The Global Cosmetic Industry: Manufacturing, Distribution, and Market Dynamics
The cosmetic industry describes the industry that manufactures and distributes cosmetic products. These include colour cosmetics, like foundation and mascara, skincare such as moisturisers and cleansers, haircare such as shampoos, conditioners and hair colours, and toiletries such as bubble bath and soap. The manufacturing segment of the industry is dominated by a small number of multinational corporations that originated in the early 20th century, but the distribution and sale of cosmetics is spread among a wide range of different businesses.
Global Market Overview and Key Players
The worldwide cosmetics and perfume industry currently generates an estimated annual turnover of US$170 billion. Europe is the leading market, representing approximately €63 billion, while the market volume of the cosmetics industry in Europe and the United States is about EUR €70 billion per year, according to a 2005 publication. The largest cosmetic companies are L'Oreal, Estée Lauder, Coty, Nivea, Shiseido and Chanel.
In terms of regional dominance, France plays an important role, both nationally and internationally. According to data from 2008, the cosmetic industry has grown constantly in France for 40 consecutive years. Famous cosmetic brands produced in France include Vichy, Yves Saint Laurent, Yves Rocher, Bioderma and L'Oreal. Most products with a label, "Made in France" are valued on the international market.
The North American Market and Social Media Influence
Within the United States, the state of California has the largest concentration of beauty establishments in America at 25.5%, followed by New Jersey at 8.1%. California has the largest concentration due to social media marketing from celebrities and 'beauty gurus'. For example, Kylie Jenner's company Kylie Cosmetics, is valued at $800 million and sold an estimated $330 million worth of makeup in 2017. YouTube and social media influencers Jeffree Star and Michelle Phan, and pop-star Rihanna with her Fenty Beauty line, have also contributed to California's rising popularity.
Canada is also a big influencer in the American beauty industry due to its proximity to the United States and the North American Free Trade Agreement (NAFTA). Canada accounts for an estimated 13.6% of imports and 19.9% of cosmetic exports in 2018. South Korean and Japanese skincare products, which are designed to be more gentle and innovative, are also becoming more popularized in the United States due to their quality and affordability.
Market Segmentation: Prestige, Mass, Masstige, and Value
Industry experts analyze the various tiers of the beauty and personal care segment, including prestige, mass, masstige and value. There are several dynamics taking place:
- Mass and Value: These brands will always have a greater reach and response due to their price points and are typically go-to options based on necessity and accessibility.
- Masstige: This tier carries both a wide distribution and elevated premium value where the commitment to purchase may be easier.
- Prestige: These brands need to articulate and substantiate their value proposition using content, education and innovation to promote their higher quality and efficacy.
In times of economic challenges, shoppers already appear to be trading down at retailers. Brands in mass/masstige have the opportunity to capture consumers who are looking for more affordable price points without sacrificing on ingredients and experience. Conversely, the loyal beauty consumers are way less likely to trade down or move on from a hero “can’t-live-without” staple product.
Supply Chain Transformation and Logistics
As part of its supply chain transformation, retailers like Ulta Beauty are retrofitting existing regional distribution centers with automation upgrades. The company plans to add new facilities to its network while retrofitting other locations with upgraded automation technology to focus on reducing steps and reducing waste. Once complete, the model will consist of:
- Four regional distribution centers.
- Three market fulfillment centers (MFC).
- One “fast” fulfillment center.
The beauty of the MFC model is it's faster to build and keeps all inventory under one roof. Furthermore, upgrades have helped unlock cross-docking capabilities, which allow for minimal or no storage in between loading and transporting an item.
Product Safety and Regulation
Cosmetics must be safe when customers use them in accordance with the label's instructions or in the conventional or expected manner. One measure a producer may take to guarantee the safety of a cosmetic product is product testing. The U.S. has held the same regulation over this industry since 1938 under the FD&C Act, which has gained additional amendments over time. FDA occasionally does testing as part of its research program or when looking into potential safety issues with a product.
