Can Estée Lauder Truly Recover From Its “Serious Cold”?

In the second year of its “Beauty Reimagined” recovery plan, The Estée Lauder Companies has finally begun to show signs of stabilization. Sales are improving, margins are recovering and management is cautiously optimistic again. Yet the group’s rebound still feels fragile: every encouraging quarterly result is quickly overshadowed by another reminder of the structural problems that pushed the company into crisis in the first place.

According to the company’s latest fiscal 2026 third-quarter earnings, net sales rose 5 percent year-over-year to $3.712 billion, while adjusted operating profit jumped 38 percent and gross margin climbed to 76.4 percent. After nearly three years of decline, management hoping fiscal 2026 will become the company’s first year of renewed positive growth.

But recovery at Estée Lauder no longer means simply selling more lipstick and skincare. Over the past several months, the group has been simultaneously settling investor lawsuits, restarting acquisitions, accelerating cost-cutting measures and advancing its merger discussions with Puig. Taken together, these moves amount to one of the most aggressive restructurings in the company’s modern history.

Management has described fiscal 2026 as a “critical turning point.” Yet turning points are rarely clean. The more paths available, the greater the risk of losing direction altogether.

“Daigou” Became an Expensive Lesson

On May 7, the investor lawsuit filed against Estée Lauder last March over its alleged concealment of dependence on Chinese daigou channels reached another milestone. Although the group denied wrongdoing, it agreed to pay $210 million to settle the case.

The lawsuit exposed something the global beauty industry has long understood but rarely discussed publicly: for years, virtually every major beauty conglomerate benefited from grey-market purchasing networks tied to China. Estée Lauder simply became one of the companies most deeply entangled in them.

In China, daigou is no longer just about individual shoppers buying products overseas. It has evolved into a sprawling shadow distribution system encompassing duty-free channels, overseas counters, private resellers, e-commerce storefronts and sophisticated supply-chain operators exploiting tax gaps, currency fluctuations and bulk-purchase discounts. For years, this ecosystem fueled explosive growth in travel retail. It also quietly eroded brands’ pricing authority.

Global giants rely on this system. Estée Lauder, even more so.

Chinese consumers long understood that products from Clinique, La Mer and Estée Lauder brand were often dramatically cheaper through duty-free or grey-market channels than through official domestic retail. The group tolerated the imbalance because the sales numbers remained strong. But the longer this continued, the more consumers internalized the idea that official pricing simply wasn’t worth paying.

What once functioned as a growth engine has gradually become a structural liability.

Now the company is trying to reverse consumer behavior that it indirectly helped create. Beginning in fiscal 2026, mainland China has been separated into its own reporting market, while travel retail has been folded into the Asia-Pacific division. The move signals two things simultaneously: first, that China remains strategically critical to the group; second, that Estée Lauder is attempting to rebuild the value perception of its products within official domestic channels.

The problem, however, extends far beyond daigou alone. Heavily subsidized e-commerce channels, discount resellers on Xianyu, and private-domain distributors continue to distort pricing across the market. If Estée Lauder wants consumers to willingly return to paying premium prices through official channels, product innovation alone will not be enough. Counter experiences, membership systems, service quality and emotional engagement will all need rebuilding.<