While the coronavirus’ impact on sales has been severe, the manufacturing side of beauty has also been significantly hit. At the Personal Care Products Council general meeting in Palm Beach, Fla., several executives noted that many factories in China are still not up and running at full capacity and that packaging is the element most affected by the continued coronavirus outbreak.
One manufacturer with operations in China said the company’s facilities there are running at about 70 percent capacity, and have fallen behind on some orders.
“We are slowly getting back to normal,” said another source. “Now when we send an e-mail to the factories, they reply. Three weeks ago, we got no feedback whatsoever. They didn’t have access to e-mails.”
George Calvert, Amway’s chief supply chain officer and chairman of the board for PCPC, termed coronavirus “a massive hit.”
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“When you look at the number of U.S. companies impacted by this, it’s staggering,” he said in an interview ahead of PCPC’s annual meeting, which was held March 1 to 3 in Palm Beach. “Many of our suppliers for ingredients come from China, and in many of those markets the government is not allowing those factories to open up, or if they do, they may have very restrictive schedules.
“Simply getting things in or out of a city is difficult,” he continued. “Air traffic is down…cargos are down.”
One China-based source noted that factories in the south, around Guangdong province, have been particularly affected and slow to reopen. “That region is much more strict in terms of the documents that the factories have to provide to reopen,” said the source, “so some of the factories are still only running at 20 or 30 percent capacity.”
Near-term issues are mostly related to packaging, one Wall Street analyst said, but if the coronavirus outbreak continues to spread, beauty companies’ inventories could dry up and business could suffer. “If we’re still worrying about this in three or four months, it’s going to be a problem,” the analyst said.
For many companies, it is still too early to tell the true ramifications of the virus.
E.l.f. Beauty, which manufactures in China but sells products mainly in the U.S., said most of its facilities are up and running, but that capacity has varied between 40 and 100 percent. Chief executive officer Tarang Amin expects those numbers to improve in the coming weeks, and said the company has shipped more than 20 containers in the last three weeks.
E.l.f. has already shipped products for annual spring resets at major national retail partners like Target, and is also sitting on top of “a healthy inventory position of around six months,” said Amin, who added that given the current environment, E.l.f.’s supply chain is performing well.
Natalie Mackey, ceo of Winky Lux, a masstige brand that manufactures in China, said the company was delayed on a few products because factories were not allowed to open, but she expects packaging delays to be the main issue.
Such delays are adding to shipping costs, noted a source in China, who said, “We have a lot of customers we need to arrange air freight for since they cannot wait for one more month on the sea. It’s twice the price usually depending on where you send the goods.”
Moving forward, manufacturers are already reporting significantly lower orders for the near- to midterm. “We have forecasts from some customers and it’s much lower than what we thought,” said one source, estimating that forecasts for the next six months are about 30 percent lower now than at this time last year. “Most of the industry companies right now are not achieving their budget. They’re under.”
Still, the silver lining is that the outbreak didn’t happen closer to summer, when manufacturing for the holiday season kicks into high gear. “Christmas is our peak season. It’s not as bad [that it occurred now],” said the source. “When the company needs the goods in December, they usually purchase in July/August and it needs one month to be produced and then a month-and-half to be shipped.…It’s an impact on the business but it isn’t as bad had it happened in the summer.”