AI reshapes Estee Lauder, Revlon crumbles

Artificial Intelligence creates a resilient supply chain, a virtual try-on tool, and a fragrance recommendation engine

Russia’s attack on Ukraine has hit Big Beauty, as Revlon, the US beauty company founded in 1932, filed for Chapter 11 bankruptcy citing supply chain disruptions as a major reason for business failure. The same week, in an interview with MIT Sloan Management Review, Sowmya Gottipati– Head of Global Supply Chain Technology, Estee Lauder, another US beauty product company founded in 1946, leveraged Artificial Intelligence (AI) to create a resilient supply chain and used it in product development, create a virtual try-on tool for lipsticks and foundations, and a fragrance recommendation engine, as well as an application for supply and demand planning.

Revlon hit by supply chain woes

In its bankruptcy filing Revlon wrote, “…one tube of Revlon lipstick requires 35 to 40 raw materials and component parts, each of which is critical to bringing the product to market…” The company blamed its financial woes to supply chain disruptions that prompted intense competition for ingredients used to make its products. At the same time, vendors that traditionally offered up to 75 days for payment began demanding cash in advance of new orders, while labour shortages and inflation added to its troubles, it said in the bankruptcy filing.

Estee Lauder uses AI to innovate

As Revlon was struggling with these issues, Estee Lauder used AI in everything from managing a global supply chain to creating new product lines and even forecasting beauty trends, to forge ahead. AI is also being used to create new products, such as skincare and fragrance. The company used data to inform what kind of ingredients and what type of products people like. It was these kinds of forecasts that helped Estee Lauder plan its supply chain and create alternative sources well before the current pandemic/war-fuelled disruptions hit every company and stay ahead of the competition.

Rising freight costs and lengthening timelines

Meanwhile, Revlon known for its nail polishes and lipsticks, in recent years has lost shelf space and sales to start-ups backed by celebrities such as Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty. The pandemic made things even more difficult for the 90-year-old company. Covid19 has lengthened ship delivery times since 2020, pushing up freight costs, while the Russia-Ukraine conflict and lockdowns in Shanghai have added to supply chain disruptions this year.

Revlon bought Elizabeth Arden in an $870 million skincare bet in 2016 to fend off competition. It houses brands including Britney Spears Fragrances and Christina Aguilera Fragrances. But the company’s sales lagged over the years and in 2021 fell 22% from its 2017 levels. In contrast, competitors like CoverGirl, owned by Coty Inc have gained market share by investing heavily to improve supplies.

Technology to tell fragrances you like

Contrastingly, Estee Lauder had built a fragrance recommendation engine, using neuroscience, AI, and olfactory science. It was a breakthrough in the beauty business by bringing all three sciences together to make that happen. The human brain has approximately 400 olfactory receptors, and Estee Lauder is working with a company that can actually replicate those receptors in a lab environment — so if they take a particular fragrance, the company can actually tell which of the olfactory receptors in the human brain are activated by that fragrance.

Mapping faces with fragrances

Estee Lauder is also using facial recognition technologies to map customer preferences to fragrances as selling perfumes online can be challenging when customers cannot smell the products. The company’s facial recognition application can identify the emotion that you’re feeling based on very subtle changes in your face when you smell it and based on that, they can recognize how you are reacting to each of those fragrances. You get a score, and based on that, the company could tell whether you liked a particular fragrance or didn’t like it, or moderately, on a scale of 1 to 10, how you’re liking it, and that data is used.

It’s all about human-machine interaction

The company, nevertheless, believes that only AI and technology are not enough to keep the sales registers ringing. There has to be a strong human intervention as well to support the AI engines. While a virtual try-on application lets the buyer try 30 shades of lipstick in 30 seconds, there is a high-touch human interaction of a beauty advisor to help narrow down the choices by having that all-important engaging conversation. For now, the human-machine interaction is extremely critical for Estee Lauder to continue to lead with technology.

At the same time, it was this shift to online shopping that hurt Revlon simply because it wasn’t using innovative technologies to stay ahead. Though shopping mall foot traffic exceeded pre-pandemic levels in July 2021 for the first time since 2019, the rise of online retailers and shifting consumer preferences in the last 10 years have decimated the once standard American shopping experience. It couldn’t invest in new technologies because its financial liabilities of over US$1 billion severely hurt its capacity to innovate. While Revlon was caught in this spiral, its 75-year-old rival, Estee Lauder used technology to stay as gorgeous and fighting fit.

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