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Brexit and the Beauty Industry

June 27, 2016

Even though I’ve lived in Australia for the last 13 years and recently become an Aussie citizen I have retained a keen interest in what the UK is doing.  Hard not to when you have an office there specialising in EU Responsible Person work AND the majority of your family.  So BREXIT was very much on my radar and I feel it is important to weight up what this may mean for both me and my customers moving forward.

The short answer is I don’t know.

The long answer is much more interesting.

The Realize Beauty EU Office opening

Before I go into details I’ll give a (very) potted history of Europe.  

Club Europe seemed like a jolly good idea after the second world war and was originally designed with the idea that if we play together, we stay together.  As we all know Money Makes The World Go Around and that plan sure did have merit.  The club started off in 1952 as three international organisations or European Communities covering coal, atomic energy and economics.  Britain wasn’t directly part of this in the beginning but in 1973 it joined along with Denmark and Ireland and became part of the EEC (European Economic Community) taking the number of member states to 9 (the others being France, Italy, Luxembourg, Belgium, West Germany and the Netherlands) .  As an aside before 1973 Britain was trading  strongly with its commonwealth brothers and sisters and its decision to join the EEC affected Australia and New Zealand very strongly  sending many farming industries into a tailspin.

By the 1970’s the focus of the EEC was to facilitate trade between the nations and reduce the costs of doing so and that’s pretty much where the focus has been ever since with each country that joins agreeing to put some money into the pot for EU wide projects and basically work towards making trade between the nations easier.

The EU came into being in 1993 (when I was 19) when the Maarstricht treaty was enacted.  This treaty centred around three pillars:

  1.  Supranationalism (political communities made up of multiple nations which make decisions together as one) and intergovernalism (unanimous agreement between governments rather than majority voting by the populace).
  2. Common Foreign and Security Policy (CFSP). It is the official Foreign Policy of the European Union, which deals with issues such as commercial, trade, security, policies and dealings with third-party countries.
  3. Police and Judicial Co-operation in Criminal Matters (PJCCM)

Another aside.  There has been much talk in the BREXIT coverage about the fact that only 30% of young people voting in this referendum and that out of those 30%, 70% voted to stay in Europe.  Looking back I remember talk of the Maastricht treaty, I remember the channel tunnel project and I remember various stories about the EC changing to the EU.  At that point in my life I read the paper and watched the news every day and was reasonably interested in the whole thing but I can’t remember having an opinion on whether I agreed with what was happening or not.  I doubt I had the capacity at 19. I  was in my first year at Uni, had just been sick and was saving to go travelling.   I just thought that was interesting……

Anyway, the Maastricht treaty is where things get interesting for the UK in Europe.  The UK never completed the process by adopting   the Euro (Denmark hasn’t either) or its social charter (you know, the bit where everyone gets treated nicely) but the UK has still had to abide by many of the other clauses in this treaty including keeping deficit under control.    This became a big deal in the late 1990’s and early 2000’s while John Major was in power in the UK. It continued to be a big deal with Tony Blair who was more keen than Major for us to adopt the currency.   We never did (see, I still say ‘we’. I can’t help it).  What the Maastricht Treaty started was a move towards greater powers for Europe. The treaty has been amended over the years by many others including the Amsterdam, Nice and Lisbon treaties  (Lisbon was implemented in 2009 and the UK wasn’t happy about some of that either).   I’m not confident at this stage to interpret the Lisbon treaty but it centred around the treatment of immigrants into the EU, Britain opted out of that.

So while it is right to say that Britain has been in a structured political alliance of Europe for over forty years the size, shape and reach of that relationship has changed over the years and resulted in what we now have which is BREXIT.   Rather than see BREXIT as something that has come out of the blue, I’d turn your attention to a paper published by Chatham House in 2011 entitled ‘The Future of the European Union: UK Government Policy’.  

European Cosmetic Market.

Before 2012 cosmetic regulation was just a set of industry regulated guidelines, a  suggestion , but since then cosmetics have been regulated in a tough but reasonably fair process.  This process includes proving your products are safe for use (toxicological review),  are stable (physical and microbiological stability), have suitable and sensible usage instructions,  are labelled correctly and consistently,  are measured correctly and have in-market controls in place via a responsible person.

When these laws first came into place many small, boutique or home-made cosmetic brand owners simply gave up due to the huge financial burden they faced in complying with the new regulations.   That said, the vast majority of cosmetic industry participants welcomed the changes in the law as it meant a new, all-inclusive and legislative process that would eventually raise the bar for the whole industry in terms of product quality and safety.   One area that has constantly come in for criticism though is that of the interpretation of fragrance risk and the characterisation of fragrance allergens.  This has been particularly contencisous in the area of essential oils, especially given that an essential oil is treated no differently (in terms of fragrance regulations) to a synthetic perfume.   There are debates as to the validity of treating essential oils and fragrances the same and arguments about how ‘known’ allergens are tested and regulated.

So what will happen in a post-BREXIT Europe?

I’m sure that the cosmetic law is not going to be the first thing on people’s minds so for now I think that the best advise I’d give my customers is to keep calm and carry on.

Many  brands use the UK as a base for Europe (including me and my office). This may no longer be relevant in future and a new head office location would have to be sought. In that case the next closest English-speaking Euro Port would be Ireland who is remaining in the EU.   So one might have to re-locate a UK-based responsible person but not until any exit had been fully facilitated which would be in another two years.

In terms of brands selling in the UK now there is no telling how the post-Europe UK will handle imports.  Will there be tariffs applied to protect UK manufacturing?  Will there be new labelling laws?  Will there be a whole new cosmetic law?  I really don’t know but again I’d keep close to current distributors and stockists and continue building your brand as it is unlikely that the UK will build a Trump style wall to keep the foreign lippy out.  Just be aware that there might be a UK recession and that might spread outside to the rest of Europe and impact sales forecasts,  citizens of the UK might also become much more patriotic in a bid to grow stronger and shun foreign-made goods.  If the UK is an important market for your brand you could start investigating UK manufacturers in a bid to do your bit for the UK economy but if you do that be aware that if money is very tight your UK manufacturer might struggle with raw material sourcing (although this is less likely.  It is however a possibility that manufacturing in the UK would become more expensive due to rising costs of transport and imports).

If you are a brand that is still going through EU registration and wants to sell in the UK has all been a waste of money?

To that I’d say no.  The testing required by the EU is very similar to that required by all major cosmetic markets including the USA, China, Japan, India, Malaysia and Thailand.  In addition, the testing is still a great basis for finding out if your product is robust and relatively safe.  So, while you may decide that Asia is a safer bet the testing done will still add to your brand Intellectual Property and further more it will give all other potential stockists and business partners faith in your products.

In terms of labelling regulations etc I’d say don’t worry.   The labelling requirements for the  are so thorough and organised that if is unlikely any new UK laws would be more stringent.  It is also highly likely that brands will want to re-brand before any of the changes become legal anyway so I’d carry on as if nothing has happened.

Will there be a lipstick effect in Europe/ the UK?

Cosmetic products generally do well in a recession environment as long as they are affordable (so out go the super-lux items).   The psychology of ‘a little treat for me’ is perfect for affordable, daily wear cosmetic brands (such as lipsticks which add a bit of glamour) so yes, if a recession happens cosmetic sales could rise (along with chocolate, tea and biscuit sales probably).  The only caveat on this is with regards to nationalism,  be sensitive to the mood and ‘buy local’ sentiment.

What things are likely to change about doing business in the EU/ UK?

Again its crystal ball territory here but you can bet your life that the costs of doing business will go up rather than down and that will favour brands that have some margin to play with (but don’t make margin by putting prices very high, people will be generally less well off).   I’d expect transport costs to go up as there will be more time wasted at borders and potential for tariffs, there will be banking cost changes and potential interest rate rises as the risks of doing business during this period increase,  there may also be tax hikes to factor in although none of this is guaranteed.

So what’s the bottom line?

As of today  while the people of Britain have voted out of Europe, article 50 of the Lisbon treaty is yet to be triggered so even though everyone is talking of how Britain has left Europe it still may not happen.

One thing I will say is that if you are/ were a believer in the Europe ideal then Europe would want you to continue to invest your money in it.  If you were always a bit Euroskeptical then don’t worry,  Europe will still accept your money.  If you had no idea before and are still confused then maybe you would be best to stick to the Australian market.

Have fun my little cheesy baguettes

Amanda x

 

 

 

 

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