Supply Chain in Asia Cosmetics Markets: The Journey to New NormalPost-Covid-19 Supply & Demand Changes
Pre-Covid Situation: The Onset Of The Pandemic
The supply chain of beauty and personal care industry has long been considered recession-proof. However, the onset of the COVID-19 pandemic has brought with it unprecedented changes in consumer behaviour. These have had industry-wide impacts, with the premium cosmetics sector in Southeast Asia (SEA) particularly affected.
Over recent years, the SEA market has become an increasingly important area of growth for the Cosmetics industry, developing a key growth driver for premium beauty brands in 2019.
Due to the unparalleled and unforeseeable events of this year, however, 2020 is proving far more challenging, with widespread store closures and a steep decline in tourist numbers taking their toll.
In February, when Singaporean authorities raised their risk assessment level of the emerging pandemic from yellow to orange, approximately 30% of all soap and sanitising products immediately flew off the shelves. Going forward, demand for these products is expected to remain high.
During the past few years, the countries in the Asian region represented some of the largest and high potential markets for growth for the Cosmetics industries.
With over three billion potential customers, countries in the Asian region offer among the fastest growing global markets. Nations such as Indonesia and Vietnam are increasingly attractive prospects, fueled by a burgeoning middle class and the growth of disposable incomes.
*France & USA are used as a benchmark
Entering a New Normal in Cosmetics Supply Chain
Impact
The rise of e-commerce
Even after Covid-19 has passed, the pandemic is likely to leave long-lasting marks on the beauty industry. Nevertheless, positive prospects remain, with brand positioning and updated consumer engagement models providing key future avenues for growth.
Amid the temporary closure of bricks-and-mortar retailers, pre-existing growth trends in e-commerce have only been accelerated by the pandemic. According to L’Oréal, e-commerce grew by more than 60% in Thailand and Indonesia in Q1 2020. Popular Indonesian e-commerce platform, Tokopedia, also reported a tripling of sales in health and personal care categories and a doubling of the number of sellers active on its platform in March 2020.
Transition to New Normal
Transition to the ‘New Normal’ will not take place immediately. Over the course of the next 6-12 months, businesses will gradually transition to new modes of operation, with a variety of supply chain implications. Specifically in the Cosmetics & Personal Care industry we have already seen significant disruption across the whole value chain after massive order cancellations with suppliers.
What are the implications of re-opening?
Companies operating in the region are largely dependent on sourcing their products from Asia. As such, the immediate shock of the pandemic was keenly felt by retailers, with patterns of demand altering nearly overnight. All of a sudden, some products were increasingly difficult to shift. Simultaneously, certain categories saw an equally rapid exponential growth in demand – notably hygiene and preventative health products.
Hence, for most retailers operating in the sector, the lockdown has served as a catalyst for important changes in their supply chain models.
We have identified at least 3 critical areas that will affect the whole beauty products industry and its supply chain going forward:
- a shift to a more diversified supplier base;
- a stronger base for the contractual obligations;
- a re-assessment of force majeure contract clauses.
New Normal
Closures of retail stores selling beauty products
Beauty retailers are actively assessing the efficiency of their current distribution models. While subsidies from local governments help keep stores alive, it is doubtful that this will provide a sustainable, long-term solution.
The past few months have shown how the average shopping experience for both shops and shoppers is able to change virtually overnight. Because of this, and to protect them from such rapid changes in circumstance in the future, retailers will increasingly embrace e-commerce platforms. This trend is due to broader changes in buying habits, high rental costs, increased shipping price, stock vulnerability and more sustainable consumption.
Changes in sourcing, manufacturing & warehousing
Leaders in the beauty industry are now re-considering the sustainability of the whole value chain: from sourcing and production to warehousing and selling. We have identified five major immediate changes that will affect the beauty industry supply chain:
- The splitting of the production volumes among different suppliers located in different areas where possible.
- The extension of production lead-times.
- The adoption of new health & safety requirements in factories and warehouse facilities.
- The postponement of final decisions on purchase volumes from suppliers.
- A quick shift to the development of new hygiene products to gain greater market share
As retailers are yet to find the right balance between buy and sell, this all creates huge pressure on beauty products suppliers.
Transport restrictions (air, ocean) or price change
The need for flexibility and reduced capacity made an immediate impact on shipping prices. During lock-down, some retailers were faced with transportation costs that were up to 10 times greater than before. Although the situation has now stabilised, prices remain far above pre-Covid levels. Increasingly, industry decision-makers now weigh the risks of accepting high shipping costs against the increased demand for certain products.
Will new shipping solutions emerge
Increased shipping prices and the changing of suppliers – often situated in different geographies than before – have made industry experts re-consider transportation methods. For example, many have considered the possibility of switching from more expensive air transportation to cheaper, but longer, multimodal transport solutions. In many cases, such changes may create uncertainty surrounding lead-times and costs, as well as increasing the risk of goods being stuck in certain locations for indefinite lengths of time. Amid such uncertainties, the role of logistical experts and insiders – who can quickly assess and adopt optimal solutions – becomes increasingly important.
