Recently, Revlon, the US cosmetics company that emerged from bankruptcy earlier this year after reducing over $2.7 billion in debt, announced a series of executive changes. These include the appointment of Ted McCormick, who has worked at Unilever for over 10 years, as Chief Financial Officer, Geralyn Breig as President of North America, and Will Cornock as Chief Strategy and Transformation Officer. In early August of this year, Revlon also appointed Elizabeth A. Smith as the company’s interim CEO. Can this long-established cosmetics company, born during the Great Depression, turn the tide after overcoming its bankruptcy crisis and experiencing a major leadership shakeup?
Exit bankruptcy, Revlon undergoes a series of leadership change
Revlon was founded on March 1, 1932, by the Jewish brothers Charles Revson and Joseph Revson, along with chemist Charles Lachman. During the Great Depression, Revlon introduced the first opaque nail polish with vibrant colors and unique formulation, breaking the quality constraints of transparent nail polishes at that time. With its innovative approach, Revlon perfectly merged color and fashion, laying the foundation for its history. Subsequently, Revlon also pioneered the concept of matching lipstick with nail polish, and launched star products such as waterproof and smudge-proof mascara, foundation, etc., leading the beauty trends for a long time.
By the late 1930s, Revlon’s products were sold throughout the United States, and by 1941, Revlon had virtually monopolized the beauty salon industry. In late 1955, Revlon successfully went public, with an IPO price of $12 per share, which quickly skyrocketed to $30. In 1956, Revlon became one of the largest companies in the United States.
In the mid-1980s, Revlon faced its biggest upheaval in history. At that time, a group of “barbarians” on Wall Street, backed by capital, stormed the gates of brand capital, ousted the management, sold assets, and made hundreds of millions of dollars. The “barbarians” in front of Revlon were led by Ronald Perelman.
Ronald Perelman, through his company MacAndrews & Forbes, used junk bonds to maliciously acquire Revlon. On November 5, 1985, the then-president of Revlon, Michel Bergerac, was forced to resign, and Ronald Perelman took office as the new president of Revlon, as the largest shareholder.
However, after entering the new millennium, Revlon gradually began to falter. It lacked the financial resources to invest in proper revitalization, while newer, more culturally relevant brands were rapidly emerging and attracting a generation disinterested in purchasing large, mass-market brands. As early as 2003, Revlon’s debt issues began to surface, with approximately $500 million in debt that year, leading to the sale of many of its assets. In 2003, the company experienced 16 consecutive quarters of losses. By the eve of the 2008 financial crisis, Revlon’s market share in the cosmetics industry had dropped to 11%.
After 2010, Revlon experienced a brief period of growth. In 2016, Revlon’s net sales increased by 21.94% compared to the previous year, reaching ¥2.334 billion. The growth continued in 2017 with a year-on-year increase of 26.99%, reaching ¥2.694 billion. However, this marked the last period of glory for Revlon. Despite the increase in net sales, Revlon incurred consecutive losses for seven years from 2016 to 2022. In 2022, the company reported a loss of $619 million, with revenues declining to $2 billion from $1.904 billion.
Under the continuous loss-making situation, the COVID-19 pandemic became the final straw that broke the camel’s back. Revlon stated in its financial reports that supply chain issues caused by the pandemic were the main reason for the company’s operational difficulties. The supply chain problems resulted in material shortages, posing significant challenges for the company. Additionally, suppliers no longer extended the previous 75-day prepayment terms and instead required payment before order delivery, adding to the company’s financial pressure.
With consecutive losses, Revlon also faced severe debt problems. Starting in 2017, Revlon’s debt-to-asset ratio rose year after year, reaching an astonishing 182.8% in 2021. In June 2022, Revlon officially filed for bankruptcy protection. Documents revealed that as of the end of April that year, Revlon’s total assets amounted to $2.3 billion, while total debt stood at a staggering $3.7 billion. In October of the same year, Revlon was delisted.
On April 3rd this year, the United States Southern District of New York Bankruptcy Court confirmed Revlon’s restructuring plan, which would reduce the company’s debt agreements by $2.7 billion and formally exit bankruptcy proceedings by the end of April. According to the restructuring plan, Revlon would raise $670 million by selling new equity. This allowed Revlon to avoid bankruptcy.
After going through the bankruptcy crisis, Revlon also underwent significant changes in its top management.
In early August of this year, Revlon announced the appointment of Elizabeth A. Smith as the company’s interim CEO. Elizabeth A. Smith previously served as President of Avon. Recently, Revlon announced a series of executive changes, including the appointment of Ted McCormick, who worked at Unilever for over 10 years, as Chief Financial Officer, Geralyn Breig as President of North America, and Will Cornock as Chief Strategy and Transformation Officer. Revlon hopes to lead the company out of its difficulties through a restructuring of its leadership.
Failure to keep up with the major trends in the beauty industry
Analyzing Revlon’s failure, on the surface, it may seem like a chain reaction caused by the pandemic and insurmountable debt. However, fundamentally, Revlon failed to keep up with the major trends in the beauty industry, which is evident in its lack of innovation and expansion.
For the beauty industry, acquisitions are the simplest and most effective method to expand product portfolios and enter new markets. Developing a brand from scratch not only consumes time but also requires significant costs while acquiring established brands can efficiently expand product offerings and utilize the acquired brand’s sales network to enter local markets. During Revlon’s early expansion, they did not acquire mature and competitive cosmetics brands. The acquired companies varied widely, including a shoe polish company (Knomark), a Mitchum deodorant series, a toilet cleaner manufacturer (Ty-D-Bol), a women’s sportswear manufacturer (Evan Picone), and a U.S. vitamin and pharmaceutical company.
This also highlights the lack of a clear development direction in Revlon’s early expansion. They did not leverage their influence to acquire influential cosmetic brands and expand their reach. These acquisitions also wasted Revlon’s resources, such as Evan Picone, which was priced at $12 million in 1962 but sold back to one of its original partners just four years later for only $1 million.
Although Revlon later acquired a series of cosmetic brands, including Elizabeth Arden, Almay, and Mitchum, these brands did not demonstrate strong competitiveness in the market. In June 2016, Revlon acquired Elizabeth Arden to achieve business diversification and support its operations, primarily financed through debt. However, due to declining demand and a lack of innovation, the company’s sales have lagged for years, falling 22% below the 2017 level. This also plunged Revlon into severe debt problems, with a debt-to-asset ratio exceeding 125% for six consecutive years from 2017 to 2022.
The COVID-19 pandemic had a devastating impact on lipstick sales, and Revlon lacked competitive products to cope with this challenge.
In comparison, international beauty leader L’Oréal has gradually acquired various brands and currently owns over 40 brands, spanning skincare, haircare, perfumes, and specialized dermatological brands. They cover a wide range of categories, from high-end to mass-market products. L’Oréal manages its brand portfolio through four major divisions, each specializing in unique beauty businesses: Professional Products Division, Consumer Products Division, L’Oréal Luxe, and Active Cosmetics Division. This strategic product matrix allows L’Oréal to precisely meet consumer needs and has helped it become the largest beauty company globally.
Apart from the lack of timely product expansion, Revlon also fell behind in marketing.
“What has hurt the brand is its inability to adapt. Not just in terms of their products, but especially about their marketing and how they advertise,” said American beauty blogger Kelly Gooch in a video about the rise and fall of Revlon.
Revlon was once regarded as a pioneer in cosmetics marketing and was one of the most aggressive companies in the field.
In 1970, Revlon became the first American cosmetics company to feature an African American model, idol Naomi Sims, in its advertisements. In the 1980s, they launched bold campaigns featuring up-and-coming but diverse models such as Claudia Schiffer, Cindy Crawford, and Christy Turlington, who later became synonymous with high fashion.
With a flourishing business, Revlon’s strategy involved expanding sales through mass-market retailers and making significant investments in advertising. Like other traditional brands, they invested in editorial placements in magazines to drive shoppers to stores, relying on personal selling and beautiful displays to boost sales. This strategy was successful throughout the 2000s but faced significant setbacks thereafter.
Starting from the 2010s, the rise of social media revolutionized the marketing landscape of the beauty industry. Women no longer relied on beauty consultants at department stores to learn about the must-have products of the season; they started searching and comparing products online themselves. Blogs, forums, and other digital media platforms provide avenues for consumers to express their opinions about products and seek advice from fellow consumers.
Over time, brands like Revlon began to appear outdated and out of touch with reality, perceived as conservative and not in tune with current fashion trends. This was because social media and bloggers gave rise to new avenues for exposure for celebrity brands. These celebrity brands leveraged their existing fan base for exposure, diverting their traditional advertising budgets towards product innovation and developing supply chain advantages. Revlon struggled to compete with newer brands that heavily advertised on social media.
According to Kelly Gooch, Revlon’s marketing strategy remained virtually unchanged since the 1960s and lacked adaptation. In the past, Revlon experienced exponential sales growth after each TV commercial.
In the digital age, consumers easily discover many niche brands such as NARS, as well as celebrity makeup brands like Kylie Jenner’s. These celebrity brands have millions of followers who become loyal advocates for their products. In contrast, traditional celebrity endorsements lost their edge over brands like Revlon. In marketing, the four key elements are product, price, placement, and promotion. In today’s competitive market, relying solely on new faces in advertising does not provide substantial growth assistance. Brands need comprehensive optimization and improvement across these four elements to meet consumer demands and stay competitive.
Revlon’s failure can be attributed to a lack of a comprehensive product matrix and core brands that can compete with others, as well as a failure to keep up with the digital marketing models of the new era. In summary, they failed to keep pace with the evolving beauty industry.
Facing numerous challenges in recreating past glory
It is worth mentioning that China, as the world’s second-largest beauty market, is an integral part that global beauty giants cannot ignore.
Some brands that have deeply cultivated the Chinese market have experienced robust overall performance driven by the rapid development of the Chinese cosmetics market in recent years. For example, L’Oréal entered a phase of rapid growth starting in 2019. After three consecutive years of revenue growth below double digits, L’Oréal achieved a 10.9% increase in revenue to 29.874 billion euros in 2019, driven by strong growth in China. The Asia-Pacific region achieved a revenue growth of 25.5% and became L’Oréal’s largest market.
In 2020, L’Oréal’s revenue in China surged by 24%, and the Asia-Pacific region was the only region where L’Oréal achieved growth despite the impact of the pandemic. After overcoming the effects of the pandemic, L’Oréal experienced a quick rebound in 2021 and 2022, with revenue increasing by 15.3% and 18.5% year-on-year, respectively. The North Asia region also maintained its position as the largest market. The outstanding performance in the Chinese market has kept L’Oréal’s overall performance strong.
Another beauty giant, Estée Lauder, also relies on the Chinese market as an indicator of its performance. In the fiscal year 2021, Estée Lauder’s annual sales reached $16.22 billion, representing a 13% year-on-year growth. The domestic tourism in China, especially in Hainan, as well as the reopening of some other tourism businesses in the Asia-Pacific and the Americas, drove double-digit growth in the fiscal year 2021. In the fiscal year 2022, the group’s net sales reached $17.74 billion, a 9% year-on-year increase. The Chinese market, including shopping festivals like Singles’ Day and 618, contributed to the growth in net sales, and the Estée Lauder brand became the best-performing high-end beauty brand on platforms like Tmall and JD.com. Estée Lauder also benefited from the strong performance in the Chinese market throughout the pandemic. However, in the fiscal year 2023, Estée Lauder’s net sales declined by 10% due to the downturn in Chinese Hainan tourism retail. The company consistently emphasizes the importance of the Chinese market in its financial reports.
For Revlon, besides issues related to products and marketing, the lack of attention to the Chinese market has also posed significant challenges to its future recovery.
Since 1996, Revlon has been eyeing the Chinese market, entering a year earlier than L’Oréal. After it entered China, Revlon, with its internationally renowned brand and relatively affordable products, created a wave of popularity among young and fashionable women. In the era of traditional supermarkets, Revlon’s beauty products were highly regarded. However, Revlon’s development in China faced a series of challenges. At the end of 2013, Revlon announced its withdrawal from the Chinese market. The financial reports showed that in 2012, Revlon achieved a revenue of $1.43 billion, with its business in China accounting for only 2% of the company’s overall revenue. In 2013, Revlon even experienced negative growth in sales in the Asia-Pacific region.
However, in 2016, Revlon quietly returned to the Chinese market by acquiring skincare brand Elizabeth Arden and engaging in cross-border sales. In September, they opened an overseas flagship store on Tmall. Subsequently, in July 2019, Revlon opened an official flagship store on Tmall. These actions signaled Revlon’s renewed focus and investment in the Chinese market.
Nevertheless, Revlon’s performance in China has still been less than ideal. In late February of this year, Revlon announced that it would voluntarily terminate its operations as of March 15 and once again withdraw from the Chinese market.
The retraction of Revlon from the Chinese market can be attributed not only to its outdated marketing strategies and lack of localization but also to the rise of emerging Chinese brands.
This year, many cosmetic brands, such as e.l.f. and Etude House, have exited the Chinese market. Insiders have indicated that the reason for the withdrawal of many foreign cosmetic brands from China is their inability to keep up with the changes in the Chinese market. These brands still rely on traditional marketing methods, pricing strategies, or the influence of overseas celebrities to expand in the Chinese market, resulting in significant profit reductions in the domestic market.
Furthermore, the supply chain in the Chinese cosmetics market has become increasingly sophisticated, and a plethora of domestic emerging cosmetic brands have emerged. These local brands not only have the ability to innovate rapidly but also gradually recognize the importance of product innovation and deep consumer insights. Simultaneously, with the rise of cultural confidence, domestic cosmetic brands have captured a considerable market share in China. This has led to foreign cosmetic brands facing competition from continuously emerging local brands and declining profits, prompting them to choose to exit the Chinese market.
In recent years, a group of domestic cosmetic brands has swiftly risen by leveraging internet channels. Examples include Perfect Diary, Ododo, and Huaxizi. These brands closely follow the trends of Chinese culture and actively cater to the needs of young consumers. They have invested significant resources and capital in marketing. These local brands demonstrate a better understanding of Chinese consumers in terms of product offerings and marketing, making them more favored by Chinese consumers.
Therefore, for Revlon, despite avoiding bankruptcy this year through a $2.7 billion debt agreement and securing $670 million in financing, it will be challenging to regain its past glory.
Firstly, a series of senior management changes will require Revlon to redefine its future development strategy. The new leadership will have to address the mess from the past and formulate a long-term growth strategy suitable for Revlon. This includes building a strong brand, adapting marketing approaches to the current landscape, and, most importantly, repairing the faltering supply chain. This presents a significant challenge for the new management team.
In the external environment, both in the Chinese market and Revlon’s domestic market, the United States, competition in the cosmetics industry has intensified in recent years. In the United States, niche and celebrity brands have posed a certain threat to international beauty giants, including Estée Lauder. There are more well-known and emerging brands vying for consumer attention and market share. Reestablishing Revlon’s competitiveness requires addressing these competitors and providing unique value and appeal distinct from them.
Simultaneously, repairing the brand image and perception is also a challenge. Revlon’s past failures may have hurt its brand image, leading to consumer skepticism and distrust. Rebuilding the brand’s reputation and trust will take time and effort.
Revlon also needs to transform its approach to digitalization. While the company has been striving to enhance its digital influence, the transformation has not been smooth. Revlon faces the daunting tasks of optimizing e-commerce platforms, improving digital marketing strategies, and effectively attracting consumers online. One of the primary tasks is to change traditional marketing approaches to align products more closely with consumer needs.
One of the most significant challenges is rebuilding an efficient and agile supply chain. For Revlon, critical mistakes in the supply chain have caused a domino effect, resulting in consequences for many suppliers, customers, and creditors. The pressure from existing brands intensifies the competition for materials as those with good liquidity can pay creditors early and benefit from large orders and economies of scale.
To regain its former glory, Revlon needs to confront these challenges head-on. This may require a combination of strategies, including product innovation, brand repositioning, strengthening digital capabilities, and improving financial health. However, the path to revival is filled with difficulties, requiring strategic vision from the leadership and effective execution throughout the entire company.
