Cosmetics brand Estee Lauder says the higher cost of living will dent its Australian makeup sales

Estee Lauder says Aussie shoppers may buy cheaper cosmetics thanks to the cost of mortgages, energy and groceries going up.

Cosmetics giant Estee Lauder expects cost-of-living pressures to affect sales. Picture: David Crosling

Cosmetics brand Estee Lauder has fallen short of its sales targets in Australia after a slower than expected demand for its range of beauty products once lockdowns ended.

The company is bracing for cost-of-living pressures encouraging its consumers to trade down to cheaper products.

The global cosmetics giant, based in New York, said the pressures of higher mortgage rates, energy and groceries in Australia would likely have a negative impact on discretionary spending in 2023 – and this could hit premium-branded cosmetics.

Estee Launder gave a much more optimistic outlook in 2021 when the swift and successful rollout of the Covid-19 vaccine in Australia started to generate an improvement in sales and the company declared a “makeup renaissance”.

In its latest accounts lodged with the corporate regulator, directors of the Australian arm of Estee Lauder noted a disappointing recovery in product sales here.

“The group has maintained stable performance as compared to fiscal 2022 and fiscal 2021 with a shortfall to plan sales of 12.1 per cent and 6 per cent, respectively,” the Estee Lauder report states.

“(The) plan was built around business as usual without Covid-19 impact and benchmarked to fiscal 2019 net sales levels.

Will consumers turn to cheaper brands? Estee Lauder thinks so.

“There were still impacts of lockdown from the Omicron variant across the eastern states which led to the shortfall of sales in the first half of the year, in particular in the wholesale channel within our department stores, salon and freestanding stores business.”

The accounts for the Australian arm show sales for fiscal 2022 were slightly down to $273.4m from $282.48m in 2021 and net profit was weaker at $35.4m, from $36.4m in 2021.

The accounts reveal that wholesale sales, made through other retailers such as department stores, took a big hit and went from $203.6m in 2021 to $194.5m in 2022.

However, online sales were healthier, rising from $43.4m in 2021 to $48.4m in 2022.

Estee Lauder, one of the biggest makeup brand owners in the world, noted that by the end of fiscal 2022 the business was back to full trading as lockdowns and travel restrictions ended, but stresses on the economy started to appear in the second quarter.

“The last quarter of fiscal 2022 saw the impacts of rising cost of living and interest rate increases impacting the retail sector – the prices of oil, groceries, petrol and consumables continue to rise as a result of global supply chain pressures and growing domestic demand,” the company said.

Early last year, Estee Lauder issued a more upbeat outlook for Australia,

“In China, Australia, and Israel, which are at the leading edge of recovery, we are seeing higher make-up sales with usage occasions increasing as social and professional engagements gradually normalise,” chief financial officer Tracey Thomas Travis said in May 2021.