Beauty & Wellness Briefing: Logistics are front-and-center for beauty companies
This week, I take a look at the logistic woes plaguing beauty companies and their attempted workarounds.
From holiday shopping conversations to even tweets about relationships, logistic issues like supply chain disruptions, shipping delays and same-day delivery frustrations have consumed our collective consciousness. While certainly not the sexiest of topics, consumers are expecting a backlog in holiday deliveries even as our lives have become more “now” oriented, thanks to services such as Seamless, Uber and Instacart. At the same time, brands are struggling to not disappoint.
Compared to other sectors like fashion and furniture, the beauty industry has been hit with logistics pains much later in the supply chain cycle. They often start with parts like containers or pumps being hard to find across Asia, preventing brands from completing a product and, thereby, delaying it. In other industries, the big problems are more concentrated on the delivery of finalized goods, like a dress or crib, being unavailable for months.
“Most prestige beauty brands do their manufacturing in the U.S., so we’re not dependent on overseas finished goods manufacturers,” said Tomei Thomas, CEO of Beekman 1802. “But components have been an issue, and we have been struggling to find them across China, Korea and Southeast Asia.”
Thomas said that the brand has factored in a two-week delay in getting packaging components out of Asia, and that is before factoring the pileups at U.S. ports. Once port backlogs are taken into consideration, Beekman 1802 is looking at four- to seven-week delays, which Thomas said he has never experienced before. Of course, there’s more to the story, as companies must then deal with truck driver shortages. Once all of that is contemplated, Beekman 1802’s average delay time is about 60 days. Because of that, the brand put in all of its holiday orders for its DTC site and retail partners like QVC and Ulta Beauty in March — two months earlier than its typical timeline. Even with that kind of planning, Beekman 1802 still is experiencing two- to three-week delays, said Thomas.
And while customers may not care about this level of detail when thinking about what they’re getting for their mom, sister or co-worker for Christmas, they do care if items are not available. According to Bluescore data from Black Friday, retail brands lost up to 93% of shoppers who encountered out-of-stock products. Drilling down to health and beauty, shoppers experienced 2% of products out-of-stock, which resulted in a 67% loss of customers. Once these customers couldn’t find their desired product, they didn’t convert to anything else the brand offered.
Other beauty executives can commiserate. John Elmer, CFO and COO at RéVive Skincare, said that, in the past, he ensured the brand’s safety stock was at least 12 weeks ahead, with lead times for P.O.s at about 22 weeks. That has now been extended to about a 42-week lead time. Some parts and ingredients of RéVive’s products that used to be ordered six months in advance are now being placed 14 months ahead.
“You have to commit to purchases that come in four months after [placing an order], because otherwise, the raw materials won’t be there in time,” he said.
This inevitably leaves little room for beauty brands to jump on trends or buzzy ingredients. And it’s also worth taking into account that buying inventory so early ties up a brand’s cash.
“It’s a very long game, and it affects your financial model, too,” said Elmer. “Your credit limits go up three or four times, and you have to work that into your capitalization. You are committing to cash much farther out than you’re ever going to see a turnover for.”
Thomas said extending cash has been difficult, but “it’s a lot better than having to deal with the problem of not having any goods to sell.”
While big retailers like Sephora and Ulta Beauty feel confident in the role they play in the holiday shopping cycle, especially at the distribution center level, they too are making adjustments. Both Sephora and Ulta Beauty have entered the race of same-day delivery to lure customers. Call it the Amazon effect. Sephora announced in October that it was launching same-day delivery via a slew of partners that a client could select; orders would be fulfilled by beauty advisors in-store that have knowledge of the market. And Ulta Beauty inked a deal with DoorDash in November.
Carolyn Bojanowski, svp and gm of e-commerce at Sephora, told me that this kind of insta-delivery “removes any barrier” for shoppers. According to her, it allows the customer to say, “I don’t need to think twice about this.” She added, “It enables [the] majority of our clients to hit Sephora.com and get their beauty [order] in around two hours. And that’s the ultimate luxury — convenience.” This is also something that Sephora’s customers are looking for, as nearly half of its shoppers place same-day delivery among their top-three preferred delivery methods, according to the company.
Kecia Steelman, Ulta Beauty chief operating officer, sees same-day delivery as an extension of BOPIS and curbside pick-up. The company has been finessing both offerings since the start of the pandemic, as they’re now table stakes for the customer.
Click-and-collect beauty and personal care purchases may be an indication of the long-term power of same-day delivery in the space. They surpassed $2.2 billion in the last year, capturing nearly 48% sales growth year-over-year, per NielsenIQ.
“Beauty retailers must tap into this growing desire for product immediacy, in order to capture sales and attract additional shoppers. By offering a seamless omnichannel experience, [they’ll] win this holiday season,” said Tara James Taylor, svp of beauty and personal care vertical at NielsenIQ.
Though Sephora and Ulta Beauty tout availability for 340 and 600 brands, respectively, that full assortment isn’t available at every Sephora and Ulta Beauty location. For instance, a search for Shani Darden’s Age-Defying Retinol Set is not included in Sephora’s same-day service, and neither is Morphe X Pony’s Constellation Sky Lip Gelee Trio at nearby Ulta Beauty locations (I live on NYC’s Upper East Side). So same-day delivery might not be the guarantee beauty fans are looking for this holiday season, either.
Still, offering same-day delivery may be the new cost of winning the shopper over, along with extending lead times. “Considering what we’re seeing unfold in-store and online — in terms of consumer panic-buying, earlier holiday shopping and prepping, and the need for ‘immediacy’ — retailers will see a rise in the cost of doing business as they attempt to meet rising consumer demands,” said James Taylor.
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