Revlon. Naam to suna hi hoga?
The 90-year old company is one of the oldest cosmetics makers and the longest-standing sponsor of the Oscars.
Famous for its iconic red lipsticks and nail paints, Revlon had managed to make its way onto every shelf across the world.
But no company is too big to fail.
Revlon is now filing for Chapter 11 bankruptcy protection in the US.
🧐 What's Bankruptcy Protection?
Wait, we have all heard about bankruptcy but what is bankruptcy protection?
Well, bankruptcy is when a company or an individual is absolutely unable to pay their debts. In such a situation a trustee is appointed by the court to liquidate (sell) their assets and pay off creditors.
However, bankruptcy protection is like saying "Time Please" to bankruptcy.
It's when a company knows that they are unable to pay off its debts but wants just one more chance to make things okay.
So, they file for bankruptcy protection and ask for a little more time before their assets are liquidated to buck up and rebuild their businesses.
That's exactly what Revlon is doing.
And to do this, it is getting a $575 million loan from its existing lender base to give this business a final chance.
But why is such a huge company in this position?
Let's take a look…
🔍 What's Wrong with Revlon?
😷 Issue 1: The Pandemic
How can we discuss any recent crisis without bringing up the pandemic? Thanks to Covid, the whole world faced supply chain shortages, the impacts of which we are still facing. And the beauty and cosmetics industry is no different.
Over 30-40 raw materials are needed to make one lipstick. Plus, a whole lot of packaging.
And the price of all of these skyrocketed during the pandemic.
The price of plastic, for instance, increased by 60%-80%!
Some of these prices are still very high thanks to the Russia-Ukraine war and China's lockdowns.
This has increased costs for Revlon by around 25%-30%. And because people were anyway not keen on buying products during the pandemic because who needs makeup when you have masks, it couldn't really pass these costs on to the customer.
Now, this was not a problem unique to Revlon. Lots of cosmetics and skincare companies faced this but bounced back fast (thanks to Lipstick effect).
However, Revlon had other problems which weighed it down, not allowing it to recover from this setback.
😯 Issue 2: Revlon's Inability to Evolve
For the longest time, Revlon had been working on the "why fix when it's not broken" model. It continued selling its trademark red lipsticks and similar old-fashioned makeup products. Not only that, it didn't really focus on the online marketing game. And for a while, this no-innovation approach worked for Revlon.
But you can't last in the market if you don't innovate.
With time, people's makeup preferences changed.
Red was no longer the go-to lipstick colour: nude was now in.
New companies entered the market to fill the space left behind by Revlon.
They leveraged the power of social media, unlike Revlon, to drive more sales.
And they were successful.
Glossier, Huda Beauty, Ulta and not to mention the numerous celebrity-launched brands like Kylie Cosmetics and Fenty Beauty have all managed to take over Revlon, thanks to their social media marketing campaigns and innovative and inclusive product ranges.
Result? 2021 sales were down 22% from 2017. Meanwhile, other brands gained market share by investing more in improving products and supplies.
But Revlon still holds a respectable space in the beauty market and could have managed to stay in the game. Especially as the brand had finally taken e-commerce sales up to 20% by innovating and launching new products that blend makeup and skincare.
So, what was the final nail in Revlon's coffin?
💰 Issue 3: Massive Debt
Revlon has a massive long-term debt of $3.7 billion while its assets are only worth $2.3 billion. This debt comes as in the last few years the company has been trying hard to revive its market share. To do this, it also acquired Elizabeth Arden in 2016 (after taking a $1.8 billion loan). This has amped up its debt, while sales have still lagged.
And after the pandemic, creditors are less keen on extending credit to the company. So, Revlon is close to bankruptcy.
This could be a lesson for all the major companies that are currently making rapid acquisitions on the back of huge loans (you probably know what we’re talking about).
However, not all hope is lost. Several major companies that once filed for bankruptcy, for instance, General Motors, Marvel and Chrysler, are now ruling the world.
If Revlon bucks up and innovates it can also get back in the game.
⚡In a line: Revlon's failure to innovate, its massive debt and the pandemic have all led the company to bankruptcy.
💡Quick question: Will Revlon be able to rise from the ashes like a phoenix?
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