Web Becoming a Sticky Point for Lauder

The cosmetics retailer is formulating a Web strategy, but there are already a lot of cosmetics Web sites out there.
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With control of half the high-end cosmetics market,

Estee Lauder

(EL) - Get Report

should have some role in defining how cosmetics are sold on the Internet. But for now, the decision is being made with Lauder on the sidelines.

Cosmetics Web sites are being launched far and wide, and they are taking markedly different approaches to Lauder and its stable of famous brands.

"What they

Lauder need to realize is that it'll happen, so it would behoove them to find the right partners and control it," says Michael May, an analyst for

Jupiter Communications

. Lauder "should pick the winner and get in early while the manufacturer has greater leverage than the retailer." Lauder isn't a Jupiter client.

For now, the company is selling its lipsticks and perfumes at its own sites for

Clinique

,

Bobbi Brown

and

Origins

. Lauder owns all three brands. The main Lauder site itself is not yet operational. The company won't reveal revenue, but analysts at

Merrill Lynch

estimate that sales at the Clinique Web site, launched last November, have totaled around $5 million, a tiny sliver of the company's $4 billion in annual sales. Merrill has underwritten for Lauder.

"We're in the process of really defining how are we going to use this medium to develop customer relations," says Angela Kapp, vice president of Lauder's online division. "We are not in a category that people hate to shop in the real world."

Lauder hasn't authorized anyone -- other than its own products' Web sites -- to sell its cosmetics on the Internet. When the company makes up its mind, it will have plenty of choices.

Some sites, like

beautyscene.com

, are working hard to woo Lauder, setting up editorial content and offering the company noneditorial control over how its products are presented. Jean Godfrey-June, beautyscene's editor-in-chief, says the site's elegant writing and presentation will win Lauder's favor.

"The way you say something, since there's so much being said, makes a huge difference," says Godfrey-June, who recently jumped ship from

Elle

magazine. "Their blessing is huge." beautyscene emphasizes that it won't change editorial policy to suit subjects but believes its offerings dovetail with the style Lauder wants to project.

Varsha Rao, co-founder and co-president of

eve.com

, a 4-month-old site that attracted 305,000 visitors in September, would also love to sell Lauder's cosmetics. But she isn't staking her business on the opportunity.

"What's being requested on our site by our customers are brands that are underdistributed niche brands," Rao says. "We would love to carry Estee Lauder brands.

But we think we have a viable business without the biggest brands."

Perhaps most vexing to Lauder is the approach taken by Web sites that sell unauthorized, or gray-market, cosmetics. The Web sites

perfumeoutlet.com

,

verocosmetique.com

and

beautybuys.com

feature Lauder products for sale. Lauder's Andrea Sarkisian says, "The gray market exists ... The company can't vouch for products" sold without its authorization.

Representatives for the first two companies declined to comment, and the third couldn't be reached.

For drawing Estee's wrath, the top prize goes to

ibeauty.com

, which Lauder has sued for trademark infringement. ibeauty has a banner ad on

Excite

, the Internet search engine run by

Excite@Home

(ATHM) - Get Report

, that appears whenever a search for "Estee Lauder" is performed.

ibeauty and Excite, which were sued together (ibeauty under the name the

Fragrance Counter

) in federal court for the Southern District of New York, in response accused Lauder of trying to drive ibeauty out of business. Lauder declined to comment on any aspects of the litigation, and attorneys for ibeauty and Excite didn't return calls seeking comment.

A passing remark by federal Judge Robert Sweet, grappling with the issue in a court appearance, might have Lauder shareholders blushing. "I take it the real problem here is that Estee Lauder is a little slow off the mark, and they don't have an Internet store," he said. The case is pending.