Case Study for:
Jim Southard
Siena Heights University
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Revlon’s Case Statement:
While Revlon is an innovator in the cosmetics industry, several equally strong competitors, slow
economic recovery, a high unemployment rate, and an obscene amount of debt are important
issues the company endures.
Revlon’s Mission Statement:
The current Revlon mission statement is: “Revlon’s mission is to emerge as the leader in
cosmetic and personal care throughout the world. Revlon takes pride in manufacturing the top
skin care and strives to please young and older woman alike.” (David, F. R. 2013, pg. 198)
Revised Revlon’s Mission Statement:
My revised mission statement to capture the 9 key elements to a good mission statement for
Revlon is as follows: To become the most trusted and admired (Concern for Prosperity) in
cosmetic and personal care products (Products & Services) throughout the world. (Markets)
Revlon takes pride in manufacturing the top skin care products (Self-Concept) and is committed
to pleasing women of all ages (Customers) by providing them with the latest virtual makeover
technology; (Technology) to empower women to find their perfect shade. We strive to elevate
the company's leadership, including its high standards and respect for diversity. (Philosophy)
We will enable our employees by engaging in conduct that enhances our corporate reputation
(Concern for Public Image) and continue our commitment to helping associates achieve their
highest potential in a positive work environment. (Concern for employees)
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Revlon’s Milestones:
•
1932. Company founded.
•
1950. Launched twice-yearly nail enamel and lipstick promotions.
•
1952. First television advertisement aired, boosting sales.
•
1955. Offered stock to the public.
•
1956. Listed on the New York Stock Exchange.
•
1968. Death of Founder Charles Revson, Michel Bergerac took over as CEO
•
1973. Introduced Charlie fragrance, which became the #1 Fragrance in the world.
•
1977. Reached sales beyond the $1 billion mark.
•
1985. Revlon was sold to a subsidiary of MacAndrews & Forbes Holdings.
•
1987. Acquired Almay makeup line
•
1996. Went to a public company and listed on the New York Stock Exchange.
•
2002. Launched the Moisturous Lipcolor line of hydrating lipstick.
•
2008. Introduced ColorStay Mineral & Custom Creations foundations and Beyond
Natural Makeup line.
Revlon’s Trend Statement:
Revlon grows consistently through innovation and advancements of its makeup and skincare
products to stay ahead of the competition.
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Strengths
Brand Recognition
Almay, ColorStay and Charlie
Streamlined Distribution
Still Dominates the Drug Store Market
International Markets
0.10
0.15
0.07
0.08
0.06
3
3
4
3
3
0.30
0.45
0.28
0.24
0.18
Weaknesses
Lack of competent leadership
Inconsistent Revenue Trend
Low Advertising Budget
Low Dividend Payout
0.09
0.12
0.08
0.09
1
1
1
1
0.09
0.12
0.08
0.09
1.83
Opportunities
New Products & Services
Revlon Cares Program
Social Media Presence
Partnerships w/ Technology
0.15
0.10
0.20
0.05
2
3
2
1
0.30
0.30
0.40
0.05
Threats
Revlon’s IFE / EFE Matrix
Aging Population
Severe Competition
Economic Issues / Unemployment Rate
Rising Oil Prices
0.20
0.05
0.15
0.10
1
2
2
1
0.20
0.10
0.30
0.10
1.75
Revlon’s Internal Factor Evaluation Matrix:
The IFE Matrix shows internal strengths and weaknesses that Revlon encounters, and how well
they respond. One of the biggest strengths that Revlon has going for it is its strong brand
recognition with Almay, ColorStay, and Charlie. They still are on top of the drugstore market,
however, are still having trouble with sustainability in many other aspects. They dealt with a
lack of leadership over a course of a few years; they now have Alan Ennis as CEO that seems to
be slowly running damage control from his predecessors. Despite his efforts, the company is
still carrying a substantial amount of debt, and has drastically reduced their advertising budget
which may be leading to their declining sales. With the noticeable financial problems Revlon is
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currently facing, it has caused stock prices to plummet and there is now little to no dividend
payout.
Revlon’s External Factor Evaluation Matrix:
The EFE Matrix shows external opportunities and threats that Revlon’s faces, and how well it
responds. Revlon is attempting to re-introduce their products and add new ones to their brand.
The use of social media could be a good and cost effective way to re-invent themselves in an
attempt to stop their market share from slipping. Through the exposure of social media, could
bring them an increased opportunity for some partnerships with technology.
Maybe a
smartphone app that provides updates on products and promotions, tutorials that demonstrate
products, product locator, etc. This is a way to virtually place their products back in the hands of
their customers. Externally, Revlon is struggling to stay afloat in an overall declining industry
with severe competition. They face declining sales with an aging population that is decreasing
demand. The slow economic recovery and rising oil prices are factors in their production efforts,
as raising oil prices are forcing production cost up, and household disposable income down.
Revlon’s Financial Analysis:
After viewing the ratios and the horizontal and vertical analysis on the balance sheet and income
statement, Revlon is struggling at managing their finances. Their profitability or lack thereof
fluctuates a bit from year to year, and overall isn’t doing well. Compared to the industry, Revlon
isn’t the leader, and is considered to be weak in the industry. They only ratio they are neutral
compared to the industry is liquidity. They currently have a $1.13 of liquid assets available to
cover each $1 of current liabilities. The higher the quick ratio is, the better the company's
liquidity position. However, don’t let that fool you as they have an obscene amount of long-term
debt they must contend with. They are making some progress through their restructuring efforts;
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however, they still have a way to go before they will start showing a healthy profit.
See the
attached appendices for a detailed outline on Revlon’s performance compared to the industry.
Tanning / Spray Tanning
Making homemade / organic products
Revlon’s 5-Forces Model:
Department Stores
Beauty Salons
Raw Material Suppliers
(packaging, shipping, product
ingredients)
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Natural / Simple Look
Proctor & Gamble
L’Oreal
Avon
Estee lauder
Older Adults (Age 40 and over)
Younger Adults (Age 20-39)
Teens (Age 13 - 19)
Pure Competition
Environmental Regulations (FDA)
Economies of Scale
Strong Customer Loyalty
Retail Shelf Space
(Large # of sellers
with no barriers to entry)
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Revlon’s 5-Forces Model Explained:
The five forces model is an analysis of how competitive a company is within its industry. The
purple box in the center represents the rivalry among competitive firms. Because there are
several competitors in the cosmetics and skincare market, it’s considered to be a competitive
market. The blue box represents potential entry of new competitors. In this particular case,
There aren’t extravagant barriers to entry, there are several product substitutes, and price does
not seem to impact the market. They would have to achieve economies of scale for sustainability,
and they may have a problem getting merchandising space in retail outlets. They also have to
adhere to the FDA rules and regulations. The orange box represents potential development of
substitute products. This basically means what other things people can do with their money
other than buying make-up and skincare products. One of the biggest substitutes currently is sun
tanning to achieve a desired complexion. There also are a lot of people taking the green
approach by making their own make-up and lotions, using all natural and organic products.
Some people have come to believe less is more, and they are just wearing less make-up and
going with a more natural look. The green box represents the bargaining power of suppliers.
This is when the suppliers assist the firm to remain competitive within the market. An example
would be if ABC cardboard & plastic company and Revlon entered an agreement to sell product
at a discounted rate, as long as Revlon agrees to purchases all their packaging material through
them. This helps ABC by having that guaranteed income and it helps Revlon by keeping
overhead costs down, and keep prices reasonable and consistent, creating a competitive
advantage. Finally, the red box represents the bargaining power of consumers. In this case, there
is some bargaining power within all the age groups, but specifically with the older group, as they
have the most disposable income and make up a large part of the population. Also, because of
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the amount of competitors and array of products in the market, it makes firms have to work even
harder to establish brand loyalty.
Revlon’s Competitive Strategies:
Currently, Revlon is utilizing retrenchment as their competitive strategy. They are trying to cut
operating expenses by combining warehouses and distribution centers to become more efficient.
They also have streamlined their human resources and management in efforts to avoid overlap in
job positions, to help their bottom line as well. They have made some progress controlling their
debt, but they are still unable to turn a profit. This has caused some effect on the integrity of the
business in the way of stakeholder interest. The company has also struggled with leadership; and
some of the lack of leadership has contributed to the overwhelming amount of debt they are
floating. The next step of the retrenchment process would be bankruptcy, but the company is
saving this as a last resort as this will give them a “black eye” in the industry and could cause a
major shift in brand loyalty and put the company out of business for good.
Revlon’s Generic Strategies:
I would say that Revlon started out as a Type 3 differentiation strategy. They introduced some
strong brands such as Charlie perfume, Almay, and ColorStay.
However, they got too
comfortable and competitors started to catch up and create competing products that started
winning Revlon’s once loyal customers over.
They didn’t keep up on their R&D and didn’t
introduce any new products that were enticing customers. Then the recession hit and pulled the
rug out from under them. In their efforts to regain control of the company, they changed to a
Type 1 low cost strategy. This is going to be especially difficult for them because of their large
amount of debt they already have accrued. They are drastically trying to streamline operations to
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get cost down so they can pass it on to customers to maintain this strategy and regain control of
the company. (David, F. R. 2013, pg. 148-149)
Recommendation & Implementation Plan:
Considering all the unscrupulous decisions that have already been made at Revlon in the past
few years, they have left themselves in a position that doesn’t leave them a lot of options. With
the high debt they already have and with their lack of ability to pay down their debt, weary
stakeholders, and by now, unfavorable credit; an acquisition or new product development would
cost money and resources that they no longer have. Therefore, my recommendation is that they
employ a divestiture strategy. They currently manufacture color cosmetics, women’s hair color,
skin care, fragrances, antiperspirants, deodorants, and beauty tools. This is quite an assortment
of products. They need to keep their top 3 which I believe to be cosmetics, fragrances, and hair
color and divest from the remaining products. This will allow the company to focus on these 3
areas and do them well. Right now they are average to below average; which is just a nice way
of saying the best of the worst.
In the beginning, the differentiation strategy worked for them
until the market became flooded with equal to better products, and left them down and out. If
they can successfully complete the divesture, they can use some of the proceeds to rebrand,
reorganize, pay down some of their debts, and then regain some control of the market. By being
the best at manufacturing the 3 products, in a new, streamlined, capacity this will allow them to
shift into a Type 2 best value strategy. This means they will produce quality, distinctive, and
unique products at an affordable price, giving them the leverage they need to regain their
competitive advantage and sustainability.
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The Divesture:
1. The management team and key advisors will identify the goals desired in the sale. While
collaborating with other advisors (e.g., attorneys and CPAs) to be sure that legal and
personal financial considerations are taken into account.
2. Prepare a valuation of each product line; this will include a detailed analysis of the value
that should be achieved in each sale. Finance will review this with the Management and
affirm the decision to go forward.
3. Finance will use its network of industry contacts to develop a targeted list of potential
acquirers and review it with the management. Revlon CEO / CFO will contact
prospective buyers and screen them for interest. They need to solicit as many buyers as
possible, even if preliminary discussions are already underway with one prospective
buyer, this will create demand among buyers and provide them with the best price
possible.
4. Operations will prepare confidentiality agreements for prospective buyers to sign before
receiving proprietary information. When necessary, they will negotiate the terms of these
agreements with buyer counsel.
5. While the buyer contact process is underway, finance and operations will prepare a
detailed information package referred to as an offering memorandum. It includes
financial information (historical and projected) along with a description of the company's
markets, clients, competition, staff, facilities, and other resources. The offering
memorandum is designed to contain enough information for a prospective buyer to make
a bid decision.
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6. Management will follow up with the offering memorandum recipients to assess their
interest, provide additional information as necessary, and arrange for site visits or
"chemistry meetings" between the seller and prospective buyer executives.
7. Management and finance will conduct initial negotiations with prospective buyers, with
the objective of obtaining satisfactory offers. Finance will make recommendations on the
form and terms of the sale based on analysis and evaluation of the offers received, as well
as on tax issues that come to our attention. When both parties are in agreement on the
main points of the business deal, a letter of intent (usually non-binding) is prepared and
signed.
8. Once the letter of intent is signed, attorneys typically begin drafting the final sale
contract. At the same time, an outside accounting firm or a representative from the buyer
financial staff will conduct a detailed "due diligence" investigation of the seller's financial
condition.
9. Management and finance will make recommendations on selling executives' salary
arrangements.
10. Finance, operations, and management will assist with any negotiations or financial issues
that arise prior to closing.
11. Final papers will be signed, employees will be notified, funds will be exchanged, and the
product line is now owned by the new company and Revlon will move forward without
the product line.
12. Once the all the loose ends are completed from the sale, finance and management can
start collaborating on how to allocate the funds to maximize their returns.
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I would anticipate this process to take approximately 9 – 18 months to successfully divest from
the 4 products. I would estimate this would reduce their long term debt and operating expenses
around 35% - 40%, drastically improving their financial position. In the meantime, R&D can
start taking place, evaluating their strong products and possible new ones; marketing can be
working on new campaigns to promote the remaining 3 products. This will mark the new
beginning for Revlon, and get them back on track and possibly become bigger and strong than
ever before.
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Work Cited:
1. David, F. R. (2013). 4 Revlon Cruises LTD. --2011. In Strategic management concepts:
A competitive advantage approach (14th ed., pp. 196-206). Boston, MA: Pearson.
2. Glassdoor (n.d.). Revlon Company Reviews | Glassdoor. Retrieved March 28, 2014,
from http://www.glassdoor.com/Reviews/Revlon-Company-Reviews-E5812_P2.htm
3. Home | RevlonCares. (2012). Retrieved March 24, 2014, from
http://www.revloncares.com/
4. Revlon Products: Makeup, Fragrances, Hair Color, Nails, Beauty Tools. (n.d.).
Retrieved March 30, 2014, from http://www.revlon.com/#/1
5. Serwer, A. E. (May 2). Trouble at Revlon - ABC News. Retrieved March 30, 2014, from
http://abcnews.go.com/Business/story?id=88252&page=1
6. The Divestiture Process. (n.d.). Retrieved March 31, 2014, from
http://www.transitionstrategies.com/Divestiture%20Process.htm
7. Jennifer, K. (n.d.). Types of Competition in Economics | eHow. Retrieved March 31,
2014, from http://www.ehow.com/info_7904519_types-competition-economics.html
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