Beauty brands face tough choices as tariffs drive up costs

With the pause on tariffs on goods and services compliant with the United States-Mexico-Canada Agreement (USMCA) expiring today, CPG industries across the US, including the cosmetics and personal care sectors, are closely watching how they will potentially be impacted in the coming weeks.

Maderazzo, who is Professor of Marketing at Pepperdine Graziadio Business School, shared her expert insights into the current effects of the Trump administration’s tariff war and how industry stakeholders can assume an anticipatory position in the weeks and months ahead.

Rising costs and supply chain disruptions

“The rising tariffs are particularly of concern between major trading nations like the US and China, specifically affecting raw materials sourcing and packaging imports for beauty and personal care companies,” Maderazzo told CosmeticsDesign. For example, “most of the packaging provided to the industry is imported from China or Southeast Asia”, she said.

For manufacturers and suppliers, she continued, tariffs drive up material costs, as well as freight, inspection, and customs clearance costs, too, and subsequently, “this is going to cause margin compression and companies will have difficulty maintaining their suggested retail price without compromising quality, leading to thinner profit margins.”

As a result, many manufacturers have had to increase product prices, making competing in a price-sensitive market more difficult. “We are seeing brands making difficult decisions, from reformulating products with alternative ingredients to reducing packaging costs,” she explained.

To mitigate these challenges, she suggested strategies such as diversifying sourcing to tariff-free regions, optimizing packaging design, negotiating long-term supplier contracts, leveraging technology for demand forecasting, and adopting eco-conscious branding.

Supplier diversification and manufacturing shifts

To counteract the impact of tariffs, manufacturers and suppliers are actively seeking alternative sources. “Some companies are seeking domestic alternatives, while others are diversifying their supplier base to reduce reliance on heavily tariffed imports,” Maderazzo said.

However, shifting to new suppliers is not without its challenges, as “requalifying ingredients and securing reliable supply chains takes time and financial investment,” she added.

In some cases, companies are also moving production to countries with more favorable trade agreements. For example, she highlighted that some industry brands are shifting from China to Mexico or to APAC countries to circumvent the costs of the increased tariffs.

However, she clarified, “These transitions require significant logistical and regulatory adjustments.” Additional hurdles exist for smaller brands who do not retain ownership rights over their intellectual property, she added, requiring that they “figure out how to replicate their branding and packaging with new suppliers,” which “will take time—it is not easy to move manufacturing, and it can take many months if not years to set up new suppliers.”

Other burdens may have an impact on smaller brands as well, she continued. While the US beauty industry maintains a $2.6 billion trade surplus, tariffs could disrupt this balance. “Small businesses are more vulnerable than large multinational brands,” she warned.

“Unfortunately, we will see some small independent brands shutter,” she added, as they may not “have the infrastructure to handle the cost, complexities, delays, and shifts in sourcing to survive.”

Challenges for international beauty brands

The impact of tariffs extends beyond US-based manufacturers. “With the rise in tariffs on European beauty products, international brands—especially those from France, Italy, Germany, and the UK—are already facing significant headwinds in the US market,” Maderazzo explained.

“Retailers may be hesitant to carry or reorder tariff-heavy products due to higher wholesale costs,” she said, which may result in those retailers shifting “their buying to tariff-free brands or private labels,” and “while cult-following brands (e.g., La Roche-Posay, Caudalie, etc.) may retain loyal customers, others risk being swapped for domestic alternatives with similar efficacy at lower prices.”

Navigating the future trade landscape

Despite the looming uncertainties of where the tides of the tariff war will potentially turn, Maderazzo remained optimistic about the sector’s overall health. She noted that historically, beauty sales have remained strong during economic downturns due to the ‘Lipstick Effect,’ where consumers continue to purchase affordable luxury items despite financial constraints.

“You can ask anyone who wears makeup, ‘If you were on a deserted island and could only take one product, what would it be?’ The answer is lipstick or mascara, every time!” she said. “These products remain identity expressions, especially for Gen Z and Millennials,” and “whole the behavior may shift from high-end lipsticks like Pat McGrath Labs or Charlotte Tilbury to more affordable options like Fenty or Rare Beauty: the category will remain strong!”

To encourage industry stakeholders grappling with tariff-related challenges, Maderazzo suggested that businesses must remain agile and proactive. “To thrive amid volatile trade policies and economic uncertainty, beauty brands must move beyond short-term fixes and build resilient, adaptive strategies across product, supply chain, and customer experience,” she said.

She advised that “there are some strategies that should always be in place for situations like this.” For example, “When a company is dealing with offshore suppliers, they need to have dual sourcing in place.”

Further, she recommended that industry companies “build a diversified supply chain, multi-source, and avoid dependency on suppliers in one country.” To that end, she suggested brands “look for vendors that have plants across the globe who can provide great service in multiple locations.”

Maderazzo also emphasized the importance of reimagining product design for resilience. “Use modular packing systems that allow for quick material substitutions for when availability and cost are at risk,” she shared. “Product formulas should have widely available or regional ingredients to mitigate sourcing volatility,” she advised.

Most importantly, she noted the need for brands to align with evolving consumer values. Considering that “consumers are savvy and more cautious” and “are loyal to brands with clear values,” she reiterated that it is advisable to remain open to shifting “messaging from luxury for luxury’s sake to luxury with meaning (e.g., ‘clean, conscious beauty’).”

Instead, she shared, “companies should emphasize sustainability, transparency, cruelty-free certifications, and ethical sourcing,” as “consumers are willing to pay extra for values that align with theirs.”

The outlook for the industry remains uncertain, but manufacturers and suppliers who adapt their strategies to manage costs, maintain innovation, and find supply chain solutions will be best positioned for success. “The brands that succeed will remain flexible and strategic in how they respond to these economic pressures,” Maderazzo concluded.