SHANGHAI — Shanghai‘s prolonged COVID-19-related lockdowns in April forced beauty brands to halt production for a minimum of a month, sending shockwaves through the industry.

“Supply chain capability was a much larger differentiating factor than the primary time around,” said Melinda Hu, senior analyst at Bernstein. “Shanghai was negatively impacted on countrywide sales, each online and offline.”

With warehouses near Shanghai, Estée Lauder and Shiseido “had severely restricted their distribution operations,” said Hu. “Nevertheless, for L’Oréal, which had a broader set of distribution assets across the country, the impact was less severe.

“Domestic brands with headquarters in Shanghai, similar to Shanghai Jahwa, Jala Group, Shanghai Chicmax and Percaline saw significant declines. With the lifting of the lockdown in Shanghai, we expect to see recovery for these brands, but recovery likely won’t kick in until the third quarter,” said Hu.

As one in all China‘s most significant beauty manufacturing hubs, Oriental Beauty Valley in Shanghai’s Fengxian District was in a position to resume production by May. Staff needed to enter a closed-loop production system, living and dealing within the factories.

Intercos, a cosmetics contract manufacturer on the Oriental Beauty Valley with greater than 80 factory staff within the system, saw its production capability return to 60 percent by late May.

By resuming production as early as April, local beauty brand Judydoll and its sister brand Joocyee managed to refill enough products in May for the 618 shopping festival.

“By June, we were in a position to start launching latest products to market although the launch calendar was disrupted by the lockdown,” said Stefan Huang, group strategy head at Joy Group, owner of Judydoll and Joocyee. “We were in a position to achieve high double-digit growth in July and August.”

To alleviate future distribution risks, Estée Lauder opened a distribution center in Guangzhou this August, and so did Judydoll. “I feel that is the most important takeaway from this ‘black swan’ incident is supply chain risk management,” said Huang.

For a lot of beauty players, supply chain strains also created challenges for product development throughout the lockdown, which frequently relied on imported raw material stuck at Shanghai’s port.

In response to Bozhi Liu, a senior engineer at Shanghai Zizhuo Cosmetics, “the delivery period of raw material is for much longer. The time has doubled or tripled to 2 to a few months.”

Attempts to interchange raw materials with local ones became “more aggressive” during and after the Shanghai lockdown, in accordance with a former product development manager at a world beauty company, who requested anonymity. But this also means delaying product releases for as much as a 12 months.

Liu said there are some limitations to replacements for ingredients within the China market. Silicone-based materials or powders are of ample supply in China, but “oil-based substances or lively ingredients still relies on imports,” said Liu. “It is going to take time before the standard from local suppliers could be pretty much as good as foreign ones.”

For Phas, a nascent Chinese clean beauty brand that launched in late July, a niche in clean beauty raw materials meant the brand has to stick to global suppliers for the near future.

A product release was delayed from April to September on account of delayed shipping of a mono-material pump from South Korea.

“Germany and South Korea were the one two options we had, but we’re also seeing 4 big Chinese manufacturers competing to develop the same pump model,” said Hong Zeng, general manager at Phas. “This implies clean beauty is trending within the Chinese market and suppliers are catching up.”

For a masstige brand like Phas, which sells a 255 renminbi, or $37, concealer, Zeng thinks unless raw material prices double or triple, issues similar to geopolitical tension or currency rates won’t effect margins as much as delays in shipments. “In spite of everything, cosmetics is a comparatively high-margin industry,” he said.

Many local skincare brands have been investing in research to minimize their dependence on imported raw materials.

Yige Cosmetics has been working with the American company Lively Peptide on developing antiaging products for a latest brand OGP. Zhuben, a Chinese makeup removal brand, has been working with local suppliers on a cleansing formulation.

“If we don’t solve the issue of the monopoly of certain raw materials, we may not give you the chance to go too far,” Zhuben’s founder Qianfei Liu told an area media outlet.

As lockdown flare-ups all around the country continued to dent consumer enthusiasm, retail sales of cosmetics goods from January to July totaled 216.1 billion renminbi, or $31.2 billion, down 2.1 percent from the identical period last 12 months, in accordance with data from the National Bureau of Statistics.

In response to data from Citic Securities, gross merchandise value, or GMV, for cosmetics brands dropped 13 percent on Taobao and Tmall in July.

Data from Ecdataway, a third-party data platform, shows that cosmetics sales dropped 20 percent year-over-year on Taobao and Tmall to 4.35 billion renminbi, or $628.9 million, in July.

When top Tmall livestreaming star Austin Li disappeared from the web for the dearth of political sensitivity on June 3, a unique form of “black swan” incident shifted marketing dynamics.

Li, the “lipstick king,” triggered China’s censorship system as he promoted a tank-like ice cream product a day before the thirty third anniversary of the 1989 Tiananmen Square protest.

“The dearth of ‘super livestreaming anchors’ was one in all the aspects hurting skincare products’ sales,” Shanghai Jahwa wrote in its latest half-year report. Category sales dropped 34.84 percent year-over-year to 813 million renminbi, or $117 million in the primary half of 2021.

With the absence of Li or other top-notch livestreaming anchors on Tmall, brands have been migrating to Douyin. GMV increased 109 percent on the platform in July, in accordance with Citic Securities.

For Joocyee, Douyin helped the brand achieve 17.8 million renminbi, or $2.5 million, in sales for a Japanese anime collaboration makeup set inside every week and propped up organic search metrics on e-commerce platforms like Tmall and Xiaohongshu.

The shift in promotional tactics may additionally explain a “consumption downgrade” trend in China’s beauty market as consumers began to trade down.

But in accordance with Hu, consumers remain sticky to premium brands, similar to Estée Lauder, L’Oréal and Shiseido, although they now buy lower ticket-price items from these brands.

“Despite the year-to-date double-digit growth within the prestige segment, we note that the expansion is essentially driven by volume,” said Hu.

“Premium brands can sustain growth through mitigation strategies to preserve volume growth, on the expense of average selling price. We expect that is on account of packaging sizes, product mix shifting toward lower-priced skus, samples and promotions,” Hu added.