Case Study 6 Revlon, Inc. 5v216l

REVLON, INC. Case Study No. 6

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TITLE OF THE CASE: Revlon Inc.

TIME CONTEXT / PERIOD: 2007 to present

MISSION:

To emerge as the dominant cosmetics and personal care firm in the 21 st century by appealing to young / trendy women, health conscious women, and older women, with its variety of brand.

VISION: To provide glamour, excitement, and innovation through products at affordable prices.

CORPORATE SOCIAL RESPONSIBILTY: is given to women health programs and other community efforts, spending $25M in services and researches that help women. Some example of these women health programs are: 

Singer Sheryl Crowe served as a member of its advisory board on cancer research

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Revlon walk / run in New York and Los Angeles

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Partnership with National Council of Negro Women

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New York Women and Film

SUMMARY: Revlon has 79-year history of providing high quality products at affordable prices to women. Revlon considers itself a leader in quality cosmetics, skin care, fragrances and personal care among mass market cosmetic brands. Revlon is among the top cosmetic brands in the U.S., Canada, EU, South America, Japan, Hong Kong, Singapore, Korea, Taiwan, and the Philippines. The reason of Revlon;s success is not based solely on the Philippine consumers but on the company’s marketing strategy. Revlon was organized in 1932 by brothers Charles and Joseph Revson and Charles Lachmann with only $300 investment. In just six years, the three partners’ collaboration transformed the small nail enamel company into a multi-million dollar organization. The name Revlon became one of the world’s most recognizable brands and companies. From salons, the company expanded to drugstores and department stores. Aware of the changing roles of women, the company introduced the Charlie fragrance in the 1970s. By 1977, the sales for this extremely popular line sured $1B. By 1985, two-thirds of Page 2 of 11

Revlon sales were in health care products and acne medications. The company however was losing grounds in cosmetics. Ronald Perelman returned the company to its roots and sold off the health care products. He refocused the company to become an internationally known manufacturer and seller of cosmetics and fragrances. He made the company private from being public only to be a public company again in 1996 and is traded in NYSE. Four years ago, Chairman and CEO David Kennedy and his Board of Directors were faced with the agenda of the possible strategic moves the company should take in the light of a 3-year successive losses in operations. Looking at the Internal Factors that will affect the company, there are four. The first one is the social responsibility which was already stated above. The second one is the company’s Organization / Management. David Kennedy was selected chairman in 2006 and focused his program on cost cutting which included 250 employee cuts and restructuring to consolidate marketing / creative functions and international division. Restructuring costs $29M but with expected savings in expense of$34M per year. The third factor is the company’s Marketing. The primary customers if Revlon products are large mass merchandisers and chain drugstores. Some of Revlon’s Spokespersons are Halle Berry, Susan Sarandon, etc. For the Manufacturing and Distribution, production facilities were reduced and centralized to cover core regions. For a $200B business, worldwide competition is intense in the cosmetics and skin care industry. Revlon’s major competitors are Procter & Gamble, L’Oreal, Unilever, Avon Products, and Estee Lauder. Other competitors include Urban Decay, Bath & Body Works, Body Shop, etc.

The morning of the board meeting in 2007, Chairman Kennedy was without the usual latent smile on his face.

I. STATEMENT OF THE OBJECTIVES: 1. To be able to give advice on how Revlon Inc. Will regain their losses for the past three years. 2. To be able to help the company to think of strategies that they may use to compete in the industry and to sur the leading competitors. 3. To help the company on achieving their mission which is To emerge as the dominant cosmetics and personal care firm in the 21st century by appealing to young/trendy women, health conscious women, and older women, with its variety of brand 4. To be able to help Revlon Inc. on materializing their vision To provide glamour, excitement, and innovation through products at affordable prices.

II. CENTRAL PROBLEM: How will Revlon Inc. be able to regain their consecutive losses for the past three years?

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III. AREAS OF CONSIDERATION:

Strengths      

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Being a well-known company and being among the top cosmetic brands in powerful nations such as the U.S., China, Japan, etc. Having 79-years of meaningful experience in the business operations and providing high quality products at affordable prices to women. Being a leader not only in quality cosmetics but also in skin care, fragrances, and personal care among mass-market cosmetics brands. Revlon products are sold in more than 100 countries around the world. Having different product lines. Not only in cosmetics but also in pharmaceutical and department stores. Having a flat organizational management which was implemented by the CEO David Kennedy deigned to take advantage of more efficient processes and work-flow, eliminate market layers, streamline certain functions, and consolidate more operations into the company. Revlon has a good image and relations to the public because of their social responsibility that helps people particularly women. The company has a strong relationship with well-known companies which are their primary customers such as Walmart, Walgreens, Target, KMatt, etc. Some of Revlon’s spokespersons are famous Hollywood personalities such as Halle Berry, Susan Sarandon, Julianne Moore, Kate Bosworth, Janice King, Sheryl Crowe, and Eva Mendez. Several of the company’s plants have ISO-9000 certification signifying their commitment to quality manufacturing standards. Production facilities are placed in strategic locations and globalization of the company’s manufacturing and distribution. The company has a well-established market in the U.S. alone, generating 57% of 2006 sales. Revlon ColorStay Makeup franchise grew consumption by 43% in 2006 Despite only being introduced in the second half of 2006, ColorStay Soft & Smooth Lipcolor was the #2 new lip launch. The Almay Intense i-Color Eye Makeup franchise grew consumption 30% and was the fastest growing franchise back in 2006.

Weaknesses   

Revlon had debt problems Having 3 years of successive losses in operations Less diversified products as compared to the competitors. They focus only on cosmetics and skin care products. Page 4 of 11

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It is hard for the management to expand their product lines. They almost lost their ground on their main product line, cosmetics, when they tried to expand on pharmaceutical. Their target market is only limited to trendy young women or older women. The products may not be diversified according to the culture of every country which they are selling.

Opportunities       

Aging population and a change in proportion of racial and ethnic population. Baby boomers are significant market for cosmetics / personal care products. Many of them have a high level of disposable income and are brand loyal consumers. The consumption patterns and rates of baby boomers have not changed as they have aged. A significant population of teenagers, ages 12-19, is a significant market segment. The populations of African Americans and Asian Americans are growing fast. Cosmetics and personal care are not just industries for women nut also for men who use skin cleansers, hair care, products / dyes, and some cosmetics for metrosexuals. Interest in purchasing more cosmetics and fragrances of women in China, India, and the Middle East is rapidly growing.

Threats  

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The worldwide competition is intense in the cosmetic / skin care industry. A large number of women prefer to purchase cosmetic products from drugstores, supermarkets, and mass volume retailers instead of buying from door-to-door sellers and the internet. Revlon has pretty much stronger competitors such as Procter & Gamble, L’Oreal, Unilever, Avon, and Estee Lauder. Gas prices are high and rising, which reduces the disposal income for cosmetics. The dollar value has dropped to historic lows. Consumers are being skeptic on cosmetic products and they are concerned about product safety.

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IV. ALTERNATIVE COURSES OF ACTION 1. Revlon Inc. should build and leverage their strong brands across the categories in which they compete. They should add more product lines. Instead of focusing their business on cosmetics and skin care, they should drive growth in other beauty care categories including women’s hair color, beauty tools, fragrances, and antiperspirant and deodorants. Advantages     

This may increase the net sales of Revlon Inc. Upgrades the level of Revlon’s competitiveness in the market. Revlon can compete on the same level with their competitors such as Procter & Gamble, Avon, L’Oreal, etc. Baby boomers are significant consumers for personal care products and they have a high disposable income. There is an additional market for the company if they will expand their product lines.

Disadvantages    

The company will have to spend for the Research and Development Cost for new products. There will be more products for the company to endorse so the company will have to spend additional cost for promotion. It will be risky because there are more products to be supervised by the management. There is a possibility that they may lose again their ground on cosmetics.

2. Revlon should focus on improving their capital structure. The company heavily relies their capitalization on debts (see the Consolidated Balance Sheet on page 10). Their Long-term debts alone amounts to $1,501.80. They also have Shareholder’s Equity deficiency. These debts causes the Interest Expense that makes the Operational Loss of $50.20 even worse, a Net Loss of $251.30. The company should offer equity to the public and use the proceeds to reduce the debts. This action also involves the restructuring of their debts their interest expense. Advantages   

It will decrease the company’s interest expense, increasing Revlon’s net income or lowering net loss. Making the company more stable removing much of debts and be financed by equity. The risk of the capitalization will not only be by the debts of the company, instead it will be diversified to their remaining debts and to the equity.

Disadvantages  

Equity financing may dilute the ownership of the current owners of the company. It may be costly to restructure their debts.

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3. The company should focus on the internal factors that contributed to the net losses that they had. They should focus on the cost cutting techniques that the current CEO had implemented.. Lowering the cost of sales, salaries and wages, utilities, and other cost that may be controlled and be lowered by the management. Advantages  

It will contribute an increase on the company’s net income; or in case of a net loss, it will be lowered. It is less costly compared to the other ACA’s, in fact it will lower the costs of the company.

Disadvantages   

The quality of the products will be compromised and it may affect the sales of the company. The company cannot rely forever on the lowering of their cost if ever they incur again a net loss. There are s on the financial statements that cannot be controlled by the management, they cannot cut the cost from everything.

V. STRATEGY FORMULATION OR RECOMMENDATION

Among the competing alternative courses of action, I will strongly recommend the ACA#1 which is the building and leveraging the strong brands in which Revlon competes. I suggest that Revlon should expand their product lines to the products that they are not strongly competing like women’s hair color, beauty tools, fragrances, and antiperspirant and deodorants without losing again their leverage on cosmetics. With this, the company will be able to achieve their mission which is “To emerge as the dominant cosmetics and personal care firm in the 21st century by appealing to young / trendy women, health conscious women, and older women, with its variety of brand.” There is a large opportunity for the company to increase their sales if ever they expand their product lines and an increase in sales means an increase in the net income considering that the expenses will be the same. The population and demography of the world is gradually changing. There are more people who wants new products for their face, hair, skin, and other health care related things. There are new market segments like the men who are now using women’s product and the market of the teenagers whose needs are also changing. This action will make Revlon be more competitive in the industry. It will also a waste if Revlon will not grab the opportunity of the growing population of different races of women who are becoming more interested on cosmetic products. Revlon should not only expand their product line but also to expand their target market. Targeting the demands of women from different country should be considered for the expansion. While this expansion is going on, Revlon can also implement the two other ACAs. They can continue their cost-cutting techniques to further more increase their income or to offset he expenditures that will be incurred on the expansion of product lines. The capitalization restructuring should also be planned so Revlon’s capitalization will be stable. It is shown on their financial statement that they are Page 7 of 11

heavily relying on debts as their capitalization and further resulting to a Stockholder’s deficiency. This will lessen the cost of the company because less debt means less interest expense. While doing this, the company should not lose focus on the expansion of the product line.

VI. PLAN OF ACTION 1. Revlon should add more budget for the research and development of their product. With the expansion of the company’s product lines, they need to do more research and development for their new products. 2. They should also increase their budget for their promotions. Hiring new faces of Revlon Inc. can create a good relationship to the public. 3. Despite of the expansion, Revlon should also monitor their standing on their strong product line which is cosmetics. Keeping their leverage on their brands across the categories which they strongly compete can drive growth for the company. 4. A step that they also need is providing for continued improvement in organizational capability through enabling and developing their employees. They should continue to build organizational capability primarily through a focus on recruitment and retention of skilled people, providing opportunities for professional development and expanded responsibilities and roles and rewarding their employees for success. 5. Improving the operating profit margins and cash flow is another step that Revlon should undertake in order to regain their losses for the past three years. Capitalizing in what they believe are significant opportunities to improve their operating margins and cash flows over time is essential on this action. The key areas that they should focus is the continuous reduction of sales returns, cost of goods sold, and general and istrative expenses, and the improvement of their working capital management. 6. If possible and if they already have the capacity, Revlon should release at least one innovative, exciting, high quality new product a year and take advantage of the opportunity on new market segment for men and for teenagers. They just have to make sure that their established franchises remain relevant and competitive. 7. When they have the capacity, they may focus on the three international regions (based on their 2006 Annual Report): Asia-Pacific + Africa, Europe + Canada, and the Latin America. They should continue the focus on strong brands in key countries and leverage the Revlon and Almay color cosmetics global brand marketing plans throughout all these regions. They must consider the diversity of the culture and adapt the global product portfolio to local consumer preferences and trends.

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VII. POTENTIAL PROBLEMS 1. What if more and more consumers prefer to buy cosmetics and health care products in drugstores, supermarkets, and mass volume retailers instead of buying from door-to-door salesmen and on the internet? 2. What if the implementation of new product lines will add expenses to the company and will affect their net income? 3. What if the consumers will be skeptic about the new products that will be launched and they will be afraid to buy it?

VIII. CONTINGENCY PLAN 1. The company should also make a partnership with more of these establishment other than their current primary customers such as Walmart, Walgreens, Target, etc. They should also extend to drugstores, supermarkets, and mass volume retailers. If the consumers wants to buy from these kind of establishments, why not sell the Revlon’s product to these establishments so it will also be distributed to those people who are buying from these kinds of establishments. 2. Considering the Cost-Benefit Analysis for the case, it will be beneficial for Revlon to expand their product line. But expenditures should be incurred and will lower the net income of the company. The effect of these expenditures will only be for the time-being and is on the short-time only while the benefits that can be derived by the expansion are for long-time. 3. It is normal for the consumers to be skeptic about trying new products. We will attack this potential problem psychologically. The company should add more budget for the promotion of the new products. They should hire a celebrity who the public think is very reliable. If they found this celebrity as a reliable one, they will think that “Hey, this celebrity said that it is safe and I believe her. Let us try it.” It is normal for a person to think that the product being endorsed is safe because the person endorsing it is a well-respected and reliable person. But Revlon should not only use the face of a celebrity to encourage their consumers to buy. They should really make sure that the products are safe and are well-tested by experts. That’s why they need to invest more on the research and development of these products to give assurance to the public that the products are legitimately safe.

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