CONTENTS

I. INTRODUCTION............................................................................................................................ 1
II. THE COSMETICS INDUSTRY....................................................................................................... 2
A. Definitions .....................................................................................................................................2
B. Product categories .......................................................................................................................2
C. Geography/Sales demographics .................................................................................................3
III. REGULATIONS............................................................................................................................ 4
A. The United States..........................................................................................................................4
B. Europe ............................................................................................................................................6
C. Singapore ......................................................................................................................................9
IV. PROFILES OF INDUSTRY LEADERS ......................................................................................... 12
A. L’Oréal ..........................................................................................................................................12
B. Unilever ........................................................................................................................................12
C. Estée Lauder................................................................................................................................13
V. THE SUPPLY CHAIN ................................................................................................................. 14
A. Supply chain sectors ..................................................................................................................14
B. Primary ingredients — and problems ........................................................................................14
C. Characteristics of a successful cosmetics supply chain ........................................................15
VI. INDUSTRY CHANGES & CHALLENGES ................................................................................... 16
A. Environmental concerns.............................................................................................................16
B. Technological innovations .........................................................................................................16
C. Counterfeits .................................................................................................................................18
D. New regulations ..........................................................................................................................18

All information current as of December 1, 2021.

Material is provided for information only. rfxcel does not guarantee accuracy.
Please consult original sources for the latest details before taking business decisions.
I. INTRODUCTION
This white paper presents current information about the global cosmetics market to help
facilitate a better understanding of products and how they are regulated, leading companies,
characteristics of the supply chain, and industry challenges. For example:

• There are five product categories: skin care, hair care, makeup, fragrances, and hygiene
products. Skin care is the biggest segment.
• L’Oréal, Estée Lauder, and Unilever are the industry’s “Big 3.”
• The largest markets are Asia/Pacific, North America, and Western Europe.
• In the United States, cosmetics are regulated but do not require approval from the Food
and Drug Administration (FDA).
• Regulations in Asia, the EU, and Great Britain are, on the whole, much broader and more
clearly defined than in the United States.
• The supply chain for should look familiar. It comprises raw materials and ingredients;
manufacturing and production; distribution and warehousing; and retail/sales.
• Industry challenges should also look familiar: environmental and sustainability concerns,
fighting counterfeits, how best to leverage new technologies, and an evolving regulatory
landscape.

This white paper provides details about these and other aspects of today’s cosmetics industry.
If you have any questions or want more information, contact us today.

A note about the scope of this white paper

This white paper deals specifically with cosmetics, which are a segment of the broader personal
care products industry. Personal care products include everyday health and beauty items that
can be purchased over the counter (OTC), such as cleansing soaps and shampoos. They also
include products that contain medications to treat specific conditions, such as soaps to treat
acne and shampoos to treat psoriasis. Some of these may be regulated; others may not.

Like many cosmetics products, medicated personal care products are often not regulated. The
degree of regulation, if any, largely depends on a product’s ingredients, its intended use, and
where it is being sold. For example, a color additive found in a skin care product that is a
cosmetics or in an OTC medicated shampoo might be regulated, but the finished product might
not be regulated. The rule of thumb is that companies are legally responsible for making sure
their cosmetics are safe and properly labeled, and comply with the laws and regulations that
apply to them. 1

Chapter II goes into the details of definitions of “cosmetics.”

1
See, for example, FDA guidance at https://www.fda.gov/cosmetics/resources-industry-cosmetics/small-
businesses-homemade-cosmetics-fact-sheet#1.

1
II. THE COSMETICS INDUSTRY
A. DEFINITIONS
Cosmetics fall under the broader personal care products industry, which also includes toiletries
and other personal care items.

The FDA defines cosmetics products as “articles intended to be applied to the human body for
cleansing, beautifying, promoting attractiveness, or altering the appearance without affecting
the body's structure or functions.” 2 This is similar to the definitions provided by regulatory
institutions in other countries.

The FDA distinguishes between this definition of cosmetics products and those “that are
cosmetics but are also intended to treat or prevent disease, or affect the structure or functions
of the human body.” 3 These products are also considered pharmaceuticals and are regulated
differently than “general cosmetics.”

Similarly, there is a distinction between cosmetics products and soaps, though some soaps are
regulated as cosmetics. Soaps, which are defined as “products consisting primarily of an alkali
salt of fatty acid and making no label claim other than cleansing of the human body,” are “not
considered cosmetics under the law.” Soaps with synthetic detergents or that are made to
moisturize skin, “[make] the user smell nice, or deodorize are regulated as cosmetics. A product
is regulated as a drug if it’s “intended to treat or prevent disease, such as by killing germs, or
treating skin conditions, such as acne or eczema.” 4

B. PRODUCT CATEGORIES
Cosmetics are divided into five product categories: skin care, hair care, makeup, fragrances, and
hygiene products. In its 2020 annual report, L’Oréal published overall global sales statistics for
each category:

• Skin care: Includes facial care products, body moisturizers, sun protections, and skin
cleansers. 5 This is the largest category, accounting for 42 percent of all sales and 60
percent of the industry growth. L’Oréal, Clinique, and Shiseido are leading companies.
• Hair care: Includes shampoos and conditioners, moisturizers, hair protectants, and hair
colorants and accounts for 22 percent of the global market. Major companies include
Aveda, L’Oréal Paris, Garnier, and Dove.
• Makeup: Includes foundations, eye shadows, lipsticks, and powders. It accounts for 16
percent of all sales. Major companies include L’Oréal, Mac Beauty, and Estée Lauder.

2
https://www.fda.gov/cosmetics/cosmetics-labeling-regulations/summary-cosmetics-labeling-requirements.
3
Ibid.
4
https://www.fda.gov/cosmetics/cosmetic-products/frequently-asked-questions-soap.
5
Skin care also includes dermocosmetics, products containing “active ingredients whose effectiveness against a
specific problem has been established through rigorous laboratory testing.”

2
 • Fragrances: Consists of perfumes and colognes, both luxury and drugstore brands, and
accounts for 10 percent of the market. Firmenich, Givaudan, and Symrise are leading
companies.
• Hygiene products: Featuring products for health or cleaning purposes, this category
includes body washes, oral products, skin protectants, and antiperspirants. It accounts
for 10 percent of the market, and prominent companies include Johnson & Johnson,
Burt’s Bees, and Birchwood Labs.

C. GEOGRAPHY/SALES DEMOGRAPHICS
The global cosmetics market can be divided into six regions. L’Oréal’s 2020 annual report
ranked the regions by their share of the global market:

1. Asia Pacific (43%)

2. North America (24%)
3. Western Europe (16%)
4. Latin America (8%)
5. Eastern Europe (6%)
6. Africa/Middle East (3%)

In 2020, Asia Pacific recorded the largest growth in the skincare category, as well as an
increase in sales of luxury cosmetics.

3
III. REGULATIONS
Governing bodies around the world have created systems of regulations for cosmetics and
personal care products to ensure that manufacturers use safe ingredients and consumers
receive the quality and product they are being promised. In this chapter, we look at regulations
in three key cosmetics markets: the United States, Europe, and Singapore.

A. THE UNITED STATES

Cosmetics products do not require FDA approval — but they are regulated. In the Federal Food,
Drug, and Cosmetic Act (FD&C Act) and the Fair Packaging and Labeling Act (FPLA), the FDA
explains its requirements, prohibitions, and authority over cosmetics products. Cosmetics that
are also pharmaceuticals or contain FDA-regulated drugs must comply with FDA
pharmaceutical regulations.

U.S. law prevents the FDA from requiring manufacturers to report cosmetics product safety
data. According to the FDA website, the “burden is on FDA to prove that a particular product or
ingredient is harmful when used as intended.” 6 After conducting or reviewing scientific
research, the Agency has the authority to ban chemicals and ingredients that are deemed as
harmful and cosmetics companies are then required to comply.

Below, we discuss key aspects of the FD&C Act and the FPLA as they pertain to cosmetics.

Adulteration and misbranding

The FDA prohibits selling cosmetics products that are “adulterated or misbranded.” Adulteration
means the product’s composition is in violation of regulations, “whether they result from
ingredients, contaminants, processing, packaging, or shipping and handling.” Examples include
products that consist “in whole or in part of any filthy, putrid, or decomposed substance” or that
have “been prepared, packed, or held under insanitary conditions whereby it may have become
contaminated with filth, or whereby it may have been rendered injurious to health.”

Misbranding refers to “violations involving improperly labelled or deceptively packaged

products.” Examples of misbranding include “false or misleading” labeling or labeling that “does
not include all required information.”

More information about adulteration and misbranding is available on the FDA website.

Labeling
FDA labeling requirements are designed to prevent misbranding and provide consumers with
transparency about the products they purchase. A principal display panel must include the
name of the product, a description, and the net quantity. The panel must also have the name
and address of the manufacturer (and distributor, if different) and an ingredient declaration.
Ingredients must be listed in descending order of prominence; ingredients that are drugs must
be listed separately as “active ingredients.” Potentially harmful products must have a warning of
the danger and directions for safe use.

6
https://www.fda.gov/cosmetics/cosmetics-laws-regulations/prohibited-restricted-ingredients-cosmetics.

4
Harmful ingredients and banned chemicals
Under U.S. law, cosmetics manufacturers are prohibited from using ingredients or chemicals
that are harmful to consumers.7 This includes ingredients that are explicitly banned by the FDA
and those the manufacturers themselves find to have adverse effects. Products that can be
harmful when used incorrectly must include instructions for proper use and warning
statements.

The FDA prohibits 11 chemicals from being used in cosmetics products:

• Bithionol: Used in skin products; can cause photocontact sensitization/dermatitis.

• Chlorofluorocarbon propellants: Used in pressurized aerosol sprays; dangerous for
consumption.
• Chloroform: A solvent; can cause cancer.
• Halogenated salicylanilides: An antimicrobial; can cause serious skin disorders.
• Hexachlorophene: A preservative; is toxic and can penetrate human skin.
• Mercury compounds: A preservative; can penetrate skin and cause allergic reactions,
irritation, and neurotoxic problems.
• Methylene chloride: Used in aerosol sprays; can cause cancer.
• Cattle materials: Used in manufacturing; can cause bovine spongiform encephalopathy
(mad cow disease).
• Sunscreens: Can be used as a color protector in a cosmetics product and must be clearly
labeled as such. If not clearly labeled as color protector, the term “sunscreen” implies
pharmaceutical use and thus must be regulated as a cosmetics-drug.
• Vinyl chloride: Used in aerosols; can cause cancer and other health issues.
• Zirconium-containing complexes: Used in aerosols; toxic effect on lungs and causes
granulomas on the skin.

Color additives and drug ingredients

Non-approved color additives. The FDA has authority to test and determine which color
additives are toxic and to certify and regulate the ones it deems to be safe. All color additives
must be approved by the FDA before they can be added to a cosmetics product, and
manufacturers must follow all restrictions and the intended use(s).

Drug ingredients. Products that are intended for, or contain ingredients intended for, therapeutic
or medical use are considered pharmaceutical drugs and are regulated as both drugs and
cosmetics. The FDA must approve all drug ingredients used in cosmetics.

Compliance oversight and recalls

Manufacturers are responsible for regulatory compliance and consumer safety, though the FDA
has the authority to test products and inspect facilities if it feels there might be a violation. The
Agency also has a database called the CFSAN Adverse Event Reporting System (CAERS)

7
https://www.fda.gov/cosmetics/cosmetics-laws-regulations/prohibited-restricted-ingredients-cosmetics.

5
through which healthcare professionals and consumers can report adverse effects and file
product complaints for FDA review.

The FDA itself cannot order a product to be recalled, but it can request a voluntary recall by the
manufacturer or work with the U.S. Department of Justice to have the product taken off the
market and prohibit its production. The FDA can also file criminal charges against the
manufacturer and seize the dangerous cosmetics.

The FDA also has the authority to work with U.S. Customs and Border Protection, the largest
federal law enforcement agency within the United States Department of Homeland Security and
the country’s primary border control organization, to prevent a product from entering the United
States.

Good Manufacturing Practices

The FDA suggests Good Manufacturing Practices (GMP) to help companies comply with
regulations. GMP cover all aspects of production, including facilities, equipment, personnel, raw
materials, lab controls, records, labeling, and complaints. Examples include the following:

• Raw materials: Should be recorded with regard to lot identification and control status,
and handled to avoid “mix-up, contamination with microorganisms or other chemicals, or
decomposition from exposure to excessive heat, cold, sunlight, or moisture.”
• Production: Samples should be taken and tested throughout production. Equipment and
containers should indicate contents, batch designation, and control status.
• Packaging and labeling: Products must have all required label aspects and must not be
misbranded or fail to accurately represent the product. Products should also have
“permanent code marks” for unit identification and serialization.
• Records: Companies should keep records of lots and quantities used, production process
steps and control statuses, sampling and test results, and code marks of the finished
batches and products.

Despite these guidelines and formal regulations, the FDA leaves much of the responsibility to
manufacturers. Some organizations find this problematic. For example, environmental and
consumer advocate groups such as the Environmental Working Group (EWG) believe the list of
chemicals prohibited in the United States should be expanded, saying regulators in other
countries have banned more than 1,000 chemicals. EWG reports that, on average, women use
12 personal care products a day and men use 6 and, respectively, they are exposing themselves
to 168 and 85 chemical ingredients.

Today, consumers — and even manufacturers — are calling for more regulations and FDA
involvement in the production of cosmetics. We discuss this in more detail in Chapter IV.

B. EUROPE
Cosmetics products manufactured in and imported to Europe are regulated under the EU
Cosmetic Regulation. Cosmetics in Great Britain (England, Scotland, Wales, and Northern
Ireland) are regulated by the UK Cosmetic Regulation, which largely follows the EU laws.

6
Below, we discuss the key aspects of cosmetics regulations in Europe. Where necessary, we
differentiate between the EU and UK regulations; otherwise, readers can assume that the gist
and spirt of the laws are similar. Please visit the EU Cosmetic Regulation and UK Cosmetic
Regulation for specific information about each law.

Requirements
Responsible person. Both the EU and UK require companies to have a “responsible person” to
ensure cosmetics products are safe and comply with regulations. The responsible person can
be a manufacturer, importer, distributor, or another person, and must accept the role in writing.
There is one responsible person for each product.

Cosmetics product notification. Before a product can be offered on the market, the responsible
person must submit a cosmetics product notification (CPN) through an online portal. After a
product has entered the market, the responsible person must submit a picture of the product
and label. A CPN requires the following information:

• Product name and description

• Product formula
• List of nanomaterials 8 and descriptions
• List of chemicals used that may be carcinogenic, toxic, or mutagenic for reproduction
(according to EU Regulation 1272/2008 on the classification, labelling, and packaging of
substances and mixtures)
• Country of origin (if imported)
• The country where the product will be marketed
• Name and address of the responsible person and location of the required product
information file (see below)
• Company point of contact

Product information file. The responsible person must create and retain an easily accessible
product information file, which must contain the following information:

• Name, description, and nature of the product

• Description of the manufacturing methods
• Statement of compliance with regulations and GMP
• Product safety report
• Data about animal testing, if any

Cosmetic product safety report. The responsible person is required to assemble a product
safety report comprising two sections:

• The cosmetic product safety information notes the product composition, ingredients, and
chemical characteristics, instructions for use, packaging material information, and
potential side effects.

8 A material with particles or constituents of nanoscale dimensions (1–100 nm) or that is produced using

nanotechnology.

7
 • The product safety assessment contains the assessment conclusion, an explanation of
the conclusion, the assessor’s credentials, and product warnings and instructions. The
safety assessment must be conducted by an individual with formal qualifications in
“pharmacy, toxicology, medicine, or a similar discipline.” 9

Labeling. The EU and UK regulations have labeling requirements to ensure consumers know
what is in the products they buy. For example, under Article 19 of the EU Cosmetic Regulations,
cosmetics product labels must have the name and address of the responsible person, the
product name and function, the numerical content (i.e., weight, volume, or count), the batch
number or product reference number, and the ingredients, including nanomaterials, listed in
descending order of prominence. Labels must also show the expiration date in the month/year
or day/month/year format, preceded by the phrase, “best used before the end of.”

Furthermore, the regulations stipulate that all product claims on the label or used in marketing
must be accurate and truthful, and must not describe a function that the product does not have.

Good Manufacturing Practices. Unlike the United States, the EU and UK mandate GMP. These
follow International Organization for Standardization (ISO) 22716, which “gives guidelines for
the production, control, storage, and shipment of cosmetic products.” Examples of these GMPs
include the following:

• Raw materials and packaging: All materials must meet physical, chemical, and microbial
requirements. There must be organized measures for recording all “purchasing, receipt,
identification and status, release, storage and re-evaluation of raw materials.”
• Production: During production, equipment and products must be tested, batch numbers
must be assigned, and processing must be recorded.
• Quality control laboratory: A laboratory responsible for “ensuring that the necessary and
relevant controls, within its activity, are carried out for sampling and testing so that
materials are released for use and products are released for shipment, only if their quality
fulfils the required acceptance criteria.”
• Finished product: Finished products must meet acceptance criteria before entering the
market and should be stored and shipped in a manner that retains product quality.

Animal testing. There has been much confusion about regulations for animal testing. In 2004,
the EU Cosmetic Regulation banned testing cosmetics products and their ingredients on
animals. And in 2013, the European Commission banned marketing products that had been
tested on animals. However, these requirements conflicted with the Registration, Evaluation,
Authorization, and Restriction of Chemicals (REACH) regulation of 2006, which requires certain
chemicals to be tested on animals, including chemicals that are used to make cosmetics.

In October 2014, the European Commission and the European Chemicals Agency (ECHA)
“clarified the relationship between the marketing ban and the REACH information
requirements,” 10 stating that the testing and marketing bans do not apply to testing required for
environmental endpoints, exposure of workers, and non-cosmetic uses of substances under

9
https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:342:0059:0209:en:PDF.
10
https://echa.europa.eu/-/clarity-on-interface-between-reach-and-the-cosmetics-regulation.

8
REACH. In other words, animal testing is allowed only if it is necessary to assess risk to
workers, to test environmental impacts, or if an ingredient is used in products other than
cosmetics.

Restricted chemicals and ingredients. Cosmetics companies are prohibited from using
chemicals and ingredients that are “classified as carcinogenic, mutagenic or toxic for
reproduction (CMR)” 11 unless proven safe in trace amounts. Substances are designated with a
Chemical Abstract Service (CAS) Registry number, a unique numeric identifier of up to 10 digits
assigned by the American Chemical Society, and a European Community number (EC number),
a 7-digit identifier assigned to chemical substances by the European Commission.

The following annexes in the EU Cosmetic Regulation address these substances:

• Annex II lists more than 1,300 substances that are prohibited from being used in
cosmetics. The list shows each substance’s scientific and common name, a reference
number, and its CAS and EC numbers .
• Annex III lists 256 substances that can be used only under specific conditions. This list
includes each substance’s name, CAS and EC numbers, restrictions, and the
warning/caution that should be used on labeling.
• Annex IV lists 153 colorants allowed for cosmetics use. It shows each substance’s
chemical name and common names, color, CAS and EC numbers, restrictions and usage
instructions, and the warnings that should go on product packaging.
• Annex V lists 57 chemical preservatives permitted for cosmetics products. It also shows
the chemical and common names, CAS and EC numbers, when it may be used, and the
warnings that must accompany the product.
• Annex VI lists 28 substances that function as ultraviolet (UV) filters and are allowed for
cosmetics use. It shows each substance’s chemical and common name, CAS number, EC
number, the conditions and restrictions for use, and the accompanying warnings.

Penalties. Under EU Cosmetic Regulation Article 25, if a company or responsible person is

found to be non-compliant, the European Commission can initiate a product recall. It will work
with the authority of the member state where the product is being sold to determine an
appropriate penalty. Article 37 gives member states the authority to determine “effective,
proportionate and dissuasive” penalties, while Section 13 of the Cosmetic Products
Enforcement Regulations of 2013 allows fines, prison terms, or both.

C. SINGAPORE
Cosmetics products manufactured and sold in Singapore are regulated by the Health Science
Authority (HSA), and regulations and requirements are laid out in the Health Products Act (HPA)
and the Health Products (Cosmetic Products -ASEAN Cosmetic Directive) Regulations (HPR).
The HPR contains the regulations that follow the requirements in the HPA.

These regulations are in line with the ASEAN Cosmetic Directive (ACD), an “agreement among
ASEAN [Association of Southeast Asian Nations] countries to harmonize requirements of

11
https://ec.europa.eu/growth/sectors/cosmetics/cosmetic-products-specific-topics/cmr-substances_en.

9
cosmetic products so as to reduce technical barriers to trade in the region.” Other countries
included under the ACD are Brunei, Cambodia, Malaysia, Indonesia, Myanmar, the Philippines,
Vietnam, Thailand, and Laos.

Below, we discuss the key aspects of the HPA and HPR as they pertain to cosmetics products in
Singapore.

Requirements
Person responsible. Like the UK and EU regulations, the HSA requires companies to have a
“person responsible for placing a cosmetic product in the market is the company who is
instrumental in causing the cosmetic product to be available for sale in Singapore which may be
an importer, a manufacturer, a distributor or a retailer.” 12

The person responsible is required to keep detailed records, including product information such
as batch numbers, dates, and quantities, for up to 2 years after production. Other duties include
the following “key responsibilities”:

• Submit product notifications

• Ensure product safety
• Perform any necessary product recalls
• Report any adverse effects or defects
• Submit any safety or technical information/records if requested by the HSA

Cosmetic product notification. Under the HPR, the person responsible is required to submit a
cosmetic product notification (CPN) for registration before a product can enter the market. This
notification must be submitted via the HSA’s online portal, the Pharmaceutical Regulatory
Information System (PRISM), and requires detailed information about the company, the
manufacturer, and the product, documents, and a declaration, validation, and payment section.
Falsifying an application is punishable with fines up to $20,000 or up to 1 year in prison.

Reporting. In the case of a product defect or adverse effect reasonably believed to be from
product use, the person responsible must report the incident to the HSA. If an event was life-
threating or resulted in death, it must be reported “within 7 days after the company has become
aware of the event.” If the event leads to “hospitalization or any persistent or significant
disability or incapacity,” the company is required to report to the HSA within 15 days of learning
about the incident.

More information concerning defect and adverse effect reporting can be found in the HSA’s
“Guide Manual for the Industry – Adverse Event Reporting of Cosmetic Products.”

Labeling. The HSA requires clear, legible labeling on cosmetics products. Packaging must
display the product name and function, usage instructions, country of manufacture, ingredients
in descending order, contents (in weight or volume), batch number, manufacturing/expiry date,
Singapore-based address of the person/company responsible, and special precautions if
necessary. Labels must be in English.

12
https://www.hsa.gov.sg/docs/default-source/hprg-cosmetics/guidelines-on-the-control-of-cosmetic-
products_apr20-(1).pdf.

10
The HSA also prohibits false or misleading advertising, both on packaging and for other
marketing purposes. Furthermore, manufacturers are prohibited from marketing any cosmetics
products with claims of therapeutic benefits.

Ingredient restrictions. Suppliers and manufacturers are responsible for ensuring that all
ingredients are safe. Ingredients must comply with Schedule 3 of the HPR, which lists restricted
substances and their corresponding CAS number. Schedule 3 has five sections:

• Part I lists about 1,300 substances that are banned from all use in cometic products.
• Part II lists 317 substances that may be used only in specific circumstances, the type of
product in which they may be used, the maximum concentration permitted, other
restrictions, and the warnings that must be included on labeling.
• Part III lists permitted coloring agents, their color index number, the color, and the
restrictions for how they may be used.
• Part IV lists 59 chemical preservatives that are approved for cosmetics products, the
maximum permitted concentration, ingredient restrictions, and any required label
warnings.
• Part V lists 31 substances that function as UV filters and are permitted for cosmetics
use. It also lists the ingredients with the maximum permitted concentration, specific
substance restrictions, and required label warnings.

Penalties. If a cosmetics product is found to be unsafe or in violation of the cosmetics

regulations, the HSA can withhold it from the market or order a recall.

Section 16 of the HPA states that any violation of labeling and advertising requirements may
result in a fine of up to $20,000 or 1 year in prison. The sale or import of counterfeit or
adulterated products is also unlawful; anyone found guilty of distributing such products is liable
to up to $100,000 in fines or up to 3 years in prison or both. Violation of the restrictions
regarding ingredients may result in a fine of up to $100,000 and/or 3 years in prison.

More information about the HPA and regulations are available on the HSA website.

11
IV. PROFILES OF INDUSTRY LEADERS
A handful of companies have emerged as global leaders in the cosmetics market. Their
products and business methods have allowed them to succeed in a rapidly changing and
competitive environment. In this chapter, we look at “the Big 3” of cosmetics companies and
what makes them so successful.

A. L’ORÉAL
Paris-based L’Oréal is the current leader in the global cosmetics market. Founded in 1909 by
Eugène Schueller, it has grown from offering a single hair colorant to encompass 35 different
brands and hundreds of products. It has locations in 150 countries and more than 85,000
employees.

In 2020, L’Oréal recorded $33.4 billion in sales — the highest of any cosmetics company — and
saw a 47.2 percent increase in online sales. Its supply chain ranked 9th in the world on Gartner’s
2021 Top 25 Worldwide Supply Chain Ranking.

L’Oréal has four divisions, each focused on a specific genre of products:

• L’Oréal Luxe is the company’s high-end luxury division. It includes 19 brands, such as
Ralph Polo Lauren, Armani, and Yves Saint Laurent, and accounted for 36.4 percent of
total sales in 2020.
• L’Oréal Consumer Products focuses on less expensive products available in drug stores.
It features 10 brands, including L’Oréal Paris, Garnier, and Maybelline NY, and accounted
for 41.8 percent of sales in 2020.
• L’Oréal Professional Products focuses on products sold directly to professionals. It
includes five brands, including Redken, Kerastase, and Matrix, and accounted for 11.1
percent of sales in 2020.
• L’Oréal Active Cosmetics focuses on pharmaceutical and health-based skin care
products. It features five brands, including Cerave, La Roche Posay, and Vichy, and
accounted for 10.8 percent of sales in 2020.

B. UNILEVER
Unilever, the world’s second-largest cosmetics company, began in 1929 as an agreement
between the Lever Brother’s soap company and the Margarine Unie company. Based in London,
today it has 149,000 employees, more than 400 brands used daily by 2.5 billion people in 190
countries. In 2020, it had $24.5 billion in personal care and cosmetics sales.

Unilever’s personal care division, which includes cosmetics, features well-known brands such as
Dove, Axe, Nexxus, and St. Ives.

The company, which also makes food and beverage and home care products, has committed
itself to “Planet & Society,” stating it that wants “to make sustainable living commonplace.” In
2020, it was ranked No. 1 for sustainability leadership in the GlobeScan/SustainAbility Leaders
Survey, the 10th consecutive year it had topped this annual list.

12
C. ESTÉE LAUDER
Founded by Josephine Esther “Estée” Lauder in 1946, Estée Lauder has grown from being a
one-woman show to employing 48,000 people, 84 percent of whom are women, including 55
percent of vice president-level positions and above.

Headquartered in New York City, the company has more than 25 brands, including Bobbi Brown,
Aveda, Clinique, Smashbox, and Too Faced, in five product categories: makeup, skincare,
fragrance, hair care, and “other.” Skin care is the largest category ($7.4 billion in sales in 2020 —
a 13 percent increase from 2019), followed by makeup ($4.8 billion), fragrance ($1.6 billion),
and hair care ($515 million).

According to is 2020 fiscal results, Estée Lauder was the third-largest beauty company in the
world, with $14.3 billion in sales. Though overall sales decreased by 3 percent during the
pandemic, online sales grew substantially. As a result, the company announced plans to close
15 percent of its stand-alone stores and focus its resources on online marketing, a move it said
would save $300-400 million annually.

13
V. THE SUPPLY CHAIN
The cosmetics industry relies on a global supply chain that links raw ingredients, factories, and
consumers to create products. Without an organized supply chain, L’Oréal, Unilever, Estée
Lauder, and other companies would not be able to succeed and consumers would not have
access to the variety and quantity of products they have today.

In this chapter we examine what makes the cosmetics supply chain work.

A. SUPPLY CHAIN SECTORS

The cosmetics supply chain has four primary sectors:

• Raw materials and resources: Involves sourcing materials and ingredients and is
dependent on outside supplier relations to create the final product.
• Manufacturing/production: Raw materials are transformed into the actual product. Relies
on workers in the production or research and innovation sectors.
• Distribution and warehousing: Includes storage, transport, and distribution. Requires safe,
quality-controlled storage facilities and transportation methods to move the product to
the final stage.
• Retail/sales: The final transaction; includes in-store and online sales.

B. PRIMARY INGREDIENTS — AND PROBLEMS

A few “core” ingredients are found in a wide variety of cosmetics products, many of which pose
unique challenges for the supply chain. They are difficult to obtain sustainably and ethically, and
child labor, poor working conditions, and illegal mining are common. Palm oil and mica are two
examples.

Palm oil is used for moisturizing or texture effects. An important natural resource, it must be
managed to avoid overuse and be harvested in a way that prevents environmental damage.

The Roundtable on Sustainable Palm Oil (RSPO), founded in 2004, creates systems and
certifications for sustainable sourcing and efficient palm oil supply chains. Its supply chain
models emphasize traceability through tech-enabled monitoring and sustainability by certifying
producers through strict verification of their production processes.

Mica, a sparkling mineral, is used in eye shadow, lipsticks, and highlighter. More than 50 percent
of the world’s total production of mica comes from the Eastern Indian states of Jharkhand and
Bihar. China and Madagascar are also major producers.

More than 20,000 children are unlawfully employed in mica mining, and nearly 90 percent of
mining operations are illegal. Yet, a 2016 report from the Amsterdam-based nonprofit Centre for
Research on Multinational Corporations (SOMO) entitled “Beauty and a Beast: Child Labour in
India for Sparkling Cars and Cosmetics” says companies “should not rush to find alternatives to
Jharkhand/Bihar for their mica as this will not solve the problems of child labor, rampant

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poverty and low health, safety and environmental standards. It is better to stay involved and
seriously conduct due diligence.”

Cosmetics companies must stay vigilant and be proactive about sustainability and labor
standards. In this environment, new solutions to create an organized and traceable supply chain
are becoming more and more valuable.

C. CHARACTERISTICS OF A SUCCESSFUL COSMETICS SUPPLY CHAIN

Cosmetics companies operate in a challenging environment as the consumer packaged goods
industry grows and changes rapidly. Today, two supply chain characteristics are critical to
success: adaptability and structure.

• Adaptability: Technology, product development, and consumer sentiment shape the

cosmetics industry. Whether it is faster production methods, demand for new products,
or desire for sustainable options, companies must be able to change with the market if
they want to survive and succeed.
• Structure: The only way cosmetics companies can meet global consumer demand is by
having a detailed and structured supply chain that enables them identify strengths,
weaknesses, and pain points.

The next chapter addresses a few of the most notable changes taking place in the industry.

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VI. INDUSTRY CHANGES & CHALLENGES
The cosmetics industry is always changing. In order to succeed, companies must be able to
adapt, whether by adjusting their supply chains, marketing methods, or the volume products
they produce and market.

In this chapter we will discuss four changes and challenges cosmetics companies must
address today.

A. ENVIRONMENTAL CONCERNS
More and more consumers are factoring sustainability and environmental considerations into
their purchasing decisions. For example, a 2021 IBM survey found that 84 percent of global
consumers “consider sustainability important when choosing a brand.” Furthermore:

• Fifty-five percent of consumers said sustainability was “very or extremely important.”

This is 22 percent more than in 2019.
• Sixty-two percent said they were willing to change purchasing behavior — including
paying more for products made with recycled materials — to reduce negative
environmental impacts, up from 57 percent in 2019.

Consumers are also calling for greater supply chain and product transparency. In response,
many companies are seeking new methods for sustainable sourcing, eco-friendly production,
and traceability. For example, L’Oréal created its SPOT evaluation tool “to measure all the
impacts of its products in detail.” It applies 14 sustainability criteria to a product’s entire life
cycle, such as packaging production, ingredients, how consumers use it, and recycling. Similarly,
Estée Lauder’s Aveda brand began using recycled packaging and encouraging consumers to

“
recycle.

We can't guarantee that our packaging will be recycled,

but we can do our part, ensuring that the material it is
made of will have the chance of another life, rather than
going to a landfill.
— Aveda

B. TECHNOLOGICAL INNOVATIONS
Innovations such as digitalization and data cloud systems allow companies to adapt their
supply chains without compromising organization. A 2021 “Future of Supply Chain” report by
Gartner said that digitalization “result[s] in a more resilient and agile supply chain … These

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technologies will digitally interconnect the supply chain ecosystem and improve network
collaboration, visibility and risk management.”

Technology has also changed cosmetics products themselves and how consumers interact
with them. “Beauty tech,” for example, leverages innovative technologies such as artificial
intelligence (AI), augmented reality, and Internet of Things (IoT) to give consumers personalized
experiences with products, enhance consumer engagement, and foster brand loyalty. People
can test their skin or find the perfect hair color. Devices will pump the perfect quantity and color
of foundation. Virtual try-ons use digital overlays, made possible with image recognition and
face-tracking technology, to show people how a makeup will look on them.

L’Oréal’s Perso, which the company said it would

release in 2021, is an example of beauty tech
from one of “the Big 3.” It’s a 6.5-inch tall “3-in-1
personalized beauty device” that dispenses
“personalized on-the-spot skincare and
cosmetics formulas.” Its technology includes the
following:

• It uses geo-location to conduct an

environmental analysis (e.g., weather,
temperature, pollen, UV index, humidity) of
where the consumer is using it.
• A mobile app employs AI to evaluate skin condition, “including deep wrinkles, fine lines,
the appearance of dark spots, and pore visibility.”
• Customers can enter their “personal skincare concerns” and “preferred texture and
hydration-level” in the app.

Through this combination of technology and information provided by the user, the Perso device
dispenses a “personalized blend of high-performance skincare … a perfectly portioned, single
dose … for easy, clean application. It “adjusts for morning and evening application” and has a
detachable top for “on-the-go” use. There are models for skincare, foundation, and lipstick.

Effect of the pandemic

Technology became even more important during the pandemic. Amid lockdowns and other
restrictions, companies had to think outside the box for production and marketing, maintaining
operations and sales while staying safe. Adaptive supply chains and new technologies proved
to be critical.

Online sales took on a new importance, with each of the Big 3 reporting significant growth.
Virtual try-on technology allowed customers to feel the security of trying products at home
before making a purchase.

Production needed to continue without putting workers’ health in jeopardy or sacrificing product
quality and safety. Technology allowed companies to adapt their production systems while
maintaining safety requirements and keeping production flowing. L’Oréal, for example,
responded by putting in place a “system of temporary distribution centers for dealing with

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peaks of demand, as experienced … during the current pandemic either in physical stores closed
during the lock down (sic) called Dark Stores.”

C. COUNTERFEITS
Counterfeit products can harm consumers and ruin brand reputations. Because cosmetics are
highly desirable all over the world, the industry is a natural target for fakes. The increase of
online sales, particularly through third-party sites such as Amazon and eBay, has exacerbated
the issue and made it much more difficult to ensure consumers purchase and receive only
authentic products.

In a January 2020 report entitled “Combating Trafficking in Counterfeit and Pirated Goods,” the
U.S. Department of Homeland Security said, “Selling counterfeit and pirated goods through e-
commerce platforms and related online third-party marketplaces is a highly profitable venture.”
It also noted that fake cosmetics often contain hazardous materials such as arsenic, mercury,
aluminum, lead, bacteria, and human waste, and may be manufactured in unsanitary conditions.

The following examples illustrate the problem of counterfeits in the cosmetics industry:

• 2007-2014: L’Oréal was involved in lawsuits against eBay for having counterfeit goods for
sale in five European countries.
• From 2019-2020, the FDA reported nearly 12,000 cases of adverse effects resulting from
counterfeit cosmetics products.
• January 2020: Los Angeles police seized more than $300,000 worth of counterfeit
cosmetics, including often-faked products such as MAC and Kylie Cosmetics lip kits.
• June 2021: Police in Bangkok seized 4,400 boxes and 38,400 packets of “fake cosmetics
of various well-known brand names.”
• August 2021: Police in Delhi raid factory making fake Lakmé products. Hindustan
Unilever produces the Lakmé line.

D. NEW REGULATIONS
As consumers become more informed, many are not satisfied with the current state of U.S.
cosmetics restrictions. While the FDA does prohibit adulteration and misbranding, there is no
consistent supervision of company compliance and ingredient handling. The FDA also cannot
force a product recall, unlike regulatory bodies in Europe and Singapore, and prohibits just 11
ingredients compared with about 1,300 in Europe and Singapore.

As a result, many are advocating for more FDA involvement through the Personal Care Products
Safety Act. First introduced in Congress in 2017, it would amend the FD&C Act and give the FDA
more oversight of production and authority over cosmetics products, including the power to
demand recalls. Other provisions include the following:

• Companies must register with the FDA, disclose the ingredients they use, and attest that
they have safety records for their products.

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 • Companies must report serious adverse events (e.g., infections that require medical
treatment) to the FDA within 15 days and submit an annual summary of all reported
adverse health events (including less serious reactions, such as rashes).
• The FDA would be directed to ban products that intentionally contain harmful
perfluoroalkyl or polyfluoroalkyl substances (PFAS).
• The FDA would be required to issue regulations outlining GMP for personal care
products.
• The FDA would be required to provide technical assistance and additional flexibility for
smaller businesses to comply with the law.
• Websites that sell cosmetics must include full labeling information, including ingredients
and warnings.
• The FDA would have authority to seize counterfeit cosmetics products and seek civil
penalties for violations.
• State product safety laws in effect prior to the date of enactment would remain in effect.
• The FDA would be authorized to collect user fees from manufacturers to fund oversight
activities, similar to what is done for medications and medical devices.

The Act has not received a vote in any session of Congress; the bill was reintroduced on June
17, 2021.

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