The beauty industry which includes sectors like skincare, color cosmetics, haircare, fragrances, etc., has been heavily affected by the COVID-19 pandemic. Store closures, site malfunctions, and shipping issues have arisen, and the industry is still reeling.
More recently, delivery disruption, along with shopping mall restrictions has caused consumers to flock to eCommerce storefronts to do most of their shopping. According to research from McKinsey and Company, in most major beauty-industry markets, in-store shopping made up 85% of beauty-product purchases before the pandemic. The firm also points out that even online-savvy American millennials and Gen Zers made close to 60 percent of their purchases in stores. However, the closure of most beauty retail sellers due to the pandemic led 30% of the beauty industry to shut down. Unfortunately, a few of these stores will never reopen, and new openings will continue to be delayed.
How are these factors affecting the beauty industry long-term, and how will it change the pace of eCommerce vs. brick and mortar development?
To fully understand the magnitude of this issue, it’s important to understand the size of the industry. According to Forbes, the beauty and cosmetic industry goes far beyond just lipsticks, perfumes, toiletries, and Lush scrubs and foot creams. It is a gargantuan industry that is a $532 billion sector of the economy and is experiencing rapid growth with projections reaching over $390 billion globally by 2024.
Additionally, in the same breath, The Global Wellness Institute estimates the wellness economy to be $4.5 trillion, encompassing Beauty & Personal Care, Fitness, Nutrition, Preventative & Personalized Medicine, Spas & Personal Pampering, and Wellness Tourism & Real Estate. That’s a ton of products being sold across the globe.
But, as logistics company Logmore points out, as flashy as this rapid growth is, cosmetic and beauty brands are also dealing with several vulnerabilities sensitive to their specific product delivery process across the supply chain. Quality control and supply chain management play the most important role to meet supply and demand. But the bigger the behemoth becomes, the more visibility into logistics and transportation becomes a major obstacle.
Since today’s consumers expect high-quality raw materials, and more natural, organic ingredients, brands are obligated to provide transparency and guarantee of high-quality products. This is becoming tricky.
Unstable weather, politics, and crumbling infrastructure have been major obstacles for the supply chain, which is becoming exponentially more complex as the use of natural ingredients faces geographical restrictions. Manufacturers of luxury cosmetics lines typically rely on specialty suppliers, so the risks related to transportation issues are increasing.
But one of the most daunting logistical challenges for companies in this sector is to keep the production lines and facilities in order. The difficulty arises when the same building houses both the raw materials warehouses, the manufacturing areas, and the picking, packing, inventory, and domestic and international distribution processes. And when the beauty industry is experiencing an unprecedented boom, this becomes exponentially more difficult.
When you pair this with an overarching major supply chain crisis, the industry suffers. At the end of August of ‘21, there were around 40 vessels awaiting entry to the ports of Los Angeles and Long Beach, CA, both of which are the busiest container ports in North America. The blockage was born due to 18 months of COVID disruptions to shipping, transportation, warehousing, and labor.
And according to leadership at the Independent Beauty Association. mid-September, the number of ships anchored off California’s shores had exceeded 70.
Elizabeth Corrigan, founder, and CEO of The Complete Package adds “That’s half as many as are anchored outside of the ports of China. There is an even worse backlog there.”
Furthermore, Corrigan says that logistic delays mean that companies now are trying to forecast their supply needs as much as four months out, like placing orders at the start of October to be stocked through the Chinese New Year in February 2022.
The other important detail to note is that the global supply chain shortage touches every phase of production, no matter how small. The industry is experiencing problems with the sourcing and distribution of raw materials, getting access to staple ingredients (glycerin, emulsifiers, oils), and packaging components like pumps, labels, and applicators.
With beauty shelves going bare, it leads to the other major effect of the supply chain shortage: price hikes. With so many companies dealing with a plethora of obstacles, price increases are unavoidable. Brands have been experiencing an increase in cost at every stage of production, and that can only go on for so long before market prices skyrocket simply to cover logistics alone. Some outlets predict that prices for many beauty products will go up anywhere from $1 to $3 per unit.
Brands are scrambling to do everything in their power to lower the burden on consumers without disruption to their typical shopping experience. Going direct to consumers and cutting out the middleman of beauty retailers, and their associated fees is easier. But for other brands, switching from a different pump applicator created in the U.S. to one manufactured overseas can move production along. Even tiny adjustments like shrinking the label size by a centimeter prove to be cost-effective.
Melissa Gonzalez, former Wall Street executive, and leading marketing and retail executive of The Lion'esque Group, said she's seeing more clients hesitant to open new brick-and-mortar stores or start new brands in fear of disappointing consumers. Many had no choice but to innovate. Gonzalez continued, "Maybe it's more of a lifestyle or marketplace environment where there's an experience that way, and it's not just relying on one brand supply chain."
All these conditions lead to the need of having warehouse flexibly. New and innovative methods are crucial to organizing production in order to avoid employing excessive manual effort to meet the increasing demand. Using better tools to optimize the planning of production to digitize the process. It’s no secret that going fully digital is necessary for success in the current and complex logistics situation.
The demand in the cosmetics industry is skyrocketing, and manufacturers continuously need to adapt their supply chains to keep costs down. Keeping up with trends, and meeting consumer demands that brands can control will separate the successful brands from the struggling ones.
As the pandemic has proved, everything we know can change in the blink of an eye, which heavily affects demand. Prior to the pandemic, brands were already under immense pressure to switch up product creation due to social media-heavy DTC brands going from concept to top seller in less than a month. This demand is immeasurable now.
Mckinsey points out that for brands to make the shift, there’s a heavy demand for contract manufacturers, both to diversify their product innovation and take a look at what isn’t working. There is also potential for collaboration between retailers and brands to mitigate issues for each other.
If you’d like to learn more about SUMO Heavy, drop us a line, give us a call or contact us on social media.
