As the US-China trade war rages on, the global cosmetic industry scrambles for relief. Beauty brands, both large and small, reel under the rising pressure as they rethink their supply chains, pricing strategies and even product innovation. The trade war has taken a heavy toll on manufacturers, retailers and consequently, consumers.
But startups seem to be scaling and even thriving under the pressure. Leveraging agility, digital savvy, and creative problem-solving, these businesses manage to stand in the turbulence that is swallowing industry giants. In this article, we’ll explore the tactics that these underdogs have used to turn crisis into opportunity and what these new changes mean for the industry.
The Impact of the Trade War on the Beauty Industry
The US-China trade war has been ravaging the beauty industry. It started with the US placing tariffs of up to 145% on Chinese goods, and up to 25% tariffs on many Chinese beauty-related imports, in an attempt to curb what they described as unfair trade practices.
These tariffs have forced brands in the US to either absorb the higher costs and squeeze profit margins or raise prices and risk losing customers. The war has weighed heavily on several beauty brands as they are reliant on Chinese manufacturing for raw materials, packaging, and finished goods. The effect has resulted in slower investment, complicated long-term planning and a challenging economic environment.
Challenges Faced by Established Beauty Brands Due to the Trade War
Major beauty brands like Estée Lauder, L’Oréal and a host of others are feeling the heat. Some of these companies have already reduced their imports from China to the US. Organic net sales have also fallen, causing high trade tension.
The retail giants like Target, Walmart, and Amazon are not left untouched by the battle. Bracing for impact, they are hit with immediate and brutal price increases on several Chinese beauty products. The rate of uncertainties in the industry has led to a flurry of activities aimed at salvaging the effects of the war on brands, retailers and consumers.
Why Startups Are Better Positioned to Adapt
You might think that beauty startups would sink in the new, harsh reality of the industry. However, these baby brands have blossomed. Their ability to adapt is a result of their agility and flexibility.
Unlike large, established brands with big and complex supply chains, startups can quickly shift their focus to alternative suppliers in South Korea, India, or Vietnam. So, their smaller size allows for faster decision-making and immediate implementation. The ability to adapt, form alternative partnerships and diversify the global market has positioned startups to come out virtually unscathed.
Innovative Strategies Beauty Startups Are Using to Win
To reduce the impact of the tariffs, many beauty startups are now diversifying their supply chains. So, instead of relying on China alone, they’re branching out to import from other countries like Europe, Mexico, and Southeast Asia.
Additionally, these startups are now doubling down on digital marketing in order to build direct consumer connections and somehow bypass traditional retail channels. They’re also trying to stand out from the competition by innovating new product formats and sourcing local ingredients to cater to conscious buyers.
Case Studies: Beauty Startups Thriving Amid Trade Tensions
The trade tensions have ushered in a new dawn for several American beauty startups. Brands like FaceTory and BK Beauty have diversified their supply chains, greatly reducing their dependence on China. They are now also leveraging digital-first strategies to reach consumers thereby also reducing reliance on retail networks.
Other startups like E.l.f. Beauty, for instance, are developing affordable, on-trend products that are stealing a good portion of the market and fueling revenue. These brands are also partnering with influencers and developing social media presence in order to build stronger online communities and customer loyalty.
Consumer Trends Driving Startup Success
Startups have been smart enough to use consumer trends and preferences to fuel their success in the trade war. They have discovered that consumers are looking for sustainability, personalization and inclusivity so they leverage this knowledge.
Most startups are now offering more tailored products to their customers by using AI and digital tools for research. Since more customers are using platforms like TikTok and Instagram, startups are leveraging social commerce to bring them closer to the customer and bypass tariff-affected retailers.
The Future Outlook: Opportunities
The trade war may appear devastating for the beauty industry’s climate. However, when we look closer, we can see that startups are thriving in spite of everything. This could mean that there are opportunities for big and small brands alike. Beauty brands can now shift focus from China and diversify importation to lower-tariffed countries so they can secure profit margins again. We’ll also be seeing more e-commerce and direct-to-consumer sales which will strengthen the bond between brands and their customers. Brands can also leverage the market shifts to acquire niche brands and expand their portfolios.
The Risks Ahead
While the trade war presents several opportunities for growth, it also holds a lot of uncertainties and risks that brands and consumers must be aware of. If the tariffs continue to skyrocket, costs and supply chains will be further disrupted. Not to mention that production expenses will increase due to high tariffs placed on inputs and packaging.
The unsteady and ever-increasing prices on beauty products may also affect consumers, leading to reduced confidence and spending in US and Chinese markets. Some brands may be unable to navigate the changing climate as they struggle to absorb costs or shift supply chains. If things escalate, trade tensions and retaliations may continue, which could limit market access and cause weaker brands to fold.
Final Thoughts
The US-China trade war has presented two options to both big and small beauty brands: sink or swim. And for the most part, startups have managed quite well, as they prove that resilience, agility, and innovation always conquer.
These nimble companies have become pace-setters even to their bigger counterparts. The lesson is simple: beauty brands that adapt quickly and stay as close as possible to their consumers will not only stay afloat, but could very well lead the next phase of industry evolution.
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