All told, the product I’d been spending $10.99 on likely costs about $2, plus or minus 50 cents, to make. (None of the face-wash brands mentioned in this article would comment on their costs or production methods.) If that’s what it costs to make a bottle of my face wash, I wondered, where had my money been going? Let’s start with Cetaphil. Sixteen ounces of the stuff sells for $13.49 at my local CVS. The marketers I consulted said that margins can vary greatly from product to product, but that a good rough guess is that CVS pays Cetaphil half of the sticker price of each bottle. For simplicity, let’s call that cost $6.50.
This is not a bad deal for Galderma: It made a thing for probably not more than $2.50, and sold the thing for $6.50. And it’s not a bad deal for CVS, either: It bought a thing for $6.50, and sold the thing for twice that. Both companies use that money to cover their many costs—for Cetaphil, that likely includes marketing and research and development, and for CVS, that likely includes rent and labor.
The economics get more interesting with CVS’s private-label face wash. In this scenario, CVS charges customers $2.50 less than it does for Cetaphil, but, because it’s buying from a manufacturer instead of a brand, gets to acquire the product for probably not more than $2.50 (instead of $6.50), so it comes away with a bigger margin.
Christopher Durham, the president of the consultancy My Private Brand, explained the cost of buying a brand-name product this way: “What you’re paying for is science and innovation and marketing and the brand on the front of it and the distribution, and then they have television commercials. There’s a lot more than just the cost of goods.” When a company like CVS orders up a private-label version of a product, Durham told me, it “can get away with reducing all that.”
Amazon contorts these cost structures even further. While it does have some physical stores, it has far fewer than CVS does, so CVS’s costs for rent and labor are likely much higher. Given that, and many other efficiencies working in Amazon’s favor, Amazon can still make money by selling its products at lower prices, even though it has overhead costs of its own, for things like shipping and warehousing. For instance, the per-bottle price of Cetaphil on Amazon right now is about $9.50 (though you have to buy two at a time).
The combination of Amazon and private-label production is what can make the economics of face wash seem truly bonkers. Mountain Falls is a lot like a private-label brand: Its bottles closely resemble Cetaphil’s, and while it isn’t owned by Amazon, it does sell exclusively to Amazon.
Imran Karim, the founder and CEO of Trophy Skin, which sells skin-care tools, said that Amazon, like CVS, might buy health-and-beauty products at a price of about 50 percent of what they sell to customers for. If that’s the case, Amazon pays about $2 for a bottle of Mountain Falls face wash that sells for $4. Its margins are probably much lower than CVS’s, but it and Mountain Falls are likely each coming away making a profit anyway. (Vi-Jon, which manufactures Mountain Falls products, didn’t respond to my requests for comment.)