nomics of developing, producing, launching, supporting
and discontinuing products impact our sales and operat-
ing performance each period. The introduction of new
products may have some cannibalizing effect on sales of
existing products, which we take into account in our busi-
ness 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 year
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 consumers’ changing
shopping habits. To be the global leader in prestige
beauty, we continued to implement a long-term strategy
that is guiding us through fiscal 2017. The strategy has
numerous initiatives across geographic regions, channels
of distribution, product categories, brands and functions
that are designed to leverage our strengths, make us more
productive and grow our sales.
We have a strong, diverse and highly valuable brand
portfolio with global reach and potential, and we plan to
continue building upon and leveraging our history of out-
standing creativity, innovation and entrepreneurship. We
have succeeded in expanding our distinctive “High-
Touch” service model and will continue to look for ways
to further evolve it within our channels of distribution and
geographic regions. As an example, we continue to
enhance our capabilities to deliver superior retailing expe-
riences across our brands, particularly in freestanding
retail stores. We also continue to increase brand aware-
ness and sales by expanding our multi-pronged digital
presence encompassing e-commerce and m-commerce,
as well as digital and social media. We are leveraging our
regional organization in an effort to assure that we are
locally relevant with our products, services, channels, mar-
keting and visual merchandising.
As part of our strategy, we are continuing to position
ourselves to capitalize on opportunities in the fast-
est-growing areas in prestige beauty. Skin care, our most
profitable product category, continues to be a strategic
priority for our innovation and investment spending, par-
ticularly in the Asia/Pacific region and with product
launches such as Advanced Night Repair Synchronized
Recovery Complex II from Estée Lauder and Dramatically
Different Moisturizing Lotion + from Clinique. We are also
focusing our attention on luxury consumers across all
product categories and have seen continued strength in
the net sales of many of our higher-end prestige products.
We also continue to build our makeup product category
through the introduction of new product offerings, includ-
ing new collections from our makeup artist brands and
Pure Color Sculpting lipstick from Estée Lauder and our
fragrance category through new launches and innovation,
such as Estée Lauder Modern Muse and new fragrances
from Michael Kors and Tory Burch. In addition, we are
continuing to expand our hair care brands both in salons
and in other retail channels.
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, the
Middle East, Eastern Europe, Brazil and South Africa and
focus on consumers who purchase in the travel retail
channel, in stores at their travel destinations or when they
return to their home market. We also continue to expand
our digital presence in international markets, which has
resulted in growth in the net sales of our products sold
online. In North America, despite solid retail sales growth
during the holiday season, we saw a softening in the retail
environment during the second half of fiscal 2014 in our
traditional department store channel, due in part to
adverse winter weather conditions. At the same time, we
continued to expand our presence in other channels, such
as specialty multi-brand retailers, freestanding retail stores
and online. Internationally, we continue to take actions to
grow in European perfumeries and pharmacies and in
department stores, particularly in Asia and the United
Kingdom. In addition, we are emphasizing our skin care
and makeup initiatives to boost our travel retail sales and
continuing efforts to grow our business in the free-
standing retail store, online, specialty multi-brand retailer