Perils of the Skin Care Industry

For those of you who are interested in launching a line of skin care products, this article will outline some of the complications that I had encountered when building my brand.  I wish I had the opportunity to read an article like this when I was just starting out.  I might have been able to sidestep a few land mines or taken some precautionary measures to avoid certain hassles.  What lies within is precisely why it’s wise to hire a business consultant to help guide you down unfamiliar territories.  Each one of the problems I’m about to describe in this article cost me an immeasurable amount of money and undoubtedly much more than it would have cost to hire a consultant to show me the ropes, rather than to learn them on my own.  If you’re already involved in the skin care industry and have your own brand, I’m sure you can feel my pain.  Let’s begin…

FDA

Everyone who owns a skin care products company probably hates the FDA in some way.  Their website bears a somewhat condescending slogan, “Protecting and Promoting Your Health.”  This is ironic given the fact that the FDA has approved some of the most heinous chemicals and toxins to be used in pharmaceutical and personal care products while preventing certain safe and natural ingredients from being used and promoted as functional ingredients. Nevertheless, if you plan on selling your products within the United States, FDA regulations are to be taken seriously.

Regardless of whether your brand includes skin care, personal care, over-the-counter or cosmetic products, you probably want to have some content on your label boasting the products’ efficacy.  Why else would consumers by your products unless you give them a reason to?  If your content is written in the form of a medical claim, you automatically put yourself on the FDA’s radar and leave your label susceptible to scrutiny.  In the U.S., only products that are considered registered drugs (or products that contain ingredients that the FDA considers to be a registered drug) can bear medical claims on the label.

Even if your label content doesn’t include a medical claim, if the FDA doesn’t like something on your label, prepared to be hassled into submission.  If you’re importing any raw materials to be used in your products when the FDA notices your noncompliance, expect your imports to be seized at customs and held hostage until you remedy the issue. 

The FDA will also consider your website to be an extension of your labels so if there are any unauthorized medical claims there, be prepared to remove that content also.  The laws surrounding the Freedom of Speech get thrown out the window when your company is selling a product.  Whatever you say, print or publish becomes part of your product labels and therefore, falls under FDA labeling regulations.

Check with a lawyer who is familiar with FDA regulations before printing out thousands of labels to ensure they are in compliance.  If the FDA notices a product on the shelves of a retail store that is noncompliant, they will require the store to remove the product, which will ultimately lead to the retailer asking you for their money back.

Guaranteed Sales

All brand owners want to see their products on the shelves of big-box retailers.  Retailers know this and use it to their advantage.  Some or the larger retailers realize how valuable their shelf space is and actually charge companies rent to allow their products on the shelves.  This is called a “slotting fee” and is extremely obnoxious.  In addition to being obnoxious, retailers also don’t like to take risks on new products so they may implement a stipulation in their agreement known as Guaranteed Sales.  This means that the retailer will pay you for your inventory but if it doesn’t sell after a certain period of time, they expect you to buy it back from them.  If the retailer and their initial order is large enough, this could put a company out of business.

For a new brand that is struggling to gain market share, selling your soul to the devil may seem worth the risk.  However, once you get paid for that first order and use those proceeds to reinvest back into your business, where will you get the funds to reimburse the retailer if they happen to call you on the guaranteed sales stipulation?

My recommendation for smaller brands that don’t have large capital reserves is not to consider an arrangement that requires guaranteed sales.  It’s too risky and 100% of the risk is on your shoulders.  For as difficult as it might seem to turn down a large account that requires it, it’s not worth losing your whole business for.

Inventory Management

This section applies to any type of company that is product-based, rather than service oriented.  The worst scenario is when your sales are so slow that you can’t afford to replenish your inventory but the reason for your cash flow problem is that you don’t have enough inventory to sell.  It’s a catch 22 situation that is very real for many inventory-based businesses.  Once you’ve reached the point where you can’t make enough money because you don’t have enough inventory and you don’t have enough inventory because you can’t make enough money to get more inventory, the situation is critical. 

The best way to deal with this is to try to not let it happen in the first place.  When sales are healthy, there will always be enough funds to replenish inventory.  You can explore the possibility of getting a small business loan to help with inventory but the interest rates are high and you’ll find a large portion of your revenue going to the lender, rather than to more inventory.

Sales Reps

Increasing sales is a sure way to avoid inventory and cash flow problems.  Some sales reps work on a commission-only basis while others require a retainer.  Both have advantages.  It’s nice to be able to work on a contingency basis with sales reps, if they actually sell your product.  Many sales reps seem interested in your brand at first but then they never bring any sales to the table. 

Sales reps are valuable if they have relationships with buyers and category managers.  If they believe in your line, they will push it through their channels.  Just don’t expect all sales reps to bring you sales because, unfortunately, most won’t.  Having an inside sales team gives you more leverage but also costs more money.  There’s no easy solution to sales other than methodically determining which sales reps are effective and which are not.

Google

At the time that this article is being written, Google is the king of all search engines.  Sure, there are others.  However, none that have the power of the masses the way Google does.  For skin care brands that sell more online than off line, Google is a force to be reckoned with.

Google makes most of their money selling pay-per-click advertising campaigns.  Even though organic search results seem to have more credibility than the ads listed at the top and right margins, Adwords is Google’s bread and butter.  Google doesn’t like when companies make their money from organic searches because they want them to spend money on Adwords.  Therefore, Google is constantly changing the parameters of their algorithms in such a way as to confuse online marketers who gain top organic spots.

Panda and Penguin were names that Google gave some of their changes and for as cute as these names may appear, they were devastating to those of us who lost our rankings overnight.  Google has made it so hard to obtain top organic rankings that search engine optimization is better left to the professionals.  If your brand is dependent upon the revenue generated from your online store, outsource SEO to a reputable company to ensure your placement.  It will be well worth the money unless you want to wake up one day and find your website buried underneath thousands of your competitors in the search engine result pages.

For more information on the skin care industry, please call Ashlar Consulting Corporation at 305-849-9399 or visit www.AshlarConsultingCorp.com.