These are the reasons for the fall of the cosmetic giant Revlon, declared bankrupt

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Updated: 06/20/2022 10:55 a.m.
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The American cosmetics giant Revlon filed, together with some of its subsidiaries, with the Bankruptcy Court of the Southern District of New York the petition to voluntarily avail itself of the protection of Chapter 11 of the United States Bankruptcy Law in the face of reorganization of the company due to the impact on its activity of the supply chain problems and the sharp rise in inflation.

The multinational, which specified that none of Revlon's international operating subsidiaries is included in the procedure, except those in Canada and the United Kingdom, explained that the measure will allow it to strategically reorganize the company's capital structure and improve its long-term perspective. term, especially amid liquidity constraints caused by global challenges such as supply chain disruption and rising inflation, as well as obligations to its creditors.

Revlon Inc received court approval to borrow $375 million, saying it would use the funds to shore up supply chain problems that would otherwise jeopardize the cosmetics maker's sales during the holiday season.

Revlon's restructuring director, Robert Caruso, testified Friday that most of Revlon's raw material suppliers stopped sending shipments and many demanded payment of past debts or deposits on future deliveries. Without access to raw materials, Revlon cannot meet sales demands, leaving the company with less cash to solve its supply problem, Caruso added. The company is currently able to fulfill 70% of customer orders without delays or cancellations, compared to the industry standard of 90-95%, Caruso said.

The shares of the company, founded in 1932 in New York by the brothers Charles and Joseph Revson together with the chemist Charles Lachman, have lost 80% of their value on the stock market since the beginning of the year. The company was bought in 2016 by former rival skincare and cosmetics brand Elizabeth Arden in an $870 million deal. The acquisition kept Revlon as the parent brand both going forward and on the New York Stock Exchange as a ticker symbol. However, the brand has suffered heavy losses in recent years. These are the main reasons:

- Problems in the supply chain: The increase in the prices of raw materials, energy and packaging has raised the production costs of cosmetics between 25 and 30%, according to the consultancy Bain & Company. Revlon would not be the only one suffering from these problems, according to 'Fast Company', between the shortage of ingredients, including paper, glass and other key oils, as well as an increase in the prices of ingredients, cosmetics companies worldwide they face similar problems.

- Strong competitors, including celebrity brands: Revlon has been losing market shares not only to traditional rivals but also to the rise of new brands driven by well-known personalities such as Rihanna's Fenty Beauty or Kylie Jenner's Kylie Cosmetics. On platforms like TikTok and Instagram, 'influencers' of all levels can reach consumers. For more generic beauty companies like Revlon, this is great competition. The Kylie Cosmetics brand, for example, was sold to beauty giant Coty, Inc. in early 2020 for an estimated $600 million. Coty has popular brands and Revlon rivals such as Rimmel London and Sally Hansen. Rihanna's famed beauty line, Fenty Beauty, operates under luxury fashion house LVMH, whose beauty portfolio includes KVD Beauty and Benefit Cosmetic. Although the exact valuation of Fenty Beauty has not been revealed, Forbes pointed out that the beauty line is responsible for the majority of the profits that have led Rihanna to become a billionaire.

- The death of the mall in the US: The rise of online retailers and changing consumer preferences over the past 10 years have decimated the once-standard American shopping experience. For brands like Revlon, where the products are found through stores like Bed Bath & Beyond, Walmart and Ulta, these changes directly affect, reports 'Fast Company'. Bed Bath & Beyond alone announced the closure of 37 stores in 19 states in February.

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