As a billionaire, Ron Perelman has been at the helm of the beauty company for more than a decade, but the company is struggling under mounting debt and changing beauty standards. A variety of factors are believed to have contributed to the company’s demise, including:
Revlon has struggled with mounting debt
The cosmetics giant has filed for bankruptcy due to its growing debts and the challenges of competing with the new generation of celebrity-backed make-up brands. Revlon owns brands like Elizabeth Arden and Almay, and has partnered with Britney Spears, Megan Thee Stallion, Sofia Carson, and more. The company purchased Elizabeth Arden in 2016 for $870 million, but the crisis has put the firm on the brink of collapse.
The company filed for bankruptcy in May, as its financial troubles escalated. Its troubles started in the spring, when its supply chain fell into disarray. It was forced to compete for ingredients, forcing vendors to demand upfront payment for new orders. Inflation and labor shortages exacerbated the situation. A single tube of Revlon lipstick contains about 35 to 40 component parts, putting the company’s finances under severe pressure. As a result, consumers are shifting to cheaper alternatives.
In 2000, Perelman invested millions in Revlon, and declared it one of the “great consumer brand names” in a Forbes article. However, Revlon has struggled to regain market share. In January 2022, it sold its East Hampton estate for $84 million, and listed assets between $1 billion and $10 billion. A new generation of cosmetics entrepreneurs has emerged in response to Perelman’s bankruptcy filing.
The company’s global supply chain has also been affected by a number of factors. The company said it was unable to meet customer orders because of rising costs and supply chain problems. This led to the company to sourcing additional suppliers for key materials. The war in Ukraine and the covid lockdown in China prompted shipping to double in cost and time. These factors are not permanent, however. Revlon said it is working to improve its situation and is committed to making improvements to its supply chain.
The company also failed to adapt to changing tastes. As women began to stray from bright colours and became more minimalist, Revlon was slow to catch on and failed to keep up. Competition was increasing, with new entrants making the most of celebrities and their social media followings. In addition, Revlon’s costs were too high for the company to meet these demands. As a result, it was forced to file for bankruptcy.
Rising competition
In mid-April, the company filed for Chapter 11 bankruptcy protection, which aims to improve its long-term outlook and shed debt. The company was already facing challenges from rising competition in the industry and changing consumer tastes. In its bankruptcy filing, Revlon also said it will address issues like liquidity constraints due to supply chain disruption and rising inflation. But that won’t necessarily be enough to save the company. More restructuring will be required.
The company has been struggling in recent years, with sales falling from $2.6 billion in 2017 to $1.9bn by 2020, despite the onset of a strong economic recovery. Inflation may have also been a contributing factor, but Revlon had pioneered the beauty industry and was the epitome of ‘all-American’ style. The company also relied on a celebrity-endorsed strategy to appeal to consumers. Its brand name, meanwhile, offered consumers an aspirational experience at a drugstore price.
The company’s share price dropped after news of the filing. Its CEO, Ronald Perelman, said that the company was learning from celebrity launches, including Kylie Jenner. It has also reduced development of new products, which would have meant a long wait. The company listed assets of $1 billion to $10 billion. But a bankruptcy filing isn’t a good time to start a new cosmetics business.
The company expects to remain in business despite the filing. The company will file its customary “First Day” motions, which will allow the company to continue paying vendors under normal terms. Employee benefits will also continue to be paid as usual. And Revlon’s management hopes that its bankruptcy filing will not affect the company’s long-term prospects. If this happens, Revlon could see a dramatic improvement in its long-term prospects.
After filing for Chapter 11, Revlon’s sales could rebound. The company has been focusing on online services, including virtual consultations and celebrity launches. It has also been doubling down on online services, launching online services like Elizabeth Arden’s virtual consultations. In 2016, it invested $870 million in Elizabeth Arden, which houses popular brand names like Christina Aguilera Fragrances and Britney Spears’ perfumes.
Changing beauty standards
When Revlon filed for bankruptcy in March, many industry watchers wondered what it meant for the cosmetics industry. The company had faced supply chain issues that led to intense competition for ingredients, and labor shortages and price hikes added to its woes. A typical tube of lipstick requires 35 or 40 raw materials, component parts, and packaging, making the issue of changing beauty standards more pressing than ever. Despite these challenges, the company retained restructuring expert Robert Caruso to help get the company back on its feet.
However, the company’s stock has taken a hit too. The company recently bought Elizabeth Arden, the brand that houses the popular perfumes of Christina Aguilera and Britney Spears. While sales are down 22% from 2017 levels, they are expected to rebound by 22% in 2021. Revlon is expected to recover by 2020 if existing lenders provide $575 million in additional financing.
In addition to the deteriorating economy, the company also faced increasing competition in the market. The COVID-19 pandemic has caused freight costs to soar and has prolonged shipping times. Lockdowns in Shanghai and Russia have further disrupted the supply chain. Consequently, Revlon shares plunged 44% on Thursday. During the previous week, shares of the company fell by 12%, while closing down at 13%. Even before the bankruptcy filing, shares of Revlon had already fallen by 40%. However, this drop wasn’t enough to keep the company afloat, and shares closed down 13% on Thursday.
While it’s hard to imagine a world without Revlon, its history is rich and diverse. It was the company that broke racial barriers and dictated beauty trends for more than ninety years. With a stable of household brands, Revlon has made a lasting mark on the cosmetics industry. However, the company has not kept up with the changing tastes of women, resulting in losing market share to rival brands. And with the help of celebrities and new technology, it’s a different story.
Supply chain challenges
Supply chain problems are a common problem for any business, and a bankruptcy filing for Revlon is no exception. As a result of the bankruptcy, the company is struggling to acquire materials and will soon have to cut production levels. In addition, the company faces increasing competition in the retail sector, so it is at risk of losing retail shelf space. To mitigate the impact of the bankruptcy, the company expects to receive $575 million in funding from lenders.
As of this writing, the company expects to get $575 million in debtor-in-possession financing, which it plans to use to finance day-to-day operations. Meanwhile, it has listed more than $3.54 billion in liabilities. However, the company says none of its international units, except Canada and the United Kingdom, are included in the bankruptcy proceedings. Mittleman Brothers, which owns 3% of the company’s stock, expressed hope that equity holders would receive a decent payout.
As of March 30, Revlon’s inventory and supply chain are experiencing significant disruptions. As a result, the company cannot meet even one-third of its customer demand. Moreover, the company is unable to meet the rising cost of shipping parts from China to the United States. The company was able to take advantage of Chapter 11 provisions to reorganize its portfolio, but the older brands were losing customers.
As of this writing, Revlon is still in the process of restructuring its portfolio and could emerge from the bankruptcy with a slicker balance sheet and improved operating profile. While this is not a certainty, it does provide a temporary solution to the company’s supply chain problems. The company does not carry large inventories of products, and a shortage of 35-40 raw materials would shut down production for the related SKUs.
Despite the bankruptcy filing, Revlon has reported its best first quarter results since 2016, albeit a net loss of $67 million. This is a surprisingly positive figure, as Revlon had fallen behind pre-pandemic levels of sales. Its competitiveness was also strained by the launch of new cosmetic companies. Newer beauty start-ups, like Kylie Cosmetics and Rihanna’s Fenty Beauty, are already challenging traditional brands. The company also faced labor shortages.
