Revlon - 2004

Revlon, Inc. ¬¬ 2004

INTRODUCTION

Revlon Inc. was founded in 1932 by Charles Revson, Joseph Revson and Charles Lachmann. The Company began with only one product - nail enamel. Revlon Inc. later introduced other numerous products such as fragrances, manicure and pedicure instruments, and other cosmetic products. Within six years, Revlon Inc. turned into a multimillion dollar organization, becoming one of the most recognized cosmetics names in the world. Revlon Inc. is now one of the world's leaders in cosmetics, skin care, fragrance and personal care. Their vision is to "provide glamour, excitement and innovation through quality products at affordable prices."

In 1985, Ronald Perelman gained control of the company in a hostile takeover and now owns approximately 83 percent of Revlon. Perelman helped return the company to its roots (of cosmetics) and sold off the healthcare products. He refocused the company to become an internationally known manufacturer and seller of cosmetics and fragrances. Since then, Revlon's debt began to grow and the Company has been creating ways to keep from defaulting on its huge debt that continues to weigh the company down. A lot of Revlon's operating losses have been incurred due to money spent on repaying debt and restructuring costs.

CRITICAL ISSUES

Although Revlon Inc. is one of the world's largest cosmetic companies, it is currently not profitable. The company has been in a serious financial struggle, accumulating nearly $2 billion in debt. Revlon Inc.'s sales have not improved and the company is now at risk of filing for bankruptcy. If Revlon Inc. does not make adjustments and formulate new competitive strategies, this multimillion dollar company may shortly seize to exist.

For any industry, it is imperative to cater to current trends or to anticipate future trends. If a company does not react to these changes, it risks losing its market share to its competitors. Presently, major changes in the demographics and social trends have impacted the cosmetic and personal care industry. Revlon Inc. must take into account these changes and modify their strategy if the company wishes to remain competitive.

Lastly, the cosmetic and personal care industry in 2003 was a $200 billion business worldwide. Competition in this industry is more intense and growing exponentially. An industry once dominated by specialty stores and department stores, Revlon Inc. is now faced with other competitors who are acquiring higher market share. If Revlon Inc. does not remain competitive, they will lose their market share to competitors and be at higher risk for bankruptcy.

EXTERNAL ANALYSIS

Key Industry Dominant Trends

The cosmetics and personal care industry has been growing at an average annual rate of 15 to 20%. Growth has mainly come from the low to medium-priced categories, which account for 90% of the cosmetic market in terms of volume. The cosmetics and skin care industry in 2003 was a $200 billion business world-wide. The increasing disposable income among the ageing population is the main force that drives the demand for various cosmetic products. There are a few large competitors and many small competitors in the cosmetics and personal care industry. The rivalry among competitors is strong and the major ones are Procter & Gamble, Avon Products, Estee Lauder Companies Inc., L'Oreal and Unilever. Due to the highly profitable and undeveloped industry, the threat of new entrants is high. The retail environment continues to fragment offering more places that sell beauty products like drug stores, super markets, Kmart, Wal-Mart and via the Internet.

Industry Driving Forces

The cosmetics and personal care industry is at growth due to the increase in societal concerns towards personal appearances. Women, regardless of their income levels, are willing to purchase premium brands if the products are particularly fashionable or attractive. There is an increasing trend in men to use personal care products in effort to improve appearances as well. This leads to intense competition within this industry.

The aging population have more disposable income and significantly spend on personal care products. This has impacted the industry to cater products towards this segment as they are profitable and provide opportunity in attaining a higher market share. In addition, the demographic shifts of racial and ethnic populations have driven the industry to expand globally and create new products to cater to these ethnic preferences .

Advertising and promotional campaigns are also increasing within this industry as an attempt to create brand image and gain market share. In the past, beauty consultants were used to sell cosmetics in speciality stores. Currently, women prefer purchasing these products at drug stores, super markets, mass volume retailers such as Kmart and Wal-Mart, door-to-door sellers such as Avon, and on the internet.

Lastly, societal concerns towards environmentally friendly products and animal testing have impacted the industry to adapt sound practices. Consumers are increasingly educated on the inhuman treatment of animals which have forced companies to establish products that do not test on animals.

Five Forces Model

Internal rivalry in the cosmetic industry is high, with a lot of existing cosmetic companies competing in the market. By the end of 2004, over a thousand companies manufactured and marketed more than 20,000 cosmetics and toiletry brands. The ten leading companies, including the Revlon, occupied roughly 62% of the total industry sales. The larger companies compete with their rivals by technical innovation, advertisement campaigns, and promotions, making cosmetics industry one of the most competitive industry worldwide.

Threat of entry is high. To build a cosmetic company requires a significant amount of capital investments, associated with research and development and marketing expenditures. Regulations and requirements imposed by the government to launch a single product are numerous, due to the direct contact between cosmetics products and human body. However, the cosmetics industry is recession-proof and has high-margin products. It is a $30 billion industry worldwide with an annual growth rate of 20%, which drive investors globally to enter this lucrative market.

The cosmetics industry is a constantly changing industry that greatly depends on product and technical innovations. Products substitutes