After a rocky decade, the pandemic provided the final hit, forcing Revlon to file for bankruptcy. India behemoth Reliance is rumored to be considering a buyout of Revlon.
Revlon helped usher in the era of color cosmetics in the first half of the 20th century. It was founded in 1932 by the Revson brothers, Charles and Joseph Revson, along with chemist Charles Lachman. It started with nail polishes but quickly explained to include lipsticks. Cosmetic sales in the US surged between 1941-46, and Revlon positioned itself to take advantage of this boom with the tagline ‘seen on the fingertips and lips of the nation’s smartest women.
The cornerstone of its rise was mass production and mass marketing, establishing itself as a ubiquitous cutting-edge brand. It spent heavily on advertising, sponsored popular television programs, and landed exclusive deals with beauty shop suppliers. In the 1960s and 1970s, Revlon further expanded, entering pharmaceuticals and apparel.
Rise & Fall of Revlon
In 1975 Charles Revson died and European businessman Michel Bergerac became the CEO. A year after this, Revlon sales reached nearly $1 billion. However, it remained second, lagging behind Avon products that offered door-to-door distribution. Revlon kept pace with changing trends, and the conglomerate began to market its product to career-driven women as more women entered the workforce.
But by the early 1980s, sales began to flatten, and business Ron Perelman initiated a hostile takeover of Revlon in 1985. Perelman won the fight against Bergerac for control of the company and became the controlling shareholder and chairman of Revlon’s board. Perelman enlisted famous fashion photographer Richard Avedon and launched an unforgettable ad campaign, hiring famous models such as Cindy Crawford to be the face of Revlon.
Hence, the brand’s public image appeared to be faring better. However, its finances were in a mess. Perlman had used junk bonds to finance the takeover. Junk bonds are risky investments, although they offer higher yields and rates of return, they also have a higher chance of default. He was unable to pay this debt. It has been assumed that he would sell Revlon’s non-beauty businesses to pay off this debt but instead, he attempted a failed maneuver to bid for Gillette.
This happened in a highly competitive atmosphere, as Proctor and Gamble bought several makeup brands and acquired a third of the cosmetic market share in 1990, compared to Revlon’s meager 20%. Revlon was also stretched thin as it had diversified too much, carrying 9 makeup lines with nearly 3000 individual products. Women also began to move towards less and less makeup, as fashion trends changed and bright colors went out of style, marking a shift towards more natural neutral looks.
As Revlon tried to adapt to this change and went public to raise money in 1996, most of its pre-tax profits went to pay off its $1.3 billion debt. By 2003, Revlon had experienced 16 consecutive quarters of losses, and by 2007 its market share had fallen to 11%.
Perelman kept bailing the company out with injections of cash and a changing stream of CEOs, trying to keep the company afloat. It tried to recapture market share via acquisitions, but by 2017 its market share had further fallen to around 6%. The competition also increased, beyond P&G and Loreal, as startups by celebrities (such as Kylie Cosmetics) became commonplace.
In 2020, as the pandemic halted life, sales further fell, and the widespread use of masks rendered lipstick obsolete. This came at a time when $343 million bond payment was due, and Revlon had to refinance its debt to avoid bankruptcy.
Revlon voluntarily filed for chapter 11 bankruptcy in June 2022. Chapter 11 bankruptcy allows a company to stay in business and restructure its obligations, it involves a reorganization of a debtor’s business affairs, debts, and assets.
Since then, its stock has skyrocketed 456% from its low reached on June 16. Shares were up as much as 80% on 21st June trades alone. Retail investors have ramped up their purchasing into Revlon, likely a result of them attempting to 'buy the dip' on the back of the bankruptcy announcements.
The real question is if Revlon's equity holders will be left with anything after the bankruptcy proceedings, or if they'll be completely wiped out as the company prioritizes paying back debt holders, as usually happens in bankruptcy.
Revlon has secured approval from a bankruptcy court to borrow $375m to address supply chain issues. Revlon CEO Debra Perelman believes that consumer demand for Revlon products remains strong, and the issue remains the challenging capital structure.
Reliance interest in Revlon
Days after Revlon filed for bankruptcy, India’s Reliance is said to be considering a buy-out of the company. Rumors say that the Indian conglomerate is keen to diversify away from its mainstream oil business and expand its beauty and personal care portfolio.
Reliance is on an acquisition trail to become the next FMCG Multinational, as it has been linked to several deals this year, including WBA’s Boots. It has already established itself in the telecom and retail sectors in India.