Inside Revlon's Downward Spiral

For years, the unofficial opening of the National Association of Chain Drug Stores Annual Meeting was the posh Revlon party.

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Sheryl Crow, Alicia Keys, Kenny Loggins and The Beach Boys were among the headliners who entertained the chief executive officers of top mass market retailers. Revlon’s majority owner Ronald Perelman occasionally sat in on drums.

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The Breakers, Mar-a-Lago, Scottdale’s Phoenician and the Grand Wailea in Maui served as the venues where Revlon’ ambassadors including Halle Berry, Ashley Graham, Elaine Irwin, Emma Stone and Carrie Underwood posed for photos. One year, Cindy Crawford twirled on the dance floor with the teenage grandson of the ceo of a big supermarket chain.

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Attendees left with bags bulging with ?products—even chocolate replicas of Revlon products. ?

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This year the invite was not in retailers’ inbox.

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Retailers knew the end was near. Revlon has been slowly scaling down its festivities over the past few years, ?but this year the company skipped the April gathering (NACDS would not comment on its registration).

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After years of dodging bankruptcy, Perelman could no longer drum up support to keep his beloved Revlon out of Chapter 11.

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Although first quarter results reported in May showed progress, sales increased 7.8 percent to $479.6 million, it was apparent Revlon could not overcome its $3.7 billion of debt—exacerbated by millions of dollars of interest charges. Revlon’s full year 2021 net interest expense clocked in at $247.7 million—a significant amount for a company that generated a little more than $2 billion in yearly sales, noted one financial expert.

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Lingering supply chain issues, rising prices, the impact on cosmetics during the pandemic and competition from emerging brands are blamed for the 90-year-old brand hitting the breaking point. The pain of Citibank’s errant payoff of a $900 million loan, instead of just the interest in 2020, endures.

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The unraveling of one of the mass-market’s most legendary brands, however, began a long time ago.

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“Revlon has been trying to restructure its debt and has been struggling to stay relevant well before?COVID and the challenges introduced by supply chain disruption,” said Mathieu Champigny, chief executive officer of CoCreativ, Smashbox Studios and Industrial Color, who has more than 20 years of experience in creating campaigns for beauty companies. The heart of the matter is that Revlon needs to reinvent itself to engage consumers in a crowded market.

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It wasn’t always that way. In the early 2000’s, Revlon was the jewel of mass market beauty departments. ?“My years there were a time of innovation and creativity,” said Ron Robinson, the founder and ceo of BeautyStat Cosmetics, who was vice president of product development at Revlon from 2000 to 2004.

Steve Lubin, who spent 43 years at Walgreens, credited Revlon with color blockbusters such as ColorStay. “They were out front more than other brands for many years with what drives business—newness,” he said. Even to this day, he doesn’t think most American shoppers realize Revlon was teetering on bankruptcy; the name is “still gold.” The ColorStay franchise ranks within the top three-dollar sellers in eyeliner, eyebrow makeup and foundation, according to IRI.?

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Retail veteran Joe Magnacca, who worked with Revlon through positions at Loblaw, Shoppers Drug Mart, Duane Reade and Walgreens, credits the company with “building a brand for everyone.”

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But Revlon lost its step in the business it helped frame, according to interviews with former employees, retailers, financial experts and competitors. The biggest roadblock—a lack of innovation initiated by frequent management changes. The company also squandered opportunities to maintain its market leadership role.

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Perelman can’t escape scrutiny, but experts fault him more for his obsession with the brand and its image versus his understanding of running a beauty empire.

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“Revlon is an interesting case study in what happens when you don’t know anything about the beauty industry, but it just seems so exciting and glamourous that you’ve got to get into it,” joked one former mass market beauty buyer.

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Over the years, the dearth of meaningful products resulted in the reduction of shelf space by as much as 25 percent in major chains. And while many might point the finger at Fenty, DTC entries and celebrity brands,?Revlon faced more competition several years ago.

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Even fresh ideas such as Flesh, spearheaded by Allure’s founding editor Linda Wells, missed the mark in 2018 because Revlon wasn’t nimble enough to get its answer to Fenty out fast enough.

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?“They didn’t embrace change. It was predictable to see lagging consumer engagements which leads to bad sales results. It isn’t a matter of engaging a pretty model for a campaign; you need to rebrand,” said Champigny. “I love the brand but if you go into a store today you are seeing the same ad you saw in the 1990’s.”

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Social media was viewed as an afterthought instead of a strategic opportunity, sources added.

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A buyer who asked not to be identified explained Revlon has been reactive rather than proactive in new product development. “It tells me they were constantly looking for a quick hit and not playing a long game in beauty.”

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The changing of the guard—at least eight ceos in the past 30 years —halted Revlon’s chance for gaining traction.

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“A new president would come in and bring in a new team. They would barely get going and then when there weren’t any immediate results, that group would be kicked out and a new team would be brought in,” said a former beauty buyer.

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“This continual churn made for a very unproductive and ‘politically’ motivated decision strategy. The result of this is a reluctance to honestly assess concepts or decisions because you wanted to be perceived as getting along and working together. That doesn’t always help in the development of the best ideas,” she said.

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Added a source familiar with Revlon, “Each ceo could never get ahead of it. They put a focus ‘pushing’ products rather than a pull strategy. That drove revenue up, made the numbers look good but there wasn’t the sell-through.”

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An example, albeit from 2006, illustrates the challenges that continued to plague Revlon. Under Jack Stahl, Revlon launched Vital Radiance, a brand positioned for women 50-plus. After lukewarm sales, retailers jettisoned the brand, forcing Revlon’s to pay more than $40 million to take back products. David Kennedy pulled the plug on Vital Radiance one week after taking over as ceo in the fall of 2006.

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The constant churn opened the door for L’Oréal to gain share, said industry expert Allan Mottus who recently penned a book, “Fashion Paranoia: Down & Up Beauty’s Rabbit Hole,” which discusses Revlon’s history. “The only person who could run Revlon was Charles,” he quipped about Charles Revson—one of the brand’s founders.

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In addition to being slow to market, the company converted to SAP (a software designed to foster efficiencies) in 2018—a disaster retailers said that set the company back at least a year. “In the meantime, more space was cut by retailers because of Revlon’s inability to fill orders,” said a former drugstore senior buyer.

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There were squandered opportunities. One was backing away from fragrances where Revlon didn’t build upon profit producers like Charlie. Another was the mishandling Almay.

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“Almay was way ahead of its time. It was the first brand using hypoallergenic ingredients and certainly the first dermatologist brand. Almay could have been a leader in the mass market if Revlon had the resources to invest properly,” said Jeffrey Ten, chief revenue officer at Probeauty Partners. “There are so many derm brands today that came way after Almay that have a strong message and point of difference and Almay could have been one of those.”

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Ten added that Revlon’s acquisitions took attention away from Almay which could have been the “Clinique of the mass market.” Revlon further diluted the brand by expanding into color, several retailers added.

The Elizabeth Arden acquisition, which dates back to 2016, created lasting headaches. “Revlon bought Elizabeth Arden and didn’t seem to understand what they actually bought. EA had a department store business and maybe the idea was that would round out the portfolio, but they didn’t seem to understand the majority of sales and profits were in the diversion fragrance business,” said a mass market retailer. “EA had an owned, distributed and diverted portfolio and nobody seemed to understand that concept.”

Mottus concurred, “Buying Elizabeth Arden was a sign that Perelman didn’t understand the business as Arden was nothing more than a fragrance diverter,” he said.

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The financial difficulties became noticeable to retailers at the time of the acquisitions. “We were thinking ‘why would they buy EA?’ The fragrance business was not performing, and many retailers were reducing the category,” said a former mass merchant beauty retailer.

Mishandling its nail care business cost Revlon when that category roared back during COVID-19. “They made a terrible mistake in gutting out the nail enamel business, buying another brand [Sinful], and they did not understand how to integrate or even merge the two businesses. They weren’t positioned well with nail came back,” said a buyer.

Recently, Revlon fumbled an opportunity in a hot category—tools on Amazon, according to Vanessa Kuykendall, coo of Market Defense. She said Revlon’s original One Step Volumizer Hot Air Brush was a top seller with a buzz on TikTok. Then Revlon expanded into multiple colors and took deep discounts.

“They trained the customer to shop on sale,” ?she said. “A savvy customer will wait until you take your $99 MRSP down to $25 to $34 in selling price once they see that you do it all the time. What’s the incentive to shop full price? Once you’ve trained the customer that you’re not worth more than $25 to $34, it becomes much easier to shop the competition and international knockoffs at that lower price. It is a huge business for them on Amazon, but I think they devalued it by frequently discounting,” Kuykendall said.

The past isn’t Revlon’s friend going forward.

?“Revlon is up against multinational beauty conglomerates who have deep pockets and deep benches who can run rings around Revlon. The mass makeup business has fewer opportunities as prestige is discounted and has moved into mass merchandisers and other stores taking share from mass brands,” said Mottus. The brand hasn’t captured a younger audience while not retaining its core shopper.

What can’t be discounted is the equity on the name, especially in smaller markets not served by Sephora and Ulta. “Revlon remains one of our best brands and is important to our business,” said Troy Claussen, category manager at the Sioux Falls, South Dakota-based Lewis Drugs.

In a surprising move, Revlon’s stock skyrocketed last week. Reliance Industries, an Indian conglomerate, was said to be interested in the brand. Reliance is in talks to raise up to $8 billion to purchase Walgreen’s Boots. There was also chatter about short sells ala the Hertz model—retail investors who bought Hertz shares after it filed for bankruptcy in 2020 ended up with big profits when an investment firm offered $6 billion to take over the company.

But in its bankruptcy filing, Revlon expressed interest in restructuring debt rather than selling. Major surgery is needed to stem the bleeding, said Ten. He believes Debra Perelman has the experience to do so.

“I think Debra is doing a good job. She has been associated with Revlon for more than 20 years and even longer through her dad. She has tried some initiatives with social media and influencers that have done well. She has reached out more to the industry and retail than anyone else has and perhaps her approach of looking much deeper into the brands and taking a 360-degree view is the medicine that Revlon needed 30- plus years ago,” said Ten. “She also is probably the smartest ceo since Revson himself and even sharper.”