The future of Revlon hangs in the balance.
When the iconic brand filed for Chapter 11 bankruptcy protection this summer, it was over $3 billion in debt, struggling with suppliers and on the verge of losing over $100 million in sales due to lack of inventory.
That’s a far cry from its origin story. In 1932, brothers Charles and Joseph Revson and chemist Charles Lachman founded Revlon and introduced a nail cream enamel. The product was launched in salons and then expanded into stores. Within a decade, Revlon was a multimillion dollar company and by the end of World War II it was recognized as one of the top five beauty brands in the U.S. For 90 years Revlon has been in the public eye, its products a fixture in stores around the world.
But, recently the company has been struggling. Even prior to the pandemic the foundation was showing signs of cracks with stalled sales and increased competition.
Those challenges intensified when COVID-19 spread and changed the world— including how people shop. During the height of the pandemic consumers were staying indoors, wearing masks and pulling back on beauty spend. Then most of retail began to have hiccups within their supply chains, with the pandemic revealing problems regarding geography, capacity and scale.
Now Revlon is facing a changed retail landscape. Can the iconic company find its way forward?
A problem with inventory and timing
Revlon produces a tremendous number of products.
The company creates and sells over 8,000 stock keeping units, or SKUs, including lipsticks, eyeshadows and fragrances.
Additionally, a large number of those products require up to 40 individual raw materials to manufacture. Revlon doesn’t maintain a large backstock, thus when there is an inability to source one ingredient it results in the shutdown of production of all related SKUs. A number of the company’s production facilities have had to temporarily pause or shut down this year due to lack of inventory.
Furthermore, going into the holiday season Revlon projected it would experience a loss of at least $87 million in holiday sales directly attributed to its inability to fulfill customer demand.
“Revlon would have had numerous more options if they would have filed three years ago, two years ago."
Jim Van Horn
Partner, Barnes & Thornburg
Revlon, of course, isn’t the only company to run into supply chain difficulties over the past few years. The pandemic injected a level of chaos into operations, sending brands and retailers scrambling to pivot and adapt.
In 2019, when holding company MacAndrews & Forbes — Revlon’s largest shareholder — entertained the idea of a sale, the company was already in billions of dollars of debt. Sales were falling, net losses widening, and the company experienced executive turnover.
Which begs the question — should Revlon have filed for bankruptcy sooner? Or pushed forward with a sale? Those actions could have potentially placed the company in a stronger position than it is today.
“Revlon would have had numerous more options if they would have filed three years ago, two years ago,” Jim Van Horn, partner and bankruptcy attorney at Barnes & Thornburg, said in an interview. “But I also understand exactly why they didn’t.”
That’s because executing a successful reorganization can potentially thwart a bankruptcy. “Many companies have had rough patches, and they come out the other side because they know what they are doing and they manage a plan and they implement it,” Van Horn said.
Revlon is entering into a different environment than a pre-pandemic world. The lingering effects of supply chain disruptions, inventory problems, inflation and interest rates all contribute to conditions that aren’t ideal when a bankrupt company is figuring out next steps. “It causes M&A activity across the board to almost grind to a halt because of the valuation issues that come into place,” Van Horn said. A challenging macroeconomic environment can also limit a retailer's option to sell off parts of a portfolio or hurt its ability to cut a new joint venture deal — “things that retail companies do all the time,” he said.
But the issues aren’t specific to retail, either. Inflationary issues and pressures from high interest rates force companies to borrow money or refinance at higher rates. “It’s hard enough to afford it when interest rates are almost zero, but now it’s just unbelievably unaffordable. And that’s just going to cause a significant increase in defaults.”
“One of the things I picked up from somebody a long time ago is that no debtor ever files too soon,” Van Horn said. “It’s always too late.”
Did Revlon become a CPG company?
Revlon wasn’t always teetering on an edge.
The company, with a portfolio of over 15 brands sold in more than 150 countries, was once a leader in the space.
Its first Fire and Ice campaign in 1952 had a partnership with Vogue and celebrity endorsements. It is also widely viewed as the first advertisement to center a woman's experience rather than a man’s, suggesting that lipstick could be applied for a woman’s own pleasure.
The company continued with messages of empowerment and aspiration as it launched era-defining products, like the smash hit fragrance Charlie. The company’s Charlie campaign featured model Shelley Hack wearing pantsuits and evoked tones of female independence and liberation, a distinct departure from other perfume advertising of the period.
In the 1980s, the company unveiled its Most Unforgettable Women in the World campaign, which featured high-profile models like Iman, Claudia Schiffer, Cindy Crawford and Christy Turlington.
Robin Albin, founder of brand management and strategy company Insurgents, was working with Revlon when it launched Charlie. “They were such strong advocates for strong, powerful women,” she said in an interview. “The fact that they sold out on that always seemed tragic to me.” Albin says that the company started centering product features rather than pushing forward as an aspirational brand.
“The aspiration was gone, it became packaged goods … CPG,” Albin said, pointing to the types of stores where Revlon is sold. “Revlon was in the department stores. When it came out of that it just became on the peg in the drugstores. That was also a moment when it lost its luster.”
Revlon over the decades has faced increased competition and battled for brick-and-mortar floor space and market share. Competition can be found in the drugstore space, but also at department stores, mass merchants, wholesale, big-box retailers and one-stop shops like Sephora and Ulta. Recently a formidable foe has come in the form of direct-to-consumer brands, which have particularly caught the eye — and dollar — of younger generations. And Revlon just hasn’t kept up, according to analysts.
“Revlon has gradually lost its US market share since 2018, but the pandemic dealt a further blow to the firm on top of existing financial challenges,” Lia Neophytou, senior consumer analyst at GlobalData, said in a June note regarding the company. Revlon’s value share of the U.S. cosmetics and toiletries industry decreased to 2.1% last year versus 2.6% in 2018, per GlobalData.
And while Revlon probably did not underestimate the power of its DTC rivals, it simply may have had trouble competing. “It is increasingly difficult for large, established, multi-national brands to compete with the brand loyalty that small, independent DTCs often acquire by authentically showcasing their brand development online, in real time,” Neophytou said in comments to Retail Dive.
The company has a difficult, but not insurmountable, challenge to rebuild a connection with its audience, Albin said.
“I think most people today don’t associate beauty with Revlon,” Albin said. “I think it’s been out of the radar for so long … Every five minutes there’s another brand. So, it’s sort of like they’ve been pushed down in the mind share.”
A missed opportunity?
Even as Revlon struggled financially, it still has had some crucial product moments in recent years, most notably the wildly successful One-Step Hair Dryer and Volumizer Hot Air Brush. The product, which currently has nearly 260,000 5-star reviews on Amazon, enables the user to achieve salon-type blowouts — all for a price tag of around $40.
The product went viral on social media, specifically TikTok, and inspired a deluge of how-to videos on YouTube, some of which went on to garner millions of views.
While a viral moment featuring a hit product would seem to be enough to reinvigorate a brand, it is not a straightforward way to build momentum.
”What happens to a lot of companies is that you don’t sustain and build off of something that you’ve done,” Albin said “It’s like ‘okay, next, on to the next.’”
Revlon’s financial challenges have likely prevented it from investing in advertising and technology that align with changing consumer behaviors, Neophytou said.
“Revlon is active on social media but could have leveraged emerging platforms more intensely to generate additional sales as it faced growing competition from celebrity and influencer-backed, online-first beauty lines like Fenty Beauty, which has a large, engaged social media following,” Neophytou said. “However, its financial challenges cannot be understated and investment in social media may not have increased sales enough to offset these entirely.”
While the company hasn’t been investing heavily in technology, other beauty brands have, including experimenting with features like virtual try-on tech. Adding AR options to a historically high-touch industry became especially useful during the height of the pandemic.
Furthermore, GlobalData found Revlon to be a “traditional laggard” when it came to such things as being a leader via innovation, while other companies have invested in disruptive themes including blockchain, robotics, augmented reality and virtual reality.
Being behind a technological curve may ultimately cost Revlon when it comes to its bankruptcy options.
“If an interested buyer was to take on Revlon, it is vital that it invests in technologies, as well as research and development and be active in terms of making deals if it wishes to pose a greater challenge to competitors such as L’Oréal,” Apoorva Bajaj, practice head at GlobalData, wrote in a September note.
A valuable IP
Since filing Chapter 11, Revlon has reached agreements with hundreds of suppliers, which has helped the company restart its supply chain. It has also “substantially improved” its trade credit and liquidity position, according to court papers.
The company also won court clearance to pay bonuses to some employees it identified to be critical to its operations, including executives.
Meanwhile, the New York Stock Exchange suspended trading of the company’s class A common stock. The NYSE is expected to complete the delisting “in the near future.”
“The Chapter 11 filing does not necessarily mark the end of the road for Revlon, and it is possible that another conglomerate will recognize its full potential and make a bid for the company,” Neophytou said, reiterating that the company still has a large portfolio, “that are still much loved by their audiences.”
“Alternatively, Revlon’s largest and fastest growing brands could also be potential acquisition targets for companies as opposed to a complete buyout of its entire product portfolio,” she said.
The Revlon name is still widely recognizable, Van Horn said, which translates to value. Revlon is “almost the definition of what an iconic brand is,” he said. “I don't know what would be more iconic than Elizabeth Arden … almost everyone knows Revlon, and they not only know Revlon, but they know the iconic brands that are under the Revlon umbrella.”
And that translates to value. ”They will have lots of options, and they do have lots of options to investigate and pursue,” Van Horn said.