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Special report: Reshoring production

Pascale Ruchon

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Special report: Reshoring production

It would appear that the luxury sector has moved on from the indiscriminate outsourcing that has shaken up the packaging industry in recent decades. Read our exclusive report published in the Spring 2022 issue of our sister magazine Formes de Luxe.  

New criteria weigh heavily: China’s diminishing cost competitiveness, transport's environmental and economic impact, and a supply chain overwhelmed by the pandemic. However, massive reshoring has yet to become widespread. Instead, companies are looking for ways to close the gap between production sites and consumers. And let’s not forget: times are changing and China itself has become a luxury market. 

Reshoring or nearshoring? These buzzwords designate two ways of relocating production. The first refers to repatriating activity to the company’s country of origin, while the second refers bringing production geographically closer to that country. Regardless, local manufacturing is the subject of increasing debate in the luxury packaging sector. In the 1990s, buying shifted massively to Asia, particularly China. The main objective was finding the lowest price—including for “good” reasons, such as when the goal was to continue producing sophisticated products using manual processes that could no longer be carried out in Western countries with higher labor costs. This might include zamak components with lengthy polishing times and hand-assembled coffrets. But times have changed and so have values. Environmental awareness, corporate social responsibility, and consumers’ demands for transparency are among the factors weighing in favor of relocating manufacturing. Recent supply chain disruptions, largely a result of the pandemic, may also strengthen the trend.

And yet these terms are often criticized for being too restrictive in a globalized economy. Over the last 30 years, luxury packaging groups have woven an international network using various strategies, including brand-owned factories, industrial partnerships, and trading. And rather than give up on the idea, they seem to want to lean into it. This sector has the particularity of being multilocal. “I believe in regionalization rather than reshoring,” says Rémi Weidenmann, General Manager of Texen, a group with factories in France, Poland, and North America that designs these kinds of projects for brands like Maybelline. “This means, for example, being capable of producing the same packaging on two different continents to supply our clients on-site.” However, Europe is gaining renewed attention for its multilocal nature. Secondary packaging supplier GPA Global recently expanded there with the acquisition of a Polish factory that will specialize in luxury coffrets. Historically established in Asia and North America, the company intends to increase its European presence. Other international groups with bases in Europe have plans to strengthen them.

“Our long-term plans include expanding into the Americas and Asia, but, for now, we are concentrating our manufacturing efforts on Europe,” says Fabrice Revert, COO at Quadpack. “This year, we are going to invest heavily in increasing capacity and efficiency at our German and Spanish factories. This concerns injection, automation, and digitalization equipment.” This will increase Quadpack’s annual European capacity of airless packaging production to 40 million units. Quadpack intends to make its German factory a center for excellence in terms of decoration with the recent acquisition of Wicklein (hot stamping and screen printing).

Another European project concerns the new Aptar factory slated to open by the end of 2022 in Oyonnax, France. The result of a €43m investment, the factory will bring together six existing Aptar sites in the region and will enable the company to manufacture complex cosmetic packaging to optimized environmental standards. “Aptar won’t be nearshoring because the company never offshored. Our strategy has always been to remain close to clients in different areas of the world,” says Xavier Susterac, President of the group’s Beauty & Home EMEA division.

What to relocate?

This move confirms the notion that France could become a model for quality, technical expertise, and environmental responsibility when it comes to luxury packaging. It’s worth noting that Eastman and Loop, two North American plastic giants, chose France as the location for two future factories for molecular recycling, a burgeoning technology intended for use with difficult-to transform plastic waste.

Cosmetics companies that have expressed support by pledging to source from these sites include LVMH, Estée Lauder, Clarins, L’Oréal, Procter & Gamble for Eastman, and L’Oréal and L’Occitane for Loop. This bodes well for the vitality of a new ecosystem, especially given that raw materials are rarely sourced locally. The fact remains, however, that not everything can be relocated; China has a major head start in many areas. “Our company has always turned to China to manufacture our makeup brushes because the country has genuine artisan expertise and the right balance of price, volume, and quality,” says Maud Lelièvre, Marketing Director at Cosmogen. However, the company is studying other products to identify those that could be duplicated in other parts of the world. The rechargeable applicator Reuse is one example: tube and refill could be manufactured and filled locally. As for zamak, the material has all but disappeared from Europe. According to Thomas Diezinger, Managing Director and Co-founder of TNT Global Manufacturing, a processor of this metal alloy, “Asia has proven expertise, consistent quality, and the capacity to accommodate product launches of one to three million units, if necessary.” The company is the exclusive partner of a factory in Shenzhen. This spring, it will integrate galvanizing with a €700,000 investment in a unit with three semi-automated production lines with a capacity of 240,000 galvanized pieces per week, in addition to those produced by the company’s usual suppliers. TNT Global Manufacturing has also signed a partnership with a zamak specialist in Southern Europe. Even though the factory’s production capacity and quality are currently inferior to the Chinese site, the location will enable TNT to benefit from “the real opportunities that Europe presents,” according to Diezinger.

Things are changing, but for this trend to continue, manufacturing must be automated. “Makeup cases are among the requests for relocation that we have received from our customers. These are almost exclusively produced in Asia because they require many assembly operations,” says Bertrand de La Tour d’Artaise, VP Marketing and Innovation at Albéa. “We have a site in Poland for compacts and we are studying the possibility of implementing this activity through automation at a skincare and perfume factory in France.” Conversely, some specialist producers have been able to remain in their home regions. “This is the case with bottle caps, because their production can be automated. But it’s also because development requires close contact between the plastics processor and the glassmaker, which is European. In addition, filling factories are often located in France and Italy,” explains Weidenmann. The best of the luxury bottle sector has indeed remained in France and Italy: glassmaking is a capital-intensive industry and requires great technical mastery, making it difficult to transplant. To do so, companies use existing structures rather than create a new factory, as Austrian glass manufacturer Stoelzle has done.

In 2021, the company opened a production line for spirits bottles at its French factory in Masnières, specialized in perfume. It was a way for Stoelzle to move closer to the cognac market it had been serving from its English site up to that point. Last year, the company also purchased a factory in Pennsylvania—its first acquisition outside of Europe—intended for American spirits. “As American consumers develop a taste for higher-end spirits, brands are feeling a need for bottles that reflect the cutting edge of glassmaking technology,” says August Grupp, Head of Business Unit Spirits at Stoelzle. “The site enables us to bring European quality standards closer to North American customers. We foresee enormous investments in the coming years to become the leading supplier of high-quality glass in the United States and North America.” The debate over relocation takes on a particular flavor in the United States, in light of the ongoing political trade war with China. The use of packaging made in China is even more rooted there than in Europe (a phenomenon amplified by the advent of indie beauty brands). Will brands have to find other sourcing options? Also under threat are European brands that use packaging from China, which could get them banned from exporting to the United States.

Other factors are working against China, starting with the rising cost of labor, as the median wage there reaches the level of some Eastern European countries. However, wage disparities still exist across the country. “The south is expensive. The rest is developing with the government’s help. As a result, migration toward the south is diminishing and we’re seeing a kind of domestic relocation within China, as workers stay in their home regions,” explains Stanislas Péronnet, COO at Cosfibel, a group that trades in Asia. Companies could turn to Southeast Asia, but salaries are also rising there.

Logistical bottleneck

Transport is under scrutiny because of the pollution it generates. It is impossible to assess the potential impact of global relocation and the hypothetical end of international trade. Be that as it may, the fleet of ships growing exponentially on the world’s oceans is viewed as problematic, even if emissions of containerships are lower per tonnage transported than airplanes, for example. The rising cost of transport is also setting many on edge. “In two years, the price of a 40-foot container ship has increased from $2,500 to $10,000. Air transport was at two dollars per kilo in the high season, and today we’re seeing eight dollars, and sometimes up to twelve dollars, per kilo,” says Thierry Gorez, Director of Development at Logfret, a transporter and logistics coordinator operating in the fashion and beauty sectors. The reare several reasons for this, including inflated fuel prices, labor shortages, and insufficient space to meet demand. “Only 20% of air freight is transported by cargo planes, while 80% is carried by passenger aircraft, whose operations have fallen sharply due to a lack of passengers,” says Gorez. The luxury packaging sector is considering the implications of this complex situation. “Establishing ourselves as close as possible to our clients’ markets and factories clearly offers a concrete solution in terms of production flexibility and shortening of supply times. It’s also a response to the uncertain world we’re living in,” says Vincent Isselin, Business Director France at GPA Global. “The pandemic has isolated countries, crippled economies, and halted factories. During the same period, we faced unprecedented strikes in ports as well as the Suez Canal blockage. These elements call for an acceleration of our efforts to modify industrial organization.”

“The recovery, more than the pandemic, could accelerate the move toward regionalizing industry,” says Susterac. “Once reactivated, demand was all over the place, with a disrupted supply chain and materials shortages. No one had the capacity to respond.” Péronnet adds, “European factories have never been so busy. When you have to wait for capacity to become available, calling on China is sometimes faster, even factoring for transport time.” Given the context, nearshoring appears to be an interesting alternative. Luxury companies are increasingly turning to North Africa, Eastern Europe, and Turkey. But it certainly isn’t a panacea—the sudden demand in these regions has created new bottlenecks. Industrial reinforcements and logistical reorganizations in high-end packaging could well take place there.

The Chinese Eldorado

China has not been left behind as this new form of globalization spreads. Destined to become the world’s leading luxury market, it is now a customer. And this does not only concern multinationals like the LVMH group and L’Oréal, which are already firmly established in the country. Major Chinese fashion, beauty, and spirits brands are emerging and they will need local suppliers. Reputed for their culture of quality, European manufacturers have a card to play here. Where it once imposed a joint-venture with a Chinese partner, the Chinese government now authorizes businesses with 100% foreign capital to establish sites within the country’s borders, in sectors that are considered “non-strategic.” In the luxury packaging segment, partnerships are widespread and the practice remains common today. The difference is that these alliances are no longer limited to re-exporting goods made in China, but are now turning their focus on local brands on the domestic market.

Italian group Pusterla, specialized in luxury boxes and more specifically in coffrets—a voluminous product that is better manufactured as locally as possible—has always favored Europe in its acquisition-based growth strategy. Its main factories are located in Italy, France, the UK, and, when it comes to producing at the lowest possible cost, Pusterla relies on its own sites in Moldova and Tunisia. It wasn’t until 2018 that the company formed its first partnerships in Asia. “Initially, the objective was to take advantage of the Asian ecosystem to propose high added-value coffrets, like multi-material versions. The second aim was to position the company to offer our European clients on-site supply chain solutions that they might need. Finally, our Asian location will support our development goals in the local market,” explains Luca Meana, Chief Financial Officer at Pusterla.

Virospack, a Barcelona-based company specializing in cosmetic droppers, has taken another tack. The company has opened a sales branch and an inventory warehouse in Shanghai to sell its products made in Spain in China. “In the medium term, we will have a production unit in China,” says Marketing & Communications Manager Rosa Porras Mansilla. “This factory, which we are building, will give us the ability to deliver personalized dropper packs with shorter lead times to Asian clients, while better serving a host of international brands doing business in Asia.”  Finally, it is not impossible to imagine that Chinese brands will want to add prestigious “made in France” or “made in Italy” labels to their products, becoming major importers of European materials, components, and  packaging— and, in a way, rebalancing trade. 

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