Estée Lauder board hit with fresh stockholder suit over gray-market sales

A fresh lawsuit filed in the Southern District of New York claims Estée Lauder's retail business in Asia leaned on "a pervasive, prohibited gray market resale industry" and restricted, duty-free resellers known as daigou.

On Tuesday, a stockholder brought a case in Manhattan federal court against Estée Lauder's board, challenging how the company operated in that market.

Portia McCollum, the plaintiff, is asking that the directors be compelled to compensate Estée Lauder for the alleged wrongdoing.

She is not seeking a conventional monetary award for herself — only the recovery of attorney's fees and legal expenses tied to filing the case.

The suit alleges that the company's Asian travel-retail channel, a key growth area for the cosmetics and fragrance house, took advantage of duty-free tax breaks.

McCollum names 13 sitting and former directors and officers, among them Chairman William P. Lauder of the family that founded the firm.

Seven counts are pleaded in the action, including demands for an accounting of salaries, bonuses, stock awards, and sale proceeds. McCollum is also calling for governance changes, such as stronger board oversight, better disclosure controls, and required shareholder input.

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Estée Lauder and the secretive daigou market

Daigou, a Chinese term that translates to "buying on behalf of," refers to purchasers of duty-free goods who resell them in mainland China for a profit.

These buyers typically handle cosmetics, alcohol, and luxury goods, selling authentic items at prices above their duty-free cost but below official Chinese retail rates, keeping a modest margin.

Depending on how it is carried out, daigou activity can fall on either side of the law.

The central allegation in this week's lawsuit focuses on sales of Estée Lauder products on the resort island of Hainan. Estée knowingly provided daigou with products to boost its Asia travel retail segment, the suit says, while hiding the extent of that reliance.

When Hainan trade lockdowns tied to COVID curbed Estée Lauder's sales in early 2022, revenue stalled and inventory accumulated.

On a May 3, 2022 earnings call, then-CEO Fabrizio Freda made reviving that sales channel his immediate priority, voicing "confidence in Hainan's future."

Board members then moved to hide and obscure the facts about its daigou operations for months, McCollum alleges.

At a Bernstein investment conference, Freda pointed to "incredible results in travel retail." Yet the complaint says the recovery was actually driven by covert daigou reselling, not by travelers.

The company has already settled another daigou lawsuit

This is not the first time the cosmetics maker has faced legal trouble over its daigou dealings; it previously agreed to pay $210 million to resolve a securities class action while denying any fault.

Insurance covered part of that payout, Reuters reported.

Estee Lauder has reached a $210 million settlement of a lawsuit accusing the cosmetic giant of defrauding shareholders by concealing its overdependence on improper gray-market sales in China. https://t.co/hcQpDlnEOC

— Reuters Legal (@ReutersLegal) May 7, 2026

McCollum, however, does not believe the settlement ensures the board will avoid similar conduct down the road. That is why she has taken aim at board members personally.

She wants the board to reimburse the company. Her suit also alleges that Estée Lauder spent roughly $880 million buying back 3.5 million shares at inflated prices, overpaying by about $515.5 million.

Another stockholder, Michael Muskopf, filed a comparable derivative complaint against the same 13 defendants on August 14, 39 days before McCollum's. She has requested that her case be deemed related to his.

The company's newsroom carries no comment on the matter.