With M.A.C., Estée Lauder Enters Emerging Markets

When Estée Lauder (EL) opened a store selling M.A.C. makeup in Lagos, Nigeria, in February, it didn’t have much company. While the country is Africa’s largest oil producer, 68 percent of Nigerians live on $1.25 or less a day, according to the World Bank. Yet going where rivals aren’t is standard operating procedure for the 29-year-old cosmetics line. M.A.C. has long courted various ethnic groups, including black Americans, and Estée Lauder sees the brand as the key to unlocking growth in emerging markets.

M.A.C. is already the best-selling high-end makeup in Brazil, India, South Africa, and Turkey, according to the company. The brand’s tony stores are a revelation in nations such as Nigeria, where Western-style retailers are so scarce that wealthy shoppers must go abroad to purchase many upmarket brands. Once M.A.C. has a foothold in a market, Estée Lauder sends in its other brands, such as Clinique and Aveda. “The biggest play for the corporation, period, in terms of market development today, is the M.A.C. brand,” says Group President John Demsey. “It is the singular biggest source of growth for the company.”

Photograph by Brea Souders for Bloomberg Businessweek

Estée Lauder’s sales in the U.S. slowed after the recession as consumers traded down to less pricey brands such asRevlon (REV) and Procter & Gamble’s (PG) CoverGirl. While Estée Lauder’s U.S. sales have recovered in the past two years, the cosmetics company is increasingly focused abroad, where it generated 63 percent of its revenue in fiscal 2012. Of M.A.C.’s 529 free-standing stores, 380 are outside the U.S. Estée Lauder, which doesn’t break out M.A.C. sales, had revenue of $9.71 billion in fiscal 2012.

Frank Toskan, a makeup artist, and Frank Angelo, who ran a chain of hair salons, founded M.A.C. in Toronto in 1984. The brand, which stands for Make-up Art Cosmetics, was created for professional makeup artists. Estée Lauder bought a majority stake in 1994, acquiring the rest four years later.

M.A.C.’s mission statement is “All Races, All Sexes, All Ages,” and it has long marketed to minority women who couldn’t find makeup that complemented their skin tone. M.A.C. is the top seller of high-end makeup to black Americans, according to Estée Lauder, accounting for half the sales in that category. The brand “speaks to multiethnic consumers,” says Estée Lauder Chief Executive Officer Fabrizio Freda.

The company introduced the brand to Brazil through local retailers in 2002 before taking over distribution there three years ago and beginning to open its own stores. M.A.C. Global Brand President Karen Buglisi calls Brazil “our China.” Sales took off in 2009 when, on her own, soap opera star Isis Valverde began using M.A.C.’s Snob lipstick. Estée Lauder will have 30 free-standing stores there by late April.

In 2008, M.A.C. opened a store in Paris’s traditionally working-class Strasbourg-St. Denis neighborhood, near a cluster of ethnic beauty supply stores frequented by West African immigrants. Typically, Estée Lauder sells its products in more upscale precincts of Paris. “No one in the prestige business in their right mind had ever considered doing such a thing,” Demsey says of setting up shop in Strasbourg-St. Denis. It wasn’t long before wealthy Nigerian travelers discovered that store, where the company says 95 percent of customers are of African origin or descent. It became one of the company’s top stores in France and helped fuel the brand’s popularity back in Nigeria.

To help attract shoppers, the Lagos M.A.C. store is hosting appearances and performances by celebrities from the country’s thriving film and music industries, including singer Tiwa Savage. It’s also sponsoring lessons for local makeup artists and demonstrations for customers. A second store is planned for later this year. The brand’s AIDS charity, and its donation of 100 percent of sales from its Viva Glam lipstick to the fund, may also resonate in a country where HIV is epidemic. The charity has raised $280 million since its founding in 1994.

Nigeria is not Brazil. The country’s mostly poor populace means that M.A.C. sells mainly what it calls “entry-level prestige” products at its Lagos store. A lack of infrastructure, along with corruption and counterfeiting, also pose challenges, says Fflur Roberts, the head of global luxury goods at researcher Euromonitor International. Still, says Roberts, “it’s definitely worth their while.”

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