Top 7 threats facing your business - and how to respond
In this webinar, the following is discussed:
CPG industry & counterfeits: new market research results
New trends in the CPG industry
How are leading cosmetics brands responding to new challenges?
What can cosmetics brands do to protect themselves from counterfeits?
New Intellectual Property threats for cosmetics brands
Counterfeit cosmetics in ecommerce
Hello, everyone, and welcome to today’s webinar on counterfeit cosmetics in e-commerce, a look into 2021. This webinar is brought to buy brand intelligence leader Red Points and Cosmetics Business, a multi-channel communication platform for the cosmetics industry.
Before I get to the fun parts, I have two small housekeeping requests. One is that just about everyone’s screen to the right there, you’ll see a bell icon. If you could meet this by clicking on the icon that would be hugely helpful, and it will stop the other attendees from hearing or notifications throughout the webinar.
Also, you’ll notice that to the right of your screen, there is an option to send us questions. And at the end of the webinar, there will be a dedicated Q&A session where the Red Points team will be answering anything that you’re eager to know.
The ongoing COVID-19 crisis at associated lockdowns internationally have transformed the way consumers buy beauty products. We no longer take the time to browse supermarket shelves for commodity goods. We’re no longer shopping for leisure in department stores or more to their friends and working from home habits me many of us can’t simply pop into a drugstore for cosmetics as part of our daily commute.
Understandably, e-commerce, already a growing sales channel has become increasingly important. But what forms of e-commerce are benefiting? What cosmetics are selling fastest online? And does this uptick in online retail make beauty brands even more vulnerable to counterfeiters?
To answer these questions, and to help you navigate these complex times, Red Points has conducted a comprehensive consumer poll of the fast-moving consumer goods industry, also known as the consumer packaged goods, or CPG. Industry, for those of you across the pond. And this includes beauty. And it was to ascertain how consumer shopping habits have changed as a result of the pandemic and what the biosecurity implications of this might be.
So, without further ado, I’d like to introduce you to today’s panel, we have:
The Covid-19 pandemic has dramatically accelerated the move towards online retail across the board.
Market research company Euromonitor International predicts that, for the United States in 2020, e-commerce generally – not only for the beauty industry – will be just shy of $672bn. This would compare with $514bn in 2019. And Euromonitor predicts that the US e-commerce retail market will reach nearly $721bn in 2021.
When it comes to beauty, we can see a similar pattern. In 2020, online sales for luxury beauty products doubled in the UK, according to data from the NPD Group.
From January to October 2019, e-commerce accounted for 21% of the prestige cosmetics market. From January to October 2020, in contrast, it accounted for 41% of the prestige cosmetics market.
And it’s safe to assume that these shopping habits are going to continue if not become more pronounced while we progress through the worst of the pandemic.
But if people aren’t shopping via bricks-and-mortar, what are their online retail preferences? Because not all digital routes to market are the same. Where and what are people purchasing online? And what new shopping trends can we expect to see emerge in 2021?
These are questions we will be answering today with our speakers.
And in the second part of the webinar, we will also share some best practices from companies in the cosmetics sphere that have been quick to adapt to today’s new normal.
And with that, I’d like to hand over the reins to Daniel, who will share some key shopping trends from Red Point’s research.
Thank you, Julia, and thanks for a great introduction to today’s webinar. And for those of you who may not be familiar with Red Points, Red Points is the fastest growing brand intelligence platform in the market to make the internet safer for both brands and consumers.
Today, we’re working with a little over 800 brands removing, identifying, and removing counterfeits across marketplaces, social media platforms, and standalone e-commerce sites, again to all of you, thank you for joining us. And for that, we’ll get started.
As Julia mentioned, we commissioned a survey of 2000 US consumers we did it in I think it was December 18 through December 30. With our goal to better understand the shopping habits and trends inside the CPG industry. And again, as Julia mentioned earlier, to make sure we’re all on the same page CPG for us is consumer packaged goods.
And in Europe, it tends to be FMCG, fast-moving consumer goods, but we’re talking about everything from everyday products such as food, beverages, clothing, tobacco, makeup, cosmetic household products, and even OTC over the counter medicines. So that was the concept behind it. And as you’ll see in today’s presentation, the cosmetic and totally straight industry is expected to see major growth in the way in which consumers buy online in the months and years to come.
So for those of you who might be interested in this report, the commission, you’re welcome to go to our website at https://www.redpoints.com/resources/ or I think we’re trying to pop it up right here, I’m not sure if we’re able to do it, there it is, we’re able to pop it up right here in the webinar.
So for those of you who would like to get a copy, just go ahead and click Get My Copy. And you’ll have a copy of this report. And I think you’ll find it to be very interesting. If you don’t just click the dismiss and it will disappear for you.
And so without further ado, let’s get into what we think are seven trends that we identified coming out from this report. Now when you get the report, you’ll see there’s a lot of really great information. We ourselves selected seven topics we think here that look to be really interesting trends.
So for trend number one, what is the most popular online purchase for cosmetics and toiletries? We asked people what CPGs have you bought online in 2020? The majority of the survey respondents said they had bought cosmetics and cleaning products. Not on this list, but interestingly close third item was over-the-counter medicines was another popular one.
Now, however, what’s interesting here is historically, sales for cosmetics have largely come from physical brick and mortar stores with relatively smaller amounts in the e-commerce space.
Having said that, according to a recent report from McKinsey, there are signs that the beauty and cosmetic industry has been one of the sector’s most resilient during the pandemic and I think that’s really a great piece of information.
The report also published at the end of the year found that the beauty and health industry in the cosmetic and beauty industry would see continued growth each year in the range somewhere between 20 and 30% during this pandemic, period so really good news for the cosmetics space.
Trend number two, when we asked which CPG products are you planning to purchase in 2021, the good news is shoppers are planning to continue to spend in the cosmetic product area, while we saw consumers getting more and more comfortable with the convenience and selection of online purchases in 2020.
We do see that 2021 expects to be another successful year in this space. So really good news there.
When we look at trend number three from our report, we looked at what areas are the go-to channels for business and marketplaces seem to be the go-to answer.
So when we asked folks what products they think you’ll buy in the cosmetic and poetry space, perhaps not a huge surprise, but when we asked these respondents to consider where they would buy their cosmetics and beauty supplies. marketplaces like Amazon, eBay are clearly the go-to channels.
You can see that following marketplace is, you know, supermarket retail sites, brands on websites are strong, which is great. And interestingly, but not on this report, it’s on our report, but not on this chart, excuse me, is 25% of the respondents said they intended to buy their CPG coming up in 2021 on messaging apps like WeChat.
Now I think what’s interesting here, it means that brands have to keep an eye on the changing pressures and be fluid about where consumers intend to get their product. In a recent report, by Retail Insights released back in August of 2020, they expected that that share of health and beauty would somewhere increase around 23% each year by 2025. Also really good news.
Also in that report, it anticipates that the Health and Beauty online sales in marketplaces platforms, such as Alibaba, Amazon, JD.com, and Pinduoduo will account for about 65% of the beauty online sales by 2025. So that’s massive. And of course, it means that the strategy for cosmetic and beauty brands will continue to change and grow, as these trends continue to materialize.
We asked another question, which was trend number four where we looked at why it is open season for counterfeits? And the question we asked people was, do you think you may have purchased a counterfeit in the previous 12 months?
So you can see that 56% of the shoppers had bought a counterfeit. Now that’s crazy. And obviously significant to know that counterfeiters have noticed this trend of cosmetics and beauty growing. And they’re very quick to jump on this. So it hasn’t got outside their perception.
We asked another question, which was if you had knowingly purchased a counterfeit, and this, unfortunately, again, crazy, but of the 56% of the people who bought counterfeits 62% of those people answered, yes, they bought it because it was cheaper.
And of course, this is an alarming statistic for brands sort of a punch in the stomach. As we know millions of people have had tough financial times in strains during the pandemic. And so more and more price becomes the number one reason in buying decisions. One consumer trend that is also important to discuss is the pandemic has forced more buyers to buy CPG-type products on E-commerce.
Many of these consumers have never purchased on E-commerce before they were traditional brick and mortar that really means to us is that we have less sophisticated consumers entering online shopping for the first time. And they may not know the telltale signs on what to look for, or not to be taken advantage of or exploited by counterfeiters. So I think again, as brands we think about, there are more and more consumers coming online to buy.
Not everybody is sophisticated and how they approach online shopping. So something to think about as we go forward. We also asked one other question, which was what products do you believe were counterfeit.
Now, unfortunately, most of the highest number of in our survey were cosmetics at 14% followed by cleaning product, OTC and even baked goods, which is interesting. Lastly, we asked these consumers, where did you buy these counterfeits? And the most popular e-commerce sites for cosmetics were marketplaces followed by social media platforms.
Now social media have grown significantly over the years with many turning to these channels to buy goods and services, mainly because of the impact and influence of influencers right. I mean, that’s a big strategy for most companies today.
Now trend number five is the perceived quality of fakes. So the question we asked folks were of those who had purchased counterfeits online, what was your perception of the quality? Now, this trend goes back to what I was mentioning earlier, which I believe is critically important.
And that fact is the appearance of fake cosmetics, which may seem harmless can even actually have a perceived quality of good. And this is, again, it’s generally bad news for brands because our data showed that 50% of the respondents thought the counterfeit cosmetics were good and even exceeded their expectations.
That’s a little bit frightening because we have no idea what was in that product. And to some consumers, it was okay. So something to really sort of scratch your head about.
And when buying online, we asked the question when buying online, what’s the most important factors that you take into consideration when buying and as I had previously mentioned, because of the pandemic price being the number one reason, of course, followed by product reviews, and product reviews are one thing I would say for all brands to keep an eye on not only your product reviews on your own websites, but product reviews on marketplaces because when you see marketplaces, product reviews start to deteriorate. It’s a really good marker that maybe there’s a counterfeit infiltrating into some of those marketplaces.
And something you should be aware of is keeping an eye on those reviews.
Now, trend number six, are brands losing trust? In the eyes of the consumers? The question we asked people if buying fake affects your perception of the brand? And unfortunately, the answer was that counterfeits create a losing situation for brands, not only are brands losing revenues, as consumers buy fakes instead of genuine and legitimate products.
But the insult to injury I think is even more tragic. Some may think that consumers, when they buy a fake might be angry at the marketplace, or maybe at the social media platform. But what we see from this response is that they tend to hold the brand responsible. And you can see again, 47% of the vote of the people in this, do not trust the brand. And this number seems to be moving up all year long.
We have commissioned I think around four or five surveys during 2021 in different industries and toys and fashion and fitness. And we saw early on in the year that maybe 25% held the brand responsible and then we saw maybe at 30%, at 47% it’s the highest we’ve seen so far. And I think more and more consumers are getting frustrated that brands need to be doing more.
So finally, the last trend number seven, our bronze brands losing revenue because of the counterfeits when we asked if you would buy from the brand again. Again, the results are not so great. Similar to our previous slide, we showed that 47% would no longer buy from the brand. Can I have you moved there, thank you 47% said they would no longer buy from the brand.
This is very concerning, obviously because counterfeits pose a significant threat to the cosmetic brands’ revenue. And as you guys know, in the cosmetic industry, you know, all of your designs are carefully reviewed, all of your products have gone through rigorous testing. And you can’t compete financially with counterfeiters.
And again, you know, I think about sometimes if it wasn’t hard enough to do business already to compete against yourself. And I think when I when I say that I mean, you have a legitimate product up there and a counterfeit product up there and a different price. And in one instance, you’re competing against yourself. And I think in today’s world, brands can’t really afford to share even five or 10% of your sales with a counterfeit. It’s a tough and terrible situation.
And I think there is a lot brands can do. So listen, those are the seven trends I wanted to share with you. I look forward to you taking a look at our report. But I’ll wrap up maybe and summarise three quick comments.
With today’s report that I shared with you, here’s the good news. The cosmetic and beauty business is growing rapidly on E-commerce. And I think that’s really great, great, great news for all of the brands, too. Is that not so good news is that counterfeiters are keenly aware that the cosmetic and beauty industry is growing and they’re there to take advantage of your consumers.
And then the third sort of takeaway would be this. I think brands need to be aggressive in the fight. They’ve got to be proactive. They’ve got to be nimble, develop a strong brand protection strategy, and prepare themselves to take advantage of the upcoming growth in the cheap and the CPG category online. So that’s my quick overall summary. At this point, Julia, I’ll send it back to you. And thank you for your time this morning, everybody.
Fantastic. Thank you so much for Daniel, for anyone who may have joined us a little bit after the introduction, if you can see the little bell icon just to the top right of your screen, if you can hit that, that would be hugely helpful. Thank you.
In recent months, we’ve witnessed major beauty brand owners investing in their teams responsible for e-commerce. So, Esteé Lauder Companies has hired Gibu Thomas, formerly of Pepsi, to lead its online strategy.
Coty, meanwhile, recently appointed Jean-Denis Mariani to the new role of Chief Digital Officer; and Avon has just hired Karen McElhatton, formerly of P&G, as Chief Technology Officer.
So, what we are seeing are the first steps by beauty players in the direction of a major digital overhaul in response to growing demand for online services.
As Daniel mentioned, e-commerce platforms play an important role here. Research by Retail Insight, released in August 2020, not only predicted that online shares of health and beauty sales would grow globally by more than 16% last year, it also anticipates that of these health and beauty online sales, the platforms Alibaba, Amazon, JD.com, and Pinduoduo will account for 65% of these health and beauty online sales between 2020 and 2025.
Another important factor is social strategy. So, for many consumers, social media has become more essential than ever to connect with friends and family they can’t see in person.
So, it makes sense that because more of us are at home scrolling through social media rather than outside doing things, companies are marketing to us via these channels – we’re sitting ducks!
And you can see this is a priority by companies’ activity. On Instagram, users can now shop for beauty and fashion products via its IGTV space – that’s been since September.
Snapchat recently signed a deal with beauty tech provider Perfect Corp, which will let consumers use beauty ‘try-on’ features on Snapchat, and Pinterest is likewise rolling out its Augmented Reality capabilities across geographical markets.
So social media players are tooling up to make themselves better destinations for beauty shoppers.
All in all, therefore – with the move towards e-commerce, especially by maybe naïve consumers who are new to online retail, and more online channels opening up, there is something of a perfect storm for counterfeiters to take advantage of.
For this part, I’d like to pass it over to Miriam Ritcher, Trademark Attorney, she supports many brands protecting their IP, including Ofra Cosmetics, a Vegan Beauty & Skin Care brand and Ofra Cosmetics has been using Red Points’ brand protection software and Miriam to bolster their IP strategy.
Thank you so much, Julia. As Julia mentioned, I represent Ofra cosmetics, a local business, I’m in South Florida in the United States with one location, they do all their manufacturing in their headquarters buildings, and that is it. Yet Ofra has a huge counterfeit problem. They have a very, very large social media footprint. And so with that comes a large counterfeit problem.
So I have a picture that if we could bring it in this picture shows an authentic product and counterfeit products side by side. As you can see, the counterfeiters have actually done a very good job of imitating our packaging as well as our product. What’s interesting is that Ofra went through a complete brand refresh in the summer of 2018. And almost immediately, these counterfeits with the new logo hat were found all over the world. It’s hard to tell when you look at them separately, side by side even they look quite similar. But unless you actually look at them together, it’s almost impossible to tell which is which.
The authentic brand tube for the long-lasting lipstick is a tad shorter, and the inside of the barrel is square while the counterfeit is round. The labeling on the end is also different. But all in all, they’re doing a very good job of mimicking all of the new packagings. Unless you look closely again, both of these products look very similar. However, they did not spell blusher correctly, they left out the H of one of the other giveaways is that on the back it says made in PRC.
Well as I mentioned, all of our first products are made in the United States. So this is a huge problem when consumers don’t know they’re getting fake cosmetics online. Ofra has taken a big step in combating this by employing Red Points to weed out all of the counterfeits online because Ofra is a direct to retail manufacturer, then it becomes highly, highly critical. If we could go to the next slide.
So as a trademark attorney, one of the things that I found globally is that imposter and counterfeit or trademark filings are way way up. It is quite interesting that they are very, very bold. And it’s not just a question of making the counterfeits and putting them out in the marketplace but rather they are taking these steps to prevent brand owners from being able to enforce their trademark rights.
Many countries do not have strong procedures for this and require registered trademarks if you want to enforce your brand. And so by the imposters and counterfeiters filing for trademarks, they are effectively blocking the company from obtaining their own trademark in certain countries and making it much much harder to enforce against the counterfeits at the same time. Cybersquatting, which has been around for as long as the internet has been around, has been kind of flat. I think that’s one of the trends. I’ve seen that cybersquatters are not gaining any more ground than they had in the past.
But it also I have seen a trend that cybersquatting also depends on your business model. For instance, for Ofra a direct to retail brand, it is not a huge problem. However, brands that have exclusive retailers are seeing cybersquatting grow. So that is something to consider in terms of how you plan your expenditures for combating counterfeits, you need to tweak it according to your business model. online platforms by far are the worst of locations for online counterfeiters. And that, again is where Red Points is key because they have the ability to do a lot of that enforcement for you when you identify products as being counterfeit.
Globally, there have been some changes in intellectual property law that have benefited brand owners tremendously. China updated their intellectual property law last year. And we’re also already seeing better results in litigation and procedures in China, which is by far the largest source of counterfeit products for my clients.
Interestingly enough, the US has just changed the law, its trademark law effective January 2 of this past year. And one of the key aspects of that is that we now have the ability in the United States to presume irreparable harm from counterfeiters. This is quite key because proving the harm is often the hardest part of litigation, the most expensive part of litigation. And so it is now law in the United States that if someone is infringing your mark, you have the presumption that they are harming your business. So that is a very, very big win for trademark owners.
I think that the takeaways from this are basically you need to be extremely proactive in how you monitor the marketplace for counterfeits and what actions you take. One of the things I learned just yesterday about Chinese law is that or at least brand protection in China.
When filing a trademark in China, you don’t just want to file your trademark, you want to file a translation of your trademark into Chinese because the Chinese consumers will be using that name. So it’s important that you control that as well, because it will be translated by the counterfeiters. So if you’re the first to translate it, and file for trademark protection of the translation as well, you are getting way ahead of the counterfeiters.
So proactivity and creativity are the keys to continuing to prevent the counterfeiters from gaining the upper hand. One thing you should always remember is that there will always be bad actors out there who feel that they have a lot more fun making money. By seeing how many laws they can get around them by doing it the right way. So they will always be there. So you need to change with them, and be creative in your brand protection. And with that, I think I will turn it back over to Julia.
Technical Editor at Cosmetics Business
General Counsel at Harvey Milk Foundation
VP of Brand Relationships at Red Points