What happened
In order to be more financially flexible in the uncertain time of the COVID-19 pandemic, Estée Lauder Companies announced its company-wide action plan to generate more cash.
After reporting better-than-expected results for Q2, the multinational cosmetics company, which owns such brands as Estée Lauder, Clinique and La Mer, is being hit hard by COVID-19. Most of its global retail stores are closed, including its travel retail, although its stores in Asia Pacific, which saw 31% increase last quarter, are now beginning to reopen.
"Our global business is more broadly impacted by COVID-19 than we initially expected,” CEO Fabrizio Freda said in a filing to the Securities and Exchange Commission when withdrawing the company’s financial guidance for investors last month.
As a result, the company has implemented a host of measures to reduce spending in advertising, administration, and human resources, as well as furloughing part of its vast retail staff and cutting salaries of top management: 50% on Executive Chairman William Lauder and CEO Freda, effective May 1st through October 31st of this year. Leonard Lauder and Ronald Lauder, Lauder family members who hold chairman positions, will also have “nearly 100%” of pay cuts for the same period of time.
Jing Take:#
The slang expression “cash is king” summarizes every company’s strategy in a global pandemic, and Estée Lauder Companies is no different. While the top executives’ pay cuts aren’t going to resolve the company’s cash flow problems, it’s an important action to show camaraderie within the company, as some of its retail employees have been issued unpaid temporary leaves of absence, though still being able to keep their health benefits. As Itay Goldstein, a professor of finance at the University of Pennsylvania’s Wharton School said in a recent CNN Business article: It symbolizes that the top executives are "sharing the pain.”
But should they do more to share the pain? After all, the reduction is only hitting their base salaries, which are just a fraction of their overall compensation. Lululemon Athletica, for example, is using the cost savings from executive pay cuts to set up a fund to aid employees during the ongoing crisis, while maintaining their payroll at least until June 1st. Despite Lululemon Athletica having roughly 15,000 global employees — around one third of ELC’s size — the good will toward their staff’s well being during this trying time will not be forgotten. The next move for most companies, including ELC, will be determined by the duration of the COVID-19 crisis, and how quickly Asia Pacific and the rest of the world can reopen to a “new normal” and what that actually means for business.
The Jing Take reports on a leading piece of news while presenting our editorial team’s analysis of its key implications for the luxury industry. In this recurring column, we analyze everything from product drops and mergers to heated debates that sprout up on Chinese social media.