Beauty brands not pursuing innovation in their supply chain are facing lower revenues globally and creating an opportunity for new players to capture market share in this dynamic industry.
International logistics and transportation group AsstrA-Associated Traffic AG estimates that during the last 5 years the European fashion and beauty industry demonstrated annual growth of 2-3%.
“We expect the positive dynamics in the fashion and beauty industry to continue during 2018. This year, the demand for beauty products will rise by 2% and open new opportunities for transportation service providers to add value in the beauty supply chain,” says Vitaly Verbilovich, Head of AsstrA’s Research and Development Division.
Globally, the industry is worth $445bn industry with solid 4-6% annual growth expected through 2021. But this growth will not be distributed evenly across all sellers. E-commerce beauty sales in the U.S. are growing at around 19% a year, while bricks-and-mortar sales are at only around 1-2%.
Consumer preferences are driving this significant difference. Today’s buyers are in the driver’s seat and expect to get more than just a product: they want brand engagement, transparency, speed, and customization. And buying online gives them more of what they want.
While modern consumers expect to stay close to brands, the traditional supply chain keeps them far away. Raw materials are transported to manufacturers, products are created and distributed to retailers, and only then are purchases made.
How is it possible to upgrade the traditional beauty product supply chain, satisfy this new breed of consumer, and reach a higher level of business?
One way involves giving consumers new reasons to go to physical locations over the next few years. Leading beauty industry companies like Estée Lauder, Armani Beauty, YSL Beauté, Sephora, Nyx, Mac have started opening pop-up stores, which are closely tied to e-commerce sites. These stores emphasize color makeup, which provides results more immediately visible than fragrances and skin or hair care products.
These trendy pop-up stores are a departure from the traditional store format. The locations are a primarily a media channel, not a pure retail space. Customers are encouraged to hang out, try the products, make selfies, use social media, meet influencers, and learn new make-up tricks from professionals. Customers are engaging more, but they are still expected to make the majority of their purchases online.
Fast and frequent shipments meet demand for customized retail offerings
The industry is changing at a rapid pace and creating a new playing field. One element of these changes is a trend toward an integrated supply chain wherein sourcing, manufacturing, transportation, and retailing are all interdependent and driven by the end user.
“Since January 2018, we have been see growing demand for beauty product labeling from companies exporting goods from the EU to Russia. We aim to react quickly, so now we offer bar code labeling, price tagging, and packaging for our customers. The main change is the growing speed of goods delivery. The transit time should be as short as possible, so we have to plan truck deliveries to avoid long breaks. We also use two drivers, and our trailers are equipped with special locks with GPS and security alarms. Typically, retailers do not have a lot of free space for storage, so we are asked to deliver small volumes of cargo directly to the stores, with approximately 2-3 fulfillments per week. Currently we offer this service on the Polish market and hope to start providing it in other countries as well,” says Fedor Pakush, Fashion and Beauty Logistics Division Manager at AsstrA.
Sustainability a key element of the beauty supply chain
The cosmetics and fragrances supply chain is impressive. It can flexibly incorporate innovations while at the same time dealing with complex challenges like fluctuations in the price of raw materials, high-precision production processes, novelty-hungry customers, and short-lived quality and fashion trends. Constant innovation and short product lifecycles makes demand extremely volatile. That has raised the need for supply chain planning and production processes to become more sustainable and minimize waste.
Last year, the US prestige beauty industry alone reached 18 billion USD, up 10% from the year before. “Cleaner” or “greener” cosmetics, together with dermocosmetics and cosmetics based on probiotics, are becoming more mainstream as sophisticated customers can now distinguish the difference between marketing and science. Similar growth in demand for smart beauty devices can be observed. For example, Euromonitor data shows that in 2016, 8.3 billion electric facial cleansers were sold globally, reflecting a growing need for “smart” and personalized solutions based on innovative devices that help customers develop daily habits, track results, and to use products that exactly match their requirements.
“We have been working with beauty companies for many years. Today, we have over 70 beauty industry customers, from small businesses to multinationals. We have been gathering data about shipments for many years, so our business intelligence system can help analyze customer information and seasonality affecting the industry. It helps to foresee and avoid lack of loading capacities and generally plan in advance, suggests Mr. Pakush.
Cosmetics manufacturers use sensitive ingredients which need to be stored and transported carefully to avoid complications connected with weather, temperature, moisture, and light. These considerations raise prices for suppliers and carriers. Sustainability and efficiency are therefore key elements of competitively priced production.
Individualization takes over beauty supply chains
The trend towards individualized and customized beauty products has put a premium on agility to respond to market changes. A strong Supplier Relationship Management (SRM) system that supports the segmentation, identification, definition, and automation of market related changes is a valuable tool in this regard.
Consumers’ desire to get their orders delivered as soon as possible – preferably the same day and perhaps event instantly – requires more flexible transportation solutions. With more flexible transportation management, logistics is a viable way to boost customer satisfaction. An ideal solution is a decentralized logistics structure.
For example, AsstrA-Associated Traffic AG solves the “delivery by today” problem by operating logistics and transport processes not from a single head office but from numerous representative offices located close to clients. Currently in 2018, AsstrA has a presence on the ground in 18 countries – up from 14 in 2016 and 16 in 2017 – around Europe, the Middle East, and the Far East. Geographical proximity to cargo helps make instant deliveries actually instant. The more countries your logistics provider is physically in, the more likely your customers are to be satisfied with quick deliveries.