CVS announced they were going to carry K-Beauty in roughly 2,500 stores and many people cheered the news. Consumers cheered because now Korean beauty was going to be more easily accessible at affordable prices. Brands cheered because this meant increased and ongoing retailer acceptance of K-Beauty in the US mass market.
What could go wrong?
If you dig a bit deeper beyond the feel good press stories about the products that will now be available at CVS, you'll see that it could actually be bad for some brands.
2,500 stores = lots of inventory = lots of $
The Korean beauty market in Korea is pretty fragmented beyond the big guys like Amore Pacific and LG H&H. There are a ton of smaller players that make up a sizeable portion of the market and many of these niche brands are the ones that are coming Stateside via distributor/e-Commerce companies like Peach & Lily, Soko Glam, and Glow Recipe.
These small-to-medium sized brands that are now suddenly getting access to 2,500 stores in CVS may initially celebrate the distribution but when they stop and think about what's required of them, I'm sure, they quickly start panicking.
When CVS gives a brand 1,000+ doors they also demand a few months supply of inventory to ensure enough stock. If a brand has 5-10 skus at CVS in 2,500 stores and is required to offer upfront 3 months supply of goods for each sku for each store, this can easily add up to hundreds of thousands of dollars in inventory.
Financial investment aside, this kind of inventory volume can put a lot of stress on smaller manufacturers who, I'm sure, are not used to producing at this quantity level. I wrote about the how Korean beauty manufacturers are having to keep up with increased demand leading to longer lead times here.
Payment terms will probably not be that favorable because the brand will need to spend hundreds of thousands of dollars to produce enough inventory and not get paid for up to 6 months later. And that's assuming their products actually sell.
I've written before about the need for Korean beauty brands to think more strategically about marketing because access to distribution does not mean consumers will know to buy your product or have any reason to actually purchase.
k-beauty brands carry the most risk
These Korean brands in CVS are really putting themselves in a tricky position by producing such large quantities of product with no guarantee that they will sell, not to mention, not getting paid for it until many months later. If the products don't sell, the brands will be on the hook to take it back. If their finances are not well managed, this alone could put some brands financially under. It's no/low risk for CVS who pushes off the risk to brands.
While CVS is certainly an important milestone in K-Beauty acceptance in the US, brands should think about what it means for them from a working capital perspective and try to scale in a more responsible way otherwise their celebration will quickly turn into regret.
Who has seen K-Beauty products at CVS? What are your thoughts?