American beauty products group Revlon filed for Chapter 11 bankruptcy on 16 June 2022, and it was all over the news.
The media stated many reasons – the supply chain disruption had driven up the cost of raw materials, competition from younger brands, Revlon’s failure to use social media, and of course, the Citibank loan repayment error. Many commentators have also pointed out the intense competition in the cosmetic industry.
“I have not bought anything from them for years”
In our Friends of Momentum Works (FMW) and Impulso communities, there are a number of regular customers of beauty products, and the common response was: if not for the bankruptcy news, they had almost forgotten the existence of Revlon.
“It was always the same products, and I have not bought anything from them for years,” one said.
Beauty products, especially cosmetics, have been a key category for ecommerce – high gross margins, very socially driven, and high annual spend by average consumers. An ecommerce executive in the FMW community pointed out that for decades Revlon had depended on the same products with almost no noticeable new R&D. “With such a weak core, they acquired Elizabeth Arden in 2016, and they never managed to turn around their finances.”
In the age of social media and influencers, traditional channel access becomes less important, and competition is as fierce as ever. Unlike skin care products, where consumers generally stick to the same, cosmetic companies have to constantly come out with new product lineups to impress their consumers and prevent churn.
In fact, Revlon probably knew this, as it stated in its last two annual reports that it is focused on building up its capabilities on “social media that consumers spend the most time on.” They just, it seems, never managed to execute that properly – but even if they did, they were not hitting the core problem which was really lack of product innovation.
“Supply chain disruption”
What is also interesting is that Revlon mentioned “supply chain disruption” in their Form 8-K which was published on 15 June 2022. Form 8-K was used to inform their investors about the bankruptcy, and the steps it intends to take to reorganise capital structure.
Revlon statistics below showed that in-house operations is one of their USP, and as such, most of its products are manufactured internally.
At this scale, integrated supply chain could be either a strong driver for innovation, but it can also become a big hindrance if internal organisational inertia sets in.
Also, as we are seeing in Revlon’s case, their “poor payment performance and vendors became much less tolerant of late payments” – and withheld supplies.
This is amazing in this age of C2M and flexible supply chains. Building trust (and respect) with suppliers is an art – that not many companies have done well. While a few companies in the beauty category have tried that, in fashion (another big ecommerce category essentially facing the same customer base as beauty), Shein is one of the very few companies that have built up a strong moat with their supplier – and is something we will share in our “Who is Shein” report coming out in July. Be the first to get the report by writing to [email protected].
In summary, it was a company that lacked innovation to drive growth, and crippled by poor relations with the value chain which aggravated its vulnerability in times of stress.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].