With CEO Carl Allain at the helm, sampling specialist Arcade Beauty is shaping its growth strategy for the years to come. Turnkey retail products, the backbone of the company’s recently created division, Arcade Beauty Retail, is a key area of development, as is adapting to the supply-chain constraints brought on by the covid crisis. The company is also looking to acquisitions to boost its local production footprint. Luxe Packaging Insight sat down with Allain to discuss his roadmap for the company in what is the first of our new weekly interview series.
You were promoted President and CEO of Arcade Beauty in November 2021. What is your vision for the years ahead?
The outlook is quite encouraging. Sampling, Arcade Beauty’s core business, accounting for around 80% of our turnover, continues to perform well despite the health crisis as brands still need to sample their product across different retail channels. Sampling is also increasingly important in emerging growth regions, such as Asia.
Beyond sampling, we’ve diversified in two areas, which are now bearing fruit: full-service items - those that combine both the bulk and the pack - and full-size products. Our expertise in flexible packaging allows us to offer brands a number of different solutions for full-size formats, which is in line with the trend away from rigid packaging and towards flexible packs. Flexible solutions also have a sustainability edge as they use significantly less plastic than their rigid counterparts.
A third area of development is in digital, with the launch of our ABEO platform that allows brands to activate demand for samples via social networks, allowing them to better target their sampling campaigns, which makes for a more “intelligent” sampling experience; in a nutshell this translates as consuming less, but better.
Full size and retail products account for the remaining 20% of our turnover and we hope to increase this to 25% this year. While the digital offer, as a service, doesn’t weigh in much, it is seeing significant growth and we hope to sign with several major brands in 2022 to drive their e-com sampling strategy.
You launched Arcade Beauty Retail, a division dedicated to retail products last year. What can you tell us about your strategy for this part of the business?
Yes, our full-size retail offer now has its own dedicated business unit, which we aim to accelerate in the months and years ahead. The goal is for this segment to account for 45% of our business by 2025.
For this to happen, we are looking at potential acquisitions. In Europe, Arcade Beauty doesn’t have bulk production, so the idea would be to partner with a formulation lab to offer new formulas to the market. In China, we need to expand our footprint both in retail and sampling manufacturing.
We’re reinforcing the team with the appointment of a technical director who arrives next month to oversee R&D and innovation. The idea is to offer brands and retailers full-service, fast-to-market solutions. Thus far, we’ve built a catalog of around 30 turnkey products, the idea being to either sell these solutions or to co-develop products with our clients. In terms of trends, haircare, eye-contour care and powder-based formulas are big drivers today.
Arcade Beauty is also seeing a technology transfer from flat to 3D packs.
Flat sampling solutions were initially developed for campaigns inside magazines and catalogs, but today those formats are fast disappearing. Our Scent Strip, a sampling format made of two layers of paper that are pulled apart to release the fragrance, has been in significant decline in light of the covid crisis. As a result, we’re transferring our technologies to move more towards thermoformed formats - mainly for skincare and make-up - as they offer a more qualitative experience given that there is more product inside allowing the consumer to test a product over several days. This is perceived more as a gift than a sample and therefore has added value for the brand.
Mini-spray formats are also seeing a comeback?
Yes, we’re seeing a spike in demand as mini sprays are very well adapted to both physical retail and e-com sales. They provide 20 or so sprays, which is ideal to test a fragrance over time.
How did the group perform in 2021?
Better than in 2020! We don’t give figures, but what I can say is that we returned to 2019 levels, so the crisis seems to be behind us. Early 2020, a lot of brands slashed their marketing budgets, which resulted in a drop in sales of 25-30% for the company. Europe has bounced back much better than the US market, mainly because the majority of skincare brands are based in France and the localization of bulk production becomes key in when brands choose their suppliers in terms of supply chain, lead time, and of course ecological impact. Europe has benefited from this in the skincare segment, and that is the segment that drove market growth in 2021 and continues to do so in the context of the health pandemic, the aging population and, of course Asian consumers.
Fragrance also has its bright spots: in the US, but more notably in China, where the category is beginning to make real inroads via local brands as well as luxury niche players. There has been much talk about fragrance catching on with Chinese consumers for many years now, and it’s finally happening.
How does the Chinese market fit in with your growth strategy?
There is a demand from our clients to transfer our technologies in the US and Europe to Asia, where today we operate a single production facility in China. Working with our clients in China in the areas of both sampling and retail is an integral part of our 2022 strategy and beyond; today we are simply too limited in our production capacity. We’ll be seeing a movement towards more local production in Asia for the major brands. This will take time, however.
You must strike a balance between the attractiveness of Made in France and products manufactured closer to the consumer markets.
Absolutely. On the one hand, we need to reduce the supply chain and therefore the environmental impact of transport, but the claim of Made in France is also important to Chinese consumers as it represents a guarantee of quality. Luxury players want to safeguard the made in France aspect of their products, so a 100% Chinese production won’t be the answer for many of them, but we are working to adapt to the different constraints. However, for local Chinese brands or lower-tier European or American brands, local production makes absolute sense.
Sampling is increasingly seen by the beauty consumer as being wasteful. How do you respond to that?
I beg to differ! A sample allows the consumer to purchase “smarter”; they are testing a product before purchasing a full-size, which means less waste at the end of the day. This is classically the case for skincare or foundation, for example.
But there is a balance to be found here. Brands see that doing mass sampling campaigns in structured markets like Europe or the US isn’t the solution; so they are opting for more targeted or high-end sampling strategies. But mass sampling remains important in emerging markets to give consumers the chance to test new products.
How are you working to lessen your products’ impact on the environment?
First off, we aim to use more paper than plastic; today paper accounts for 40% of our purchases and this is set to increase. We’re looking at making each of our 30 or so solutions recyclable in line with our goal of having 100% of our technologies be recyclable by 2025. We have a way to go as today we are at 60%. Our teams are also moving to purchase more recycled materials, be they PCR or PIR.
Materials aside, the major challenge for 2022 is the supply chain. Mid-2021 we were suddenly facing extremely long delivery times for various components, not to mention escalating costs. This had a serious impact on our margins last year and we hope to recoup those margins somewhat in 2022. Cardboard, aluminum, transport costs… we have little-to-no visibility as to how far costs will go, but we’re hoping that by the summer we will see a return to more reasonable prices. However, there is the very real possibility that the market is entering an inflationary period that will continue beyond 2022, and this is bound to impact consumption and therefore consumer demand.
Delivery times too need to be reduced. In drawn glass, for example, we’re seeing delivery times from 8 to 12 months! To counter this, this year Arcade Beauty will source more drawn glass from the US, where the problem is not as severe.
How has the health crisis changed the relationship between brands and suppliers?
We’re in a period of transformation, and the sustainability angle is part of that. I believe that relationships are set to change in a profound way. Brands are realizing that they need partners who can work with them not just for the next three or six months, but for the long-term, for the next 10 years. We’re working with our clients to have more long-term orders, say in a timeframe of 12 months, for example, which will allow us to reserve stock from our own suppliers.
Arcade Beauty is well-positioned to meet these challenges and I’m very upbeat about what lies ahead!