Revlon Case StudyRevlon is known as one of the best cosmetic companies of all time and is considered to be one of the worlds largest. The primary core products of Revlon are specialty skin products, salon-quality beauty and hair products to include its drugstore line of makeup. Revlon is based in New York and traded publicly. Their goal and vision has been to consistently provide quality beauty aids and products at a reasonable price. In the last few years Revlon has been struggling. With a debt almost at $2. 3 billion it has required the cosmetic giant to try and figure ways to reduce this debt.
The research and development of Vital Radiance, a line of cosmetics for older women was announced on January 2006, this roll out was suppose to help revitalize sales and profit. The roll out of this product did not fare well and was not received by the market. The already existing competition had lower prices for their cosmetic products. These were being sold by major retailers like Wal-greens and Wal-mart, whom already had other Revlon products on its shelves. This being the case the product line was suspended nine months after being introduced. It is projected that this set back is going to cost the company in the $100 millions.
In addition to the Vital Radiance launch, there had been plans to release a new fragrance in 2006 also. This was delayed until the debt that was incurred from their cosmetic introduction could be restructured. After issuing a $185 million in stock to attempt to raise money to lessen the debt, MacAndrews & Forbes Holdings agreed to purchase stock and also agreed to purchase any stock not bought by current stakeholders. The following paragraphs below we will discuss how the future of Revlon is going to be determined by changes in demographic changes, social trends and how the competition adjust to the urrent economy and the response of internal factors that contribute to the success of the company. The demographic composition of the United States has impacted the cosmetic and personal care industry. A couple of major changes which have occurred that need to be considered, are the aging population and ethnic and racial population changes which are responsible for a major shift change. The period between 1946 and 1964 approximately 75 million Americans were born in the U. S. this number is extremely symbolic for the cosmetic industry. These Americans are referred to as the baby boomers and the major dilemma with the baby boomers they do not like to spend money. Research has determined that the baby boomer generation have not changed how they spend money and the women from this era are working longer than in past years. A couple of other factors to consider is the U. S. teen market along with the ethnic and racial make-up. According to data collected the teen market is expected to be at around 20 million by 2010, this teen market consist of teenagers between the ages of 12 and 19.
Along with this growth is the African Americans which is the largest of the ethnic groups is quickly being surpassed by the Hipic population and this ethnic group is expected to be the largest by 2010 and should surpass 40. 5 million individuals. In addition to this multi-cultural growth being experienced throughout the United States, the non-hipic is expected to shrink 68% by 2010. If Revlon can take advantage of this growth and expand to the foreign markets where analysis has shown that there will be a lot of opportunities for potential sales of cosmetic and personal care products throughout the world.
Obviously with when there are positive aspects in business, there is always some type of negative influence that could potentially affect the overall business climate and growth of a company. In regards to Revlon, people are more socially, morally and fiscal conscious more than ever before. Older people unfortunately are a negative affect because they typically have limited less disposable income and have a less desire for look good items, they are set in their ways. Gas prices affect how people spend also and lastly the industry has always been under scrutiny for the abuse of animals that are used in cosmetic testing.
So companies like Revlon have to always be very aware that consumer watch groups are constantly monitoring what companies like Revlon are doing. Knowing this and maintaining social responsibility, will prevent companies like Revlon from being run through the courts thereby ruining their reputation and any potential growth to get out debt. Considering all these factors it behooves Revlon to really push the world markets so as not to limit themselves to U. S. sales, which currently is experiencing a recession which has decreased the dollar value throughout the world, so by taking advantage or global business and maintaining U.
S. sales Revlon should be able to show a positive net income in the near future. Revlon like many other cosmetic and skin care firms face competition in this industry that is out of this world. So many companies want a piece of this market, that it appear to be saturated with all types of cosmetic companies. Women, obviously the largest consumer in the industry with men now desiring to maintain their youth prefer to shop at local drugstores, super values stores like Wal-mart and Kmart.
Additional companies like Avon and the internet have made it easier for the consumer to save time and money by using these types of sales. For Revlon, not only do companies, home shopping and door to door type cosmetic firms, represent competition, but the major competitors such Procter and Gamble, Avon, Estee Lauder and L’Oreal are significant, that capture U. S. sales and foreign market sales. Others like specialty stores Sephora and Body Shop to include Victoria Secret’s and the Gap to name a few represent additional challenges.
To add to the challenges currently facing Revlon, there is competition for the African market. Famous models and singers alike have developed their own brands and capturing portions of the African market and advertise to the African American community. By studying and analyzing the cosmetic market it is essential for Revlon to look to other avenues to make themselves more attractive to the consumer. By investing into the company increasing their visibility in the social realm will be significant in attracting a larger consumer base.
Revlon invested a great deal of money on research and how to provide better services to women. More than $25 million dollars has been spent thus far. Additionally by using familiar faces to assist in amplifying Revlon’s commitment to social responsibility they are attracting more people. Singers like Sheryl Crow, who actively participates on a board for Revlon that is responsible for research cures for cancer in addition Ms Crow being associated with the National Breast Cancer Coalition, which is also supported by Revlon truly magnifies the maturity of the firm to help the ommunity. Revlon is committed to events that sponsor fund raising opportunities to find cures in addition to supporting agencies like the National Council of Negro Women, and New York Women in film is indicative to the commitment to social responsibility. The reorganization of management to save money annually has been implemented by David Kennedy who is the CEO and was selected in 2006. His previous experience as Coca-Cola executive and the previous CFO for Revlon made him a perfect fit for a company under stress.
His plan to cut 8% of the Revlon workforce, which equates to about 250 positions, which is intended to save the company approximately $34 million dollars a year. By consolidating different functions throughout the company and reducing middle management allows for eht reduction in personnel. However, without a doubt when a company plans to save money, they have to spend money to get there. It is estimated that it will cost about $29 million dollars to restructure but as previously stated it is intended to save the company $34 million dollars annually thereafter.
Once implemented it is essential to go after the market by changing or reorganizing marketing techniques. Marketing and advertising are key to the survival of Revlon. Revlon primary customers are the large merchandisers and chain drug stores. Although the debt is high Revlon has still maintained the development side of its organization and is still is main objective. Without changing, developing and designing they would fall behind the major competitors. In 2006 Revlon spent a little over $24 million dollars on research and development, but most importantly hired 170 people to accomplish this.
Even through trying times, advertising continues to be the way to go and promote the company. Investing in popular faces to be spokespersons such as Halle Berry, Julianne Moore and Eva Mendez, etc. , is attractive to the consumer and by using a variety of women of different ages markets their products to young and middle aged alike. The current manufacturing and distribution of Revlon has allowed the company to pull their resources and consolidate facilities.
By reducing the amount of distribution facilities has allowed for spoke and hub operations, which allows a company to cover more locations from a single vantage point. With its current locations Revlon is well suited to manage its distribution points. The financial outlook during the restructuring period did not fare well with a net loss of $50 million dollars due to this the restructuring program is ongoing. Revlon’s commitment to build a solid brand and improve their organizational commitment abilities is their life line.