Estee Lauder Applies Internet Gloss

SAN FRANCISCO (04/14/2000) - Sending waves rippling through the crowded online beauty sector, industry giant Estee Lauder announced that it would buy Gloss.com and revamp its Internet strategy. The move would make Estee Lauder the second business to absorb a beauty-oriented pure-play; in January, Drugstore.com bought Beauty.com for $34 million in stock.

Terms were not disclosed, but Estee Lauder says the deal would have no impact on its earnings. Besides marketing its own brand, Estee Lauder owns Clinique, Bobbi Brown and Origins, each of which has its own Web site.

After the announcement Wednesday, the company's stock closed down 6 cents, ending the day at $51.31. Other beauty-related Net companies say the deal might be just the kick in the pants that the brick-and-mortar giants need to bring them online in a serious way. Chanel sells no beauty products over the Web, and Lancome sells only at Lancome.com.

Estee Lauder says it plans to implement a three-pronged strategy by early next year. It says it will protect its brand by developing modules on sites that already sell its products. In addition, it will launch two more branded sites, EsteeLauder.com and MacCosmetics.com, this spring. Finally, it will incorporate all of its brands into Gloss.com, on which consumers can buy a range of Estee Lauder beauty products.

The new Gloss.com, which Estee Lauder might rename, is slated to launch at the beginning of 2001. Angela Kapp, VP and general manager at Estee Lauder's online division, explains the delay: "What we're doing is quite complicated from a technical point of view."

Why Estee Lauder believed that it needs to buy Gloss in the first place remains a mystery. As mammoth brick-and-mortar companies in all sectors lumber online, many have seen fit to partner with Net companies. Kapp points out that three of the company's branded sites have been up for several years, and she denies that Estee Lauder believed it needed to acquire a pure-play in order to succeed.

Gloss' decision to jump at the larger company's offer, on the other hand, surprised few industry insiders. "I made a prediction in December that there would be no pure-play beauty sites in six months," says Roger Barnett, the CEO of Beauty.com. He said he expects further consolidation and that companies that remain unattached "are in trouble."

One such company, Eve.com, rejects that argument. "This partnership, in particular, is in some ways a double-edged sword," says Varsha Rao, Eve.com's co-president and cofounder. She said that because a manufacturer now owns Gloss, the site would find it difficult to sell products made by the manufacturer's competitors. Moreover, many of Estee Lauder's competitors sell only on their own sites, if they have an online presence at all.

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