The news: A lawsuit accusing Estée Lauder of defrauding investors by obscuring the impact of daigou (gray market) sales in China on its business was cleared to proceed by a federal judge, per Reuters.
The details: The suit alleges that Estée Lauder deliberately misled shareholders by providing favorable guidance between February 2022 and October 2023, failing to disclose the company’s reliance on daigou sales and the risks posed by China’s crackdown on resellers beginning in mid-2023.
- That crackdown caused Estée Lauder’s sales to fall and inventory to pile up, leading to elevated discounts, which in turn resulted in lower revenues and profits.
- The reality of the company’s struggles was only fully revealed in November 2023 after it lowered its outlook and acknowledged the negative impact of “changes in government and retailer policies related to unstructured market activity.”