Estee Lauder plans to keep Jo Malone, the newest addition to its beauty care empire, firmly entrenched in the niche arena before expanding the London-based fragrance and skin care company into mainstream department stores.

Jo Malone markets its namesake prestige collection in very limited distribution. The 200 botanical-based products are sold through the company's 1,200 sq. ft. free-standing flagship store on London's Sloane Street and via mail-order catalogues.

Jo Malone made her stateside debut in March 1998 in Bergdorf Goodman (¹ Also see "Jo Malone botanical colognes from London are exclusive to Bergdorf Goodman." - HBW Insight, 30 March, 1998.). Over a year passed before the brand was moved into Saks Fifth Avenue in Chicago on June 9, quickly followed by Saks' Troy, Mich. store on Sept. 9 and Holt Renfrew in Toronto Oct. 20.

"At this juncture, I think we first of all want to sell [Jo Malone] in the specialty stores....I think the customer that is...loyal to that brand right now falls into that sort of segment," Estee Lauder President and Chief Operating Officer Fred Langhammer said, speaking on the purchase to securities analysts on Oct. 26.

While "that means we have lots of opportunities to expand around the globe," he continued, "we probably won't be going into the large-scale department stores at this point."

Although Estee Lauder is still in discussions as to exactly how it will pursue such an expansion, Langhammer said Jo Malone will not be "purely a free-standing store operation. It certainly will involve provision high-class retailers and...[the] catalogue business. It will be a multi-faceted business for us."

One area Lauder will explore is Jo Malone's Web potential, Langhammer said. Such a move is in-line with Lauder's online philosophy. Most Estee Lauder brands have some type of Internet presence; Clinique, Bobbi Brown and Origins are available through branded e-commerce sites.

Merrill Lynch analyst Heather Hay applauded the deal in an Oct. 25 report. "The acquisition is consistent with Estee Lauder's 'prestige cosmetics venture capital' strategy of purchasing high-potential brands with strong followings that complement Estee Lauder's portfolio."

Jo Malone's estimated $10 mil.-$15 mil. in annual sales could double next year based on an increase in the company's catalog distribution and retail exposure, Hay maintains. Noting the deal will have no material EPS impact this year, she reiterates Merrill Lynch's Accumulate/Buy rating.

Estee Lauder management has chosen successful, fast-moving companies to acquire in recent years; Hay notes jane sales have increased more than 40% year-over-year, and Aveda appears on track to reach $1 bil. in sales.

The Jo Malone deal closed Oct. 25. Arnhold & S. Bleichroeder (New York City) served as Estee Lauder's financial advisor, while Jo Malone was represented by London-based P.C. Hansen & Co. Terms of the acquisition were not disclosed.

The buy marks Estee Lauder's second purchase of an entrepreneurial company in less than three months. Stila, which is roughly the same size as Jo Malone, was accepted into the Estee Lauder fold in August (² Also see "Estee Lauder Reaches For The Stars With Stila Purchase" - HBW Insight, 9 August, 1999.).

In addition to having an entrepreneurial quality, Jo Malone "has great differentiation for where the line is positioned and certainly is a fast-growing company in both sales and profits," Langhammer told analysts. Jo Malone sales have increased four-fold in the past two years, Estee Lauder said.

Like Stila, Jo Malone's skin care and fragrance catalogues offer Estee Lauder an alternative form of distribution. The Send a Scent catalogue, a 10-page color booklet, allows consumers to select their own combination of bath, body and home fragrances in a dozen floral, citrus, woody and spicy scents.

Jo Malone's basic skin care line is available by mail through a separate brochure. Products include Cleansing Milk, Juniper Skin Tonic and Camphor Cleansing Eye Gel.

Jo Malone remains in London as chairman and reports to Estee Lauder Chairman and CEO Leonard Lauder, who will retire as operating head Jan. 1 to concentrate on strategy for newer brands.

Jo Malone To Remain In Niche Arena Initially Following Lauder Buy, Exec Says

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