How Louis Vuitton’s new $160 lipstick is a ‘strategic play’

00:00 Speaker A

Let’s talk a little bit more about pricing, and Pauline, to your point sort of the bifurcation of the market between mass and value versus the higher end. And I got to ask this by way of the LVMH $160 lipstick which they have just rolled out. There’s a lot of buzz about this, both positive and negative. Um Pauline, where do they fit in and you know, how worried can we be about a a consumer market when you’ve got this kind of product coming out into it?

00:51 Pauline

I think the Vuitton launch is a non-issue for Estee Lauder, which doesn’t mean that Estee Lauder doesn’t continue to have a lot of issues, um, in the competitive dynamic. Um, there is virtually no market for $160 lipstick. In, especially when you have um Hermes setting the top of the market with an $80 lipstick, uh which is still a very small business for a brand that is now valued at quite a bit more than Vuitton. So I think this uh was a strategic play to try to reinforce, um, their market position and their market lead. I think it’s an extension, um, but I, I think it’s way premature to suggest that this is going to be a success for, for LVMH. Uh, that’s an entirely different set of challenges that they’re facing.

02:32 Speaker A

Not saved by lipstick then perhaps. But Philippe, I, I would ask on the pricing front, if consumers see a product like that out in the market, does it give other brands cover to raise their prices a little bit?

03:03 Philippe

Yeah. Look, I think, uh, pricing is definitely going to be a lever that some of these companies are going to try to use to offset some of the tariff headwinds that we talked about. Uh, for Estee, they call out a hundred million in, in tariff impact. And they did say part of their strategy to mitigate some of this is procurement and move some of their production more locally, both in the US and in China. But some of it is also pricing. And it’s a combination of lower discounts, less discounts in the market, but also some selective price increases. So I do think there’s going to be more pricing in, in the category, in the beauty category, in the US in the next uh 12 months. Um, I think though companies are going to be somewhat judicial in terms of like how much to price higher given the consumer environment remains a little bit choppy, uh, with the potential for trade down to mass, as we discussed before.

04:51 Speaker A

I mean, Pauline, even to your point, we’ve seen um Elf raise its prices, right? A dollar across the board. What is the sort of pricing power or put another way, what’s the ceiling on how uh much some of these brands can raise prices?

05:28 Pauline

Yeah. Well, I, I do think it’s more interesting to think about the floor than the ceiling. Um, to me, the, the, the consumer is smart. And a consumer that might buy Creme de la Mer uh moisturizer for $200, still won’t be, in my opinion, comfortable uh with a ceiling that is much above $50 for a lipstick. Um, and that’s not because of affordability, it’s because of, of, of, of fairness and value, uh, value perception. Um, so but when it comes to the floor and I’m very um, you know, sympathetic to Elf’s position, they are dealing with a very price sensitive customer and one that, and then a very uh thin margin. Uh, and they’ve played that line historically very, very well in terms of offering um almost Mac-like uh propositions at, you know, less than Maybelline prices. Um, and they are being squeezed at that end. But they’re still outperforming, which says to me that this is more than just a macro issue. It’s a performance issue and it’s an operational issue that we’re seeing with Estee Lauder.

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