Estee Lauder to cut 3% of the global workforce amid pandemic

The coronavirus pandemic has thrown the cosmetics industry into disarray. Various companies are closing their stores and laying off the workforce due to heavy losses.

Estée Lauder, feeling the financial effects of the coronavirus, announced major changes, including up to 2,000 layoffs. The cosmetic giant informed that at least 10% of its stores will be closing. A list of store closures is not yet available.

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As part of the two-year initiative, management will close 10 percent to 15 percent of Estee Lauder’s free-standing stores and eliminate some department-store beauty counters as consumers shift to more online purchases. Estee Lauder said it expects to take restructuring and other pretax charges of between US$400 million and US$500 million.

“We are better aligning our brick-and-mortar footprint to improve productivity and invest for growth,” Chief Executive Officer Fabrizio Freda said in a statement. He further added that the company enters its new fiscal year with “cautious optimism.”

The shares fell by as much as 8.6% Thursday in New York. The company has been preserving cash to manage the business during the pandemic. Measures including employee furloughs, temporary salary reductions and cuts to capital investments have led to nearly $1.1 billion in savings, the company announced.

Estee Lauder’s caution reflects the severity of the beauty industry’s uphill climb as it recovers from pandemic-related sales declines. Overall, cosmetics sellers have fared better than other non-essential retailers, such as apparel and fashion accessories, because consumers have retained an interest in skin-care products like eye creams and moisturizers, even if they’re not buying clothing.

In the fourth quarter that ended June 30, net sales fell 32% to $2.43 billion. The few bright spots, including a bounceback in the Asia-Pacific region as well as double-digit sales growth in the skincare business, weren’t enough to offset big declines in makeup and fragrance.

The company’s forecast for adjusted first-quarter earnings of 80 cents to 85 cents a share fell well short of analysts’ estimate of $1.22 a share. Estee Lauder said net sales in the current period will fall by 12% to 13%.

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