The vast value creation potential of building a premium beauty brand to global scale ensures that it remains an incredibly competitive space.

New entrants to the haircare, skincare, cosmetics and fragrance markets are numerous, all chasing the disruptor growth multiples that the global giants are prepared to pay to maintain their dominant positions.

However, very few make it.

Those that do have to be acutely focused on, and excel at, their product development, brand positioning and go-to-market strategies. These can be significant barriers to entry in themselves – adding infrastructure complexities, such as B2B and DTC fulfillment, may push an already stretched management team beyond their capacities and capabilities. This, whilst consuming limited budget that should be allocated to the above three core fundamentals.

Consequently, this piece will assume that the decision has already been taken to use a 3PL fulfillment partner to manage beauty fulfillment and the distribution of product to both DTC consumers as well as B2B retail channels.

This should be the first move - scale and growth can create optionality to inhouse. The debate over in-house vs 3PL ecommerce logistics can be explored separately.

So, what are the considerations for a beauty brand owner when thinking about choice of fulfillment partner?

We have identified a number that we consider to be key to this debate. From cost of service to access to data, read on to find out.

Cost of service: assessing the price of beauty fulfillment solutions

It will be beyond the experience of a typical prestige beauty brand owner to have sufficient knowledge to critically assess costs quoted in a fulfillment selection process as sensible and fair. As a minimum, a three-vendor approach should be adopted.

To adequately qualify any pricing given in a fulfillment request for proposal (RFP), several additional factors must be considered

1. Courier access and service level

Access to courier services and service level is one of the primary considerations when looking at the cost of potential 3PL providers. The 3PL partner may dictate which courier service is available and at what cost. Margin will be added on any cost pass through.

Plus, because delivery on the doorstep will be the only physical touchpoint between brand and consumer, this is a factor that should receive substantially more thought and interrogation than it often does. 

2. Automation capabilities and efficiencies 

Does the 3PL provider have investment in automation or are their processes manual?

In the absence of automation, a vast majority of any 3PLs cost base will be staff costs. In the UK, the National Minimum Wage, which serves as a good proxy for cost base, has increased by 28% between April 2021 to April 2024.

This is a cost that must be passed on to the client so contractual protection must be sought to protect against future increases. A well-invested, automated provider may offer greater protection against rising inflationary costs. 

3. Hours of work and shift patterns

The hours and days of work and shift patterns can significantly impact the levels of service provided by a 3PL provider. There is a fundamental conflict in any 3PL between service levels extended to clients and the cost base and client profitability that comes with it (but more on this later). 

4. Quality of packaging

Ever received a damaged parcel and have it tinge your perception of the brand you bought from? The quality of packaging must be considered within any pricing regime with reference to a robust system that will prevent a damaged delivery.

This is where the added value of a sophisticated 3PL provider must be considered beyond the price tag. Particularly for a beauty brand where the products inside could be damaged, the right cosmetics fulfillment partner can make all the difference to your brand loyalty level.

Scale potential: Is the 3PL able to adapt to your growth ambitions?

Changing ecommerce fulfillment services will always incur costs and is potentially disruptive to continuity of supply, so you want to minimize the number of times you need to change solution. Key to this is considering the growth potential within the relationship of choice.

When assessing the scalability potential of a 3PL, points to consider here will include the overall size of footprint, including existing surplus capacity as well as track record of growth and expansion.

International reach: can the 3PL help build your beauty brand abroad?

The ambition of any brand will be to globalize having established a successful model in the home market. Managing commercial relationships, technology and service levels across multiple 3PL partners globally should be unnecessary if adequately factored into that all important first move.

Consideration here should be given to existing footprint by country as well as length of time already spent in territory which will ultimately guide to local market knowledge.

Key also will be to examine courier relationships already in place and the cost and service levels attached to these, the latter of which is best determined by the time from order to delivery.

Category experience: Selecting specialists in beauty and cosmetics fulfillment

Most 3PLs will operate across multiple categories and the same skill sets will apply to most consumer categories.

That said, there are nuances that will impact on delivery success, particularly when it comes to the beauty industry.

For example, in beauty and cosmetics there is a propensity for products to be damaged in transit, with pump action lids and fragile bottling being some of the usual suspects. These risks often require bespoke packaging solutions within a standard box, so it’s wise to partner with a 3PL who can offer this level of cosmetics fulfillment specialism.

Additionally, HAZMAT delivery restrictions require consideration in beauty specifically. It is essential to ensure that the provider has the capability to deal with these products alongside non-HAZMAT items.

Access data and reporting to monitor fulfillment performance

To adequately measure and monitor performance from any 3PL, it is important to define a reporting suite that delivers the right information at the right frequency.

As a minimum, daily reporting should be available - showing % of orders processed and dispatched within the agreed timeframe, split down by delivery type. Additionally, time from dispatch to delivery at the doorstep should be available.

Reporting on inventory health and compliance is also important and is often manifested by order shorts where the inventory SKU could not be found in location. Also, it's well worth having reporting on any inbound delays and inventory items not available for resale.

Service levels and impact on the customer

Through THG Commerce’s fulfillment solution, we recently undertook a study across our own Beauty and Nutrition brands to quantify the impact on customer lifetime value (CLV) from repeat rates. The aim - the to establish the value of a customer returning beyond the first purchase, the latter of which can have a very high acquisition cost attached to it.

In the study, it was found that the predicted CLV immediately after the first purchase was £51. This CLV calculation more than doubled to £104 following the second purchase, increasing to £159 following the third purchase. The increase following the fourth purchase was then exponential to £477.

In summary, the payback metrics on customer acquisition costs transform if the customer returns.

So, the challenge for both marketeers and brand managers must be not only the part that fulfillment plays in repeat and retention metrics but also how can it impact upon acquisition cost – the fundamental determinants of a successful economic operating model.

The specific considerations should be as follows. 

1. Quality of service

Quality of service will manifest in whether the delivery is made within the timeframe indicated and in the expected pristine condition. The customer will hold the brand responsible for any failure here no matter how remote the brand is from the process. 

 2. Speed of service

You may ask: does speed of service even matter?

The largest, and arguably most successful ecommerce business on the planet has built its entire proposition around speed and reliability of service.

If this isn’t sufficient alone, it can be proven that CLV increases proportionately with speed of service. But can speed of service be used as an acquisition tool? 

3. Service as an acquisition tool

It may come as a surprise to many that, according to the same aforementioned study from THG Ingenuity, current ecommerce shopping behaviors mean that 70% of all daily transactions take place after 2pm. It's akin to a leisure activity. Indeed, approximately 25% take place between 10pm and midnight.  

A 3PL recently won an award for innovation acknowledging the nature of its partnership with a beauty brand for its ecommerce fulfillment.

Upon closer inspection of the brand’s service levels, it is stated that the daily cut-off time for a next-day delivery is 2pm and that this service is not available on a Sunday. This means that a next-day service is only available to 30% of all daily transactions and none on a Sunday.

Any first-time buyer (or even returning customer) looking for that product who wants it quickly will likely shop with a competing brand if they offer a better service. In this example, there is an obvious conflict between cost and service.

Shift patterns have been narrowed to the basic minimum with cost the only consideration. It is possible, with appropriate process and consideration, to satisfy both requirements. 

Fulfillment cannot be viewed as an afterthought, or as a commodity given to procurement teams to select on cost alone. Marketing functions and brand teams need to take active roles in understanding the relevance of fulfillment to their functions and get involved in the selection and performance of any 3PL fulfillment partner, with the above considerations firmly in mind.

THG Commerce: Specialists in beauty fulfillment at scale

THG Ingenuity has been trusted by beauty brands to deliver world class end-to-end ecommerce fulfillment and courier management services for over 20 years.

We’re obsessive about delivering your customer promise, putting them at the center of decision making and using operational data to drive a brand’s commercial performance. All through the lens of a fellow brand owner.

Beauty customers have praised the service we give to them, with over 19,000 five-star Trustpilot reviews last year alone, giving Cult Beauty and LOOKFANTASTIC overall positive ratings in excess of 90%.

We carry this passion through to all our partnerships, enabling clients to be asset light whilst leveraging THG Commerce’s best-in-class automated facilities and software, which have been developed with a DTC customer-first view.

Our clients also benefit from leading UK delivery service levels and a sophisticated courier management system all built to provide the non-negotiable quality levels today’s consumers expect.

Optimizing fulfillment and overcoming complexities is a dynamic challenge. Reach out our experts for a comprehensive introduction to our services.