Revlon - What went wrong?

Introduction?

The cosmetics company Revlon, which broke down racial barriers and set the standards for beauty, has applied for Chapter 11 bankruptcy protection. When Revlon was first established in 1932, it offered opaque nail paint. From that modest start, it developed into a billion-dollar company. The business has struggled to draw in younger customers who favour celebrity beauty brands like those from Rihanna and Kylie Jenner. Revlon, a fixture in bathroom cabinets since the Great Depression, dominated the cosmetics industry for a large portion of its 90-year existence. But in recent years, the business has faltered as a result of heavy debt and rivalry from newer cosmetics businesses. Coronavirus-related China shutdowns and associated supply chain snarls have now added further stress.?

The business claimed in court documents that supply chain snarls had resulted in fierce rivalry for the components used in its cosmetics. It was also mentioned that vendors wanted to be paid in advance for orders. The 90-year-old company claims supplier payments, inflation, and labor shortages have also been a problem. The business claims that it anticipates receiving $575 million from its current lenders to maintain ongoing operations. Following the announcement, its shares fell more than 13% in New York trading.?

History?

Charles Lachman, the innovative nail enamel inventor, and his brothers Charles and Joseph Revson launched it in 1932. In 1939, it started selling lipstick. During the 20th century's peak, Revlon was the second-largest cosmetics company by sales, after only Avon. It is now ranked number 22.?

Since its establishment in New York City 90 years ago, the company has been a mainstay on store shelves, managing a stable of well-known brands, including Almay and Elizabeth Arden. In 1970, Revlon became the first cosmetics firm to use Naomi Sims as a model. Famously, Mr. Revson courted female customers by extolling the virtues of matching red lips and nails. With its "Most Unforgettable Women in the World" campaign, which was photographed by renowned photographer Richard Avedon and featured several of the era's supermodels, including Ms. Crawford, Claudia Schiffer, Iman, and Christy Turlington, the brand saw its most prosperous years.?

Bankruptcy?

Revlon struggled to keep up with the times when women began switching from showy red lipstick to more subdued tones in the 1990s. Revlon's issues only worsened with the pandemic as lipstick gave way to a new period in fashion, including medical-grade masks. Revlon was already struggling under mounting debt. Sales fell 21% in 2020, the first year of the pandemic, but recovered 9.2% in the company's most recent reporting year due to the extensive use of vaccines. Revlon's sales increased by about 8% in the most recent quarter, which ended in March, but they are still below pre-pandemic levels of more than $2.4 billion annually. The contested asset transfer mainly occurred in 2020, when Revlon avoided default by striking an agreement with lenders that transferred collateral out of the reach of other creditors. It also inadvertently brought Citigroup Inc. into the controversy after the bank assisted in the deal's arrangement and later paid some creditors roughly $900 million when they should have been receiving a regular interest payment. That was one of the most notable blunders in the business, resulting in an ongoing dispute about who owned the $500 million that recipients did not return.??

Late Wednesday, Revlon filed a judicial protection petition in the Southern District of New York. According to court documents, as of late April, it had assets worth $2.3 billion and debts worth $3.7 billion. A firm filed for chapter 11 to keep going while formulating a repayment strategy for its creditors. In a statement, Revlon claimed that it had secured $575 million in so-called debtor-in-possession financing from current lenders to cover its costs while it was in bankruptcy. According to the corporation, consumers love their brand and continue to hold a firm place in the market. The company's complex financing structure, which has restricted its ability to handle macroeconomic challenges to meet demand, is its most significant obstacle.?

According to bankruptcy advisers, Revlon's bankruptcy may be a sign of worse things to come for consumer brands. Shopping has become more cautious due to high prices, rising interest rates, and recession forecasts. According to S&P Global Ratings, there have been 40% fewer defaults in the United States this year than there were last year.?

?The shift in the cosmetic industry?

The global COVID-19 pandemic has posed substantial obstacles for the international cosmetics industry in the past two years. The sector has expanded through the use of digital platforms. Around 25% of all beauty product sales worldwide are conducted online, but more significantly, online sales growth has altered the potential market reach of previously exclusive companies. The industry is walking on a digital path, with a significant portion of sales taking place online. Beauty brands are responding by beginning to think about the consumer experience online. To customize customer experience and distinguish their brands, they are creating facial recognition and color recognition capabilities.?

Competitors of Revlon embraced digital tools and began marketing their goods based on consumer demands. They started investing in AI, encouraging customers to try the items at home. Revlon did not adapt throughout time; instead, they continued to use outdated manufacturing methods that failed to attract customers. The digital age is transforming consumer experiences in the beauty industry. What is very interesting is that 20 years ago, which people anticipated being a mass market, is now highly fragmented with more innovative brands.?

?Impact of beauty influencers in the industry?

The 532-billion-dollar beauty industry is projected to increase by 805 billion dollars by 2023. Makeup companies are utilizing the influence of beauty influencers. They know the volume of customers they can bring in with just one mention of a product in a video. Influencer marketing is quickly emerging as one of the most effective strategies for promoting your makeup line in today's marketing mix, surpassing posters and billboards. In the last five to seven years, beauty influencers have changed the game to the point where even high-profile celebrities and luxury brands are working with them to capitalize on their cult-like following.??

Jeffree Star is perhaps one of the biggest makeup influencers in the world. Through the high quality, outstanding value, and minimal markup of his makeup products—something no other company is prepared to do—he revolutionized the business side of makeup. In 2014, he first began posting videos to YouTube. He had a very well-established singing career before that. He then declared bankruptcy and lost all hope for the future. He founded Jeffree Star Cosmetics with just three velour lipsticks from the little money he had left. He advertised his brand on YouTube. Five years later, it is a multi-billion-dollar company with 17 million subscribers, fiercely competing with other makeup companies like Kylie Cosmetics and Anastasia Beverly Hills.?

?Global slowdown?

All worldwide areas, including North America, Europe, Asia Pacific, and the rest of the world, have seen COVID-19's effects on the cosmetics sector. Procter & Gamble Co. and other cosmetic companies have suffered significant setbacks in the Chinese market. Stopping factory production in China has significantly impacted the company's global supply chain.? This affected the cosmetic industry majorly. The cosmetics sector was severely impacted by this. People were working from home due to widespread lockdowns and hence were not using cosmetics, which led to a fall in sales for the cosmetic business. Furthermore, the delivery of non-essential goods (including cosmetics) was stopped by major e-commerce companies, including Amazon.com and Walmart-owned Flipkart, which prevented people from purchasing cosmetics.?

?As we can see, staying current with the shifting trends in business is crucial, particularly in the beauty sector in this situation. Businesses cannot survive in this continuously evolving environment by adapting traditional methods and using them forever. Revlon took this significant move due to several circumstances, including disruption of the supply chain, pandemic, widespread adoption of digital technology, and keeping up with trends. Gone are the days when traditional marketing would help in branding and gaining customers. Businesses are bound to stay in constant contact with their audiences to understand their needs and cater to them.?