Just as we dust ourselves off and start adjusting to the new business environment created by the global financial crisis of 2007, we may be headed for another shake-up. Predictions of another financial downturn have businesses entering a new phase of uncertainty. So, just how do we move forward in such an economic environment? asks Karen Saad.
Some finance experts are claiming this uncertain, unpredictable time is the “new and permanent business environment,” and that, over time, it will be accepted as the norm. If you accept this prediction, then this new era is set to define the future of businesses, with those succeeding paying attention to the ever-present, critical areas of cash flow and new opportunities.
One of the most fundamental aspects of business management is maintaining cash flow. Short-term cash problems are certainly the main cause of business failures during a global financial crisis (GFC). Do cash flow and new opportunities go hand in hand? What impact has the GFC had on Australian manufacturing in the cosmetics and personal care/beauty industry? Nathan Wardell, Managing Director of Packserv Pty Ltd, sheds some light on these issues and why he believes the beauty industry as a whole has an optimistic attitude toward the current business environment. As a result, the industry is achieving spectacular outcomes.
Wardell explains: “I have worked in the packaging industry for the past fifteen years and noticed a clear shift in the way manufacturers are operating since the GFC with respect to packaging. They are finding new opportunities of real worth to their bottom line, and it’s refreshing and inspiring to see the growth they are achieving.”
The opportunities Wardell has been witnessing are varied and somewhat surprising responses to the GFC, given the current business environment. Manufacturers are looking at maximizing revenue using their staff, facilities, and resources in three key areas: traditional sales, manufacturing, and internet retail. While this may not appear exciting on the surface, Wardell assures that the results are.
As the owner-operator of a short or long-term packaging equipment hire business, Wardell sees it all: “the good, the bad, and the ugly.” He explains that in this financial climate, he is seeing many manufacturers cleverly engineering new strategies that are having a very positive impact on their business revenue and growth. “When they are busy, so am I—and they are busy,” he says.
Sales and Promotion
Some beauty industry manufacturers have responded to the GFC by going back to basics and focusing on a more traditional sales and promotion approach, including investing in advertising. According to Neilson, large businesses that have invested in advertising have reaped the rewards, with a 19% growth in skin care sales and an 8% growth in cosmetics and makeup sales in 2010, continuing into the first quarter of 2011.
Wardell provides an example of one of his customers who restructured their business by focusing on sales and promotion strategies. The business employed more dedicated sales representatives, partnered with like-minded businesses to manufacture alternative products with dual branding on container labels, and set up a distribution division that utilized existing marketing channels to sell and promote imported goods. Since implementing these strategies, the business doubled its revenue within 24 months and continues to grow.
Contract Manufacturing
Manufacturers who produce and package their own brand have also introduced new services to the market by offering contract packaging services for external businesses. This has allowed them to not only continue producing their own product but also to maximize production output and revenue by offering smaller volume runs to other labels.
Over the past twelve months, Wardell has seen many contract packaging outfits spring up. These unassuming contract packers are in high demand, hiring packaging equipment from Wardell to cope with the influx of work. He notes that while many beauty manufacturers have been quick to see and act on this opportunity, they need the versatility to troubleshoot and solve packaging issues quickly to succeed with this transition.
At the opposite end of the spectrum, some smaller beauty industry manufacturers are controlling growth and costs by downsizing, focusing on manual work and hiring small, slower-speed benchtop machines rather than investing in capital-intensive automated production lines and large premises.
Internet Retail
Recently, Australian 60 Minutes journalist Charles Wooley investigated the global phenomenon of e-tailing, dubbing it a “retail revolution,” with Australians spending around $15 billion annually on internet sales. Australia Post announced that 70% of the 100 million parcels it delivers nationally are generated by internet-based sales. E-commerce experts have predicted that Australian online shoppers are set to spend as much as $21.7 billion in 2015, up from $13.6 billion in recent years.
The e-tailing trend is fast becoming the new way of shopping, with some research indicating that almost 70% of consumers prefer to shop online rather than in traditional retail outlets. The convenience of browsing online for the time-poor shopper, the ability to compare products across many websites, and lower prices are major attractions.
For beauty manufacturers, this presents a new opportunity. Can new beauty businesses use the internet as a platform to launch their products and gain valuable exposure? New or smaller businesses now have the chance to compete directly with much larger competitors on a global scale. With no overheads related to shop leases or retail staff, businesses can invest in producing a professional website and fast-track their growth globally.
Wardell says many of his new customers operating in the beauty industry are solely internet-based retail businesses. He deals with customers who develop an idea, turn it into a product, and sell it online. “They hire the equipment to package their product, keep their overheads down, and their sales are global,” he says.
Off-Shore Manufacturing
There was a popular initial reaction to the GFC to move production offshore to reduce manufacturing and packaging costs, primarily due to lower labor costs in regions like China and Thailand. However, Wardell has seen many manufacturers return their production onshore after experiencing poor quality, costly reworks, and delays in going to market. These setbacks, combined with jeopardized brand reputations, have led many manufacturers to shift back to Australian-made products.
Charles Wooley was quoted saying, “When the world changes, the smart money changes with it!” It’s not all doom and gloom, as the new business environment prompts us to reevaluate how we conduct business, focusing on best practices and cost control. There are certainly great opportunities for existing businesses and new brands introducing products to the market.
For more information on packaging equipment hire and services, contact Packserv at 1300 377 512, or contact us.
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