University of Luzon

College of Accountancy
Perez Blvd., Dagupan City

A Case Study on Revlon Inc.

Ancheta, Maria Mekkaila

Anoc, Kaye

Cayabyab, Michaella

De Guzman, Trisha Mae

Fernandez, Hazel

Macaraeg, Jessa

Naval, Rodolfo

Ngo, Jeemrose

Urbano, Nicole Cherrie

Ventura, Diana Shin

Block D 10:00-11:30 am

Prof. Dante P. Narciso

Prof. Jharam A. Tolentino

TABLE OF CONTENT
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BACKGROUND OF THE STUDY . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

INTRODUCTION

History of Revlon Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Core Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Mission and Vision Statement . . . . . . . . . . . . . . . . . . . . . . . . . 8

STATEMENT OF THE PROBLEM . . . . . . . . . . . . . . . . . . . . . . . . . .11

OBJECTIVES OF THE STUDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ANALYSES

SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Michael Porter’s Five Forces Analysis . . . . . . . . . . . . . . . . . . . . 15

Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ALTERNATIVE COURSES OF ACTION . . . . . . . . . . . . . . . . . . . . . .34

FINDINGS/CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

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BACKGROUND OF THE STUDY

This study aims to highlight and enumerate the key problems of Revlon

Inc., one of the world’s largest and leading cosmetics companies offering high-

quality of beauty and cosmetic products at affordable prices. The purpose of

this study is to analyze the company’s strategic management and to come up

with alternative solutions and strategies which might be used in its operation

as well as in resolving some of its issues. This study also seeks to show a more

extensive knowledge and understanding of the company’s internal and external

issues.

The study begins with the analysis of Revlon Inc.’s history, how it

developed its products and achieved its success. The study also shows the

difficulties Revlon encountered in its operations, the increasing rivalry with

other cosmetics companies and, the stagnation of the development and,

promotion of the company’s cosmetic products which brought obscene amount

of debt in the company.

Through the use of SWOT analysis, Michael Porter’s Five Forces Analysis

and, by analyzing Revlon’s financial statement, significant factors in the case

has been deeply stated and analyzed.

In the last part of the study, alternative courses of actions, conclusions

and recommendations were given with the expectation that these solutions

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might help the company achieve a better performance in the world of

cosmetics.

INTRODUCTION

Revlon Inc. operates as one of the world’s leading cosmetics companies

offering high-quality of beauty and cosmetic products under such familiar

brands as Revlon, ColorStay, Age Defying, Almay, and Skinlights,

which includes hair colour cosmetics, beauty tools, skincare, fragrances,

deodorants and personal care products.

In 1932, Revlon Inc. was founded by Charles Revson together with his

brother Joseph Revson, and chemist, Charles Lachman, who was the one to

contribute the “L” in the REVLON name. They launched their first product

which is the revolutionary nail enamel that comes in with different colors other

than red. Opaque and long-lasting, it was an improvement over the more

transparent, dye-based products of other manufacturers.

Within the company’s first nine months, its sales bolstered to $4,055. In

1933, the year where the company incorporated as Revlon Products

Corporation, there was a sharp rise in sales to $11,246. By the end of year

1934, the company had grossed $68,000.

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Revlon appeared on its first magazine advertisement in New Yorker

Magazine in the year 1935. Revlon Inc. aimed carefully to attract the upper-

income client which made the company incur $335 for its advertisement.

By 1937, sales multiplied more than 40 times. In the same year, Revson

decided to enlarge his market by retailing his nail polish, coming in 21

distinctive nail enamel shades, through department stores and selected

drugstores. This gave him access to more upper-income customers as well as

those with a moderate amount of money to spend on beauty products. These

products became a trend to the market and gave Revlon Inc. a large leg up on

competition from other cosmetics companies. Within the six (6) years of

running the business, the success of Revlon in the market became undeniable,

which made the company a multimillion-dollar organization.

Revlon’s success therefore brought it into the decision of expanding its

product line by early 1940’s, adding lipstick into the collection and presented

an entire manicure line. In 1939, Revlon introduced lipstick into its product

portfolio and promoted it through the matching “Lips and Fingertips” campaign

with which its iconic Fire and Ice Lipstick and Nail campaign featured a Vogue

partnership and celebrity endorsement in 1952. These advertising efforts

helped produce excellent publicity that raised almost $25.5 million of its sales.

In year 1955, Revlon Inc. went public and aired their first television

advertisement which greatly boosted the company’s sales. In the same year,

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Revlon started offering stocks in public having $12 per share as their initial

public offering price. The success of Revlon continued as they launched

Charlie Fragrance in 1973 which became the #1 Fragrance in the world.

In 1974, Charles Revson was diagnosed with pancreatic cancer and

decided to leave Michel Bergerac in charge. Bergerac cut the company spending

with tighter inventory controls and initiated an annual savings of $71.5 million

by eliminating 500 jobs. Bergerac tried to reduce Revlon’s dependence on the

increasingly crowded cosmetics market through acquisitions of pharmaceutical

companies and started its health-care operations that helped Revlon Inc.’s

sales figures reach beyond the $1 billion mark in 1977, bringing total sales of

$1.7 billion in 1979.

However, by mid-1980’s, Revlon’s health-care companies, rather that its

beauty concerns, continued to innovate and expand. Disinclined to initiate

beauty-product development or promotion in department stores, Revlon

suffered from difficulties in continuing in the market due to the arising

competition with large companies like Procter & Gamble, Cover Girl, and Estee

Lauder which are also in the field of cosmetics and beauty care. This caused

Revlon’s shares to drop from 20% to 10% of its cosmetics sales in department

stores.

In the same year, Revlon struggled with the introduction of No Sweat, a

deodorant, which failed to garner market share despite its $12 million

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introductory advertising budget. The reformulation of Flex, a popular shampoo,

also lost market share when Revlon introduced its new formula with new

packaging and a higher price. The continuing failures of Revlon in its

operations brought poor earnings to the company and huge debt that

continued to weigh down the cosmetics giant.

By 1993, the company was finally able to report an operating income of

$51.5 million although its debt remained high at $114.4 million. Meanwhile,

Revlon started to develop successful products like the Age Defying line of

cosmetics for women over 35 in year 1994. Net sales improves steadily from

$1.59 billion in 1993 to $1.73 billion in 1994 to $1.94 billion in 1995. In

addition, the company’s debt remained high at $137.7 million in 1995 but was

finally exceeded by operating income of $145.1 million.

In 2013, the company introduced their marketing campaign, “Love is On"

which aimed to empower every individual to boost their confidence and

appreciate their unique characteristics by accepting who they are and feel that

they are welcome in our society--- no boundaries at all. Revlon cosmetics do

not just offer high quality products but also love that everyone wanted.

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The company’s products are sold

in more than 100 countries around
the
globe. It was taken public in 2006
and traded in New York Stock
Exchange. From year 2005
until 2007, the company is in the
state of decline, net sales are
decreasing, debts are
increasing, numerous lay-offs and
cost-cutting and continuously
incurring loss. Revlon is a
company in trouble for the recent
years. However, despite the
struggles, Revlon still continue to
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innovate and develop its products.

During 2008, there has been a
substantial recovery of the
company from the $320,000 net
loss
of 2007 to the net income of
$1,130,000 of 2008.
The company’s products are sold
in more than 100 countries around
the
globe. It was taken public in 2006
and traded in New York Stock
Exchange. From year 2005

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until 2007, the company is in the

state of decline, net sales are
decreasing, debts are
increasing, numerous lay-offs and
cost-cutting and continuously
incurring loss. Revlon is a
company in trouble for the recent
years. However, despite the
struggles, Revlon still continue to
innovate and develop its products.
During 2008, there has been a
substantial recovery of the
company from the $320,000 net
loss

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of 2007 to the net income of

$1,130,000 of 2008.
The company’s products are sold
in more than 100 countries around
the
globe. It was taken public in 2006
and traded in New York Stock
Exchange. From year 2005
until 2007, the company is in the
state of decline, net sales are
decreasing, debts are
increasing, numerous lay-offs and
cost-cutting and continuously
incurring loss. Revlon is a

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company in trouble for the recent

years. However, despite the
struggles, Revlon still continue to
innovate and develop its products.
During 2008, there has been a
substantial recovery of the
company from the $320,000 net
loss
of 2007 to the net income of
$1,130,000 of 2008.
The company’s products were sold to over 100 countries around the

word. In 2006, it was taken in public and traded in New York Stock Exchange.

From 2007 to 1007, Revlon Inc. is in state of decline, its net sales decreased,

there were numerous lay-offs and cost-cuttings, their debts continuously

increased, and they continue to incur losses. However, despite those troubles,

Revlon still managed to develop and innovate its products.

Core Values

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Revlon’s core values can also be seen in their website as A+I+D which

means:

 Achievement

“We are here to win. Achievement is the passionate desire to win in the

marketplace and to grow the business.”

 Innovation

“We are innovators. Innovation is the creation of new and better

solutions to create competitive advantage.”

 DRIVE

“We drive for success. Decisions = Results if Implemented with Velocity

and Excellence.”

Vision and Mission Statement

Revlon’s current vision and mission statement are as follows:

Vision: “Glamour, Excitement and Innovation through high-quality products at

affordable prices.”

Mission: “To emerge as the leader in cosmetic and personal care throughout the

world. Revlon takes pride in manufacturing the top skin care and strives to

please young and woman alike”.

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Through thorough analysis of Revlon Inc.’s mission and vision statement,

a proposed mission statement was formulated which exhibits the nine (9) key

elements of a good mission.

The proposed mission statement of Revlon Inc. is, “To emerge as the

leader in cosmetic and personal care throughout the world. Revlon takes pride

using current technology in manufacturing e-co friendly, most consumer-

preferred top skin care products and strives to please young and older people of

both genders. Revlon will provide career opportunities for professional growth

and stimulate their workers to achieve the highest returns for their shareholders.

At Revlon, we firmly believe that good ethics is good business and strive to serve

the communities in which we operate.

The nine (9) key elements of a good mission statement are:

1. Customers

2. Products or services

3. Markets

4. Technology

5. Concern for survival, growth, and profitability

6. Philosophy

7. Self-concept

8. Concern for public image

9. Concern for employees

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The analysis of the proposed mission statement with regards to the nine

(9) key elements of a good mission statement:

To emerge as the leader in cosmetic and personal care (Products or services)

throughout the world (Markets)

Revlon takes pride using current technology (Technology)

in manufacturing e-co friendly, most consumer-preferred (Concerns for public

image)

top skin care products (self-Concept)

and strives to please young and older people of both genders. (Customers)

Revlon will provide career opportunities (Concern for employees)

for professional growth and stimulate their workers to achieve the highest

returns for their shareholders. (Concern for survival, growth, and

profitability)

At Revlon, we believe good ethics is good business (Philosophy) and strive to

serve the communities in which we operate.

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STATEMENT OF THE PROBLEM

The purpose of this case study is to determine the strategic plan needed

by Revlon Inc. through finding analysis and conclusions about (1) the

company’s financial difficulties, (2) their market development and (3) rivalry

with Competitors.

OBJECTIVES OF THE STUDY

 To suggest other possible solutions that can help the company gain

customer loyalty and take edge against its competitors

 To study the factors that negatively brought effect to the company's

finances

 To think of ways on how to improve or produce products that are globally

competent and has cultural and traditional sensitivity

ANALYSES

This study aims to further determine and analyze the factors that affect

the company’s operations through the use of SWOT analysis, Porter’s Five

Forces Analysis, and by analyzing Revlon Inc.’s financial statement.

SWOT Analysis

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis /

Matrix helps the Revlon, Inc. to study the internal and external environment,

eliminate inefficiencies and focus on the core of the business.

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STRENGTHS

1. Strong Code of Ethics and working towards sustainability

Having strong code of ethics might help the company set the Right

Culture, build a Good Reputation, remain in Compliance with Laws and

Regulations, attract Outstanding Employees by preventing

discriminations against employees and lastly strong code of ethics can

promote Social Change. By promoting positive social change, Revlon Inc.

can contribute to make the world a better place for everyone.

2. Good quality products

Revlon is one of the world's largest and best-known cosmetic

companies. The company's core products include its drugstore line of

makeup, specialty skin care products and salon-quality hair and beauty

lines. The company is publicly traded and is based in New York City.

Revlon's goal has always been to provide quality beauty products at an

affordable price.  

WEAKNESSES

1. Huge budget for advertising

Due to high cosmetic competition within business industry,

Revlon’s company demands a huge package of advertising to keep

customers updated about the trend and to the new products. The main

purpose of this advertisement is to increase the recognition of Revlon’s

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brand and to communicate information about the availability of the

product to the public. As a result, it affects the returning profit of the

company.

2. Need more investment and knowledge in new technologies

The role of technology in business gave a new and better approach

to the company to achieve its objectives. Also, it provides a faster, more

convenient, and more efficient way of performing business transactions.

Revlon Inc. must consider and value the use of technology in order to

obtain effective performance and to become globally competent.

3. Minimum diversified products compared with other competitors

Product diversification is a strategy used by a company to increase

sales and it can be used as a defense. By diversifying products, Revlon

Inc. can protect itself from competing companies. Without product

diversification, we must consider that consumers also are quick to switch

brand to the other brand and are sometimes showing less brand loyalty.

OPPORTUNITIES

1. Revlon Inc. should also focus on male consumers

Revlon began its journey with women products and established its name

while concentrating mainly on products suited only for women. The brand

should leverage the men’s space as time goes by to diversify its target

customers.

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THREATS

1. 1 Lots of Local Competitors

Having a lot of Local Competitors near Revlon Inc., customers have too

much choice, they sometimes can be overwhelmed and choose not to choose.

When that happens, there will be no sales. Customers also consider Side-by-

Side Comparison of the products with common features offered by most

companies.

2. Changing preferences of customers

The preferences of individual customers are not contained within the field of

economics. These preferences are dictated by personal taste, culture, education

and many other factors such as social pressure from friends and neighbors.

Customer preferences is important in business to determine what kind of

product Revlon Inc. should focus and what strategies needs to be applied.

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PORTER’S FIVE FORCES ANALYSIS

Five (5) Forces Analysis for Consumer Goods Industry

Potential
development
of substitute

Rivalry
Bargaining Bargaining
among
Power of Power of
Suppliers Competing Consumers
Firms

Threat of
New
Entrants

Figure 1

Threats of New Entrants

Threat of new entrants reflects how new market players impose threats

to the existing market players. If the industry will be profitable and barriers to

enter the industry will be low, it will attract more players and hence, the threat

of new entrants will be high. A high threat of new entrants makes an industry

less attractive – there are low barriers to entry. Therefore, new competitors are

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able to easily enter into the industry, compete with existing firms, and take

market share. There is a reduced profit potential as more competitors are in

the industry since newly entered competitors brings innovation and new ways

of doing things in the industry.

We listed some of the factors that help to reduce the threat of new entrants

for Revlon:

1. Revlon can develop brand loyalty by working on customer relationship

management. 

It helps Revlon to have strong customer relationship by a way of having

good communication to the customer. As a key to any good relationship,

communication is an essential way to build customer relationships.

Exceeding customer expectations means empowering your customers. The

best way to do this is to let them feel in control as if your business is built

around them. You can tell the customer they're always right, but it's so much

better to show them they are.

Ask for customer’s feedback, whether customers have a good or bad opinion

about your business, they will make their feelings known. Invite customer

feedback to show you are listening. Place comment cards on your business

counter, or conduct a survey. Customer feedback helps Revlon to hone their

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customers’ specific needs so they can find the best solutions to their problems.

The better your offering meets their needs, the more your business will grow.

Show appreciation, reward long-time customers with a loyalty discount

program. You can hand out reward cards, or use a loyalty program app to

track customer rewards.

2. By innovating new products and service.

New products do not only bring new customers to the fold but also give old

customer a reason to buy Revlon’s product. Product innovation in new

products involves making something that solves a problem in a new and

exciting way. Product innovation in improved products involves introducing

better or more functionality to existing products

Innovation can be best described as the adoption of an idea or behavior

pertaining to a product, service, device, system, policy or program that is new

to an organization. Many companies nowadays develop and pursue innovative

new products as a strategic move to gain competitive share in the market, and

many do so by launching new products before competitors moving in.

Rivalry among the Existing Players

Revlon, Inc. operates in a very competitive Personal Products industry.

This competition does take toll on the overall long-term profitability of the

organization.

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Competitive rivalry is a measure of the extent of competition among

existing firms. Intense rivalry can limit profits and lead to competitive moves,

including price cutting, increased advertising expenditures, or spending on

service/product improvements and innovation.

Competitive rivalry exists because of competitive asymmetry, which

describes the fact that companies differ from one another in terms of their

resources, capabilities, and core competencies, and the opportunities and

threats in their competitive environments and industries.

Since the industry where Revlon, Inc. operates has very few competitors

and most of them are in large size, I can say that Revlon, Inc. can notice every

single move of the other competing firms that makes this rivalry weaker force

within the industry, because it is important for each competing firm to know

what others want to do next. When one company makes a competitive move,

the others are compelled to respond rapidly. Also, very few competitors make

this rivalry stronger within the industry because of having large share in

market. This means that these will engage in competitive actions to gain

position and become market leaders.

We listed some of the factors that help to reduce the threat of competitive

rivalry:

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1. Building a sustainable differentiation

Revlon, Inc. needs to focus on differentiating its products so that the

actions of competitors will have less effect on its customers that seek its

unique products. Since Revlon, Inc. don’t want to be the low-price provider in

the industry, which requires a cost structure lower than its competitors,

Revlon, Inc. needs to substantively differentiate its product from its

competitors.

In building sustainable differentiation, Revlon, Inc. need to create first a

holistic ecosystem of value. Creating a holistic system of value means

understanding the customer’s pain and innovating solutions that can remove

those pains. The more your customers have to look elsewhere to get the help

that they needed, the higher the chances you will lose them to competitors.

Next Revlon, Inc. need to do is to create a strong personality around the value

they created so customers can connect with the person or people behind the

brand. The days for soulless brands with no human connection are almost

over. Customers want to connect with people solving their problems. Creating a

strong personality behind a brand is not only beneficial for consumers but it is

also help businesses create strong emotional bonds customers that improve

loyalty, reduce complaints and create die-hard fans.

Lastly Revlon, Inc. must create a unique service delivery process,

because excellent service delivery leaves indelible marks in the heart of

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customers that makes hard for them to detach from your brand. Building a

strong relationship with consumers that is full of positive emotional equity is

the only way to sustain a business long-term. It has everything to do with the

quality of the humans behind a brand, the quality of their execution, and the

quality of their service delivery

2. Revlon, Inc. can focus on new customers rather than winning the ones

from existing companies.

As the industry is growing, customers are also growing not only their

numbers but also their perspective of the product they follow/support.

Businesses has different loyal customers and we know that these customers

are not easy to get. Revlon, Inc. need not to win the ones from the existing

company, instead focusing on new one that gives them less effort than exerting

more effort and time in trying to get the customers of others.

3. Collaborating with competitors to increase the market size rather than just

competing for small market.

“Competition makes us faster. Collaboration makes us better.”

Using an alliance with a competitor to acquire new technologies or skills

is not devious. It reflects the commitment and capacity of each partner to

absorb the skills of the other.

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Competitive collaboration also provides a way of getting close enough to

rivals to predict how they will behave when the alliance unravels or runs its

course.

Bargaining Power of Suppliers

The number of suppliers in the industry in which Revlon, Inc. operates is

a lot compared to the buyers. This means that the suppliers have less control

over prices and this makes the bargaining power of suppliers a weak force.

The products that these suppliers provide are fairly standardized, less

differentiated and have low switching costs. This makes it easier for buyers like

Revlon, Inc. to switch suppliers. This makes the bargaining power of suppliers

a weaker force.

We listed some of the factors that help to reduce the bargaining power of

suppliers:

1. By building efficient supply chain with multiple suppliers.

Multiple supply chains can also customize service levels. The efficient

supply chain seeks to maintain the expected service level at the lowest possible

cost, whereas the goal of the responsive supply chain is the reverse: to improve

service to the customer at a somewhat higher, but still acceptable, cost.

Sensitive to peaks and troughs in unpredictable demand, it avoids tying up

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valuable capacity in the supply chain and gets the product on the shelves

before it loses its appeal to the consumer.

Multi-sourcing is the ability to pull sourcing from multiple locations and to

make decisions based upon costs. It is easy to set up locations as sources of

supply for an area, and this is performed in all supply planning systems

through the master data setup by making the locations valid to and from the

shipping point.

2. By experimenting with product designs using different materials so that if

the prices go up of one raw material then company can shift to another.

Revlon, Inc. need not to stick with one material in operating their products,

so that delayed in production will not occur in case problem arise.

Bargaining Power of Buyers

The number of buyers in the industry in which Revlon, Inc. operates is a

lot more than the number of firms producing the products. This means that

the buyers have a few firms to choose from, and therefore, do not have much

control over prices. This makes the bargaining power of buyers a weaker force

within the industry.

The product differentiation within the industry is high, which means that

the buyers are not able to find alternative firms producing a particular product.

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This difficulty in switching makes the bargaining power of buyers a weaker

force within the industry.

We listed some of the factors that help to reduce the bargaining power of

buyers:

1. Revlon, Inc. can focus on innovation and differentiation to attract more

buyers.

Product differentiation and quality of products are important to buyers

within the industry, and Revlon, Inc. can attract a large number of customers

by focusing on these.

A business that is capable of differentiating their product from other

businesses in the same industry to large extent will be able to reap profits.

Innovation leads to a process of change in organizations and its market

offerings, and is a key weapon that marketing strategists use to win customers

and markets, through the development of sustainable competitive advantage.

2. By building a large base of customers.

This will be helpful in two ways. It will reduce the bargaining power of the

buyers plus it will provide an opportunity to the firm to streamline its sales and

production process.

A large customer base gives your business a better chance of reaching out

to more people and expanding the base. Loyal customers are always
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instrumental in spreading the word and becoming self-proclaimed brand

ambassadors.

It's about creating loyal brand advocates, and those are the people that refer

new customers to you, continue shopping your products, and engage with you

in a variety of ways, all of these lead to success.

Threats of Substitute Products or Services

There are very few substitutes available for the products that are

produced in the industry in which Revlon, Inc. operates. The very few

substitutes that are available are also produced by low profit earning

industries. This means that there is no ceiling on the maximum profit that

firms can earn in the industry in which Revlon, Inc. operates. All of these

factors make the threat of substitute products a weaker force within the

industry. The very few substitutes available are of high quality but are way

more expensive, this means that buyers are less likely to switch to substitute

products.

We listed some of the factors that help to reduce the threat of substitute

products or services:

1. By being service-oriented rather than just product oriented.

Practice saying this phrase out loud: “It’s not about the product.”

Organizations that excel in customer service see their job as helping

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customers, not selling or servicing a product. Instead, the product is the

vehicle for making the biggest impact on people in a specific industry.

Tony Hsieh, CEO of the beloved e-commerce site Zappos, embodies this

belief. He says, “Zappos is a customer service company that just happens to

sell shoes.”

Knowing how to help customers depends on your ability to empathize

with their challenges. If you can know how they feel, you can help them to feel

better, which is the most important part of a customer service job. Even when

there’s not a quick fix, a dose of care, concern and understanding can go a long

way. Gareth Goh at InsightSquared notes, “Customer service can’t always

deliver solutions, but it can always deliver empathy.” Being empathic means

cushioning a “no” or an “I can’t help you here” with more thoughtful dialogue.

For example, if you’re on the phone with a disgruntled customer and you need

to transfer her, imagine how she would feel, and speak to that.

2. By understanding the core need of the customer rather than what the

customer is buying.

Know your customers better because only they can help you get more

lead and more business. Understanding customers is the key to giving them

good service which in turn results into strong customer relationships and new

sales through positive word-of-mouth recommendation.

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Knowing and understanding customer needs is at the center of every

successful business, whether it sells directly to individuals or other businesses.

Once you have this knowledge, you can use it to persuade potential and

existing customers that buying from you is in their best interests.

3. By increasing the switching cost for the customers.

It can raise switching costs by working on loyalty. Trust has more

importance than customer satisfaction in engendering loyalty, since trust

contains belief in the brand, which provides positive outcomes not only in the

present but also in the future.

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Financial Analysis

Revlon Inc.’s Financial Performance

ANNUAL DATA I MILLIONS OF US $ 2009 2008 2007

Revenue 1,295.90 1,346.80 1,367.10
Cost of Goods Sold 474.7 490.9 505.7
Gross Profit 821.2 855.9 861.4
Research and Development Expenses — — —
SG & A Expenses 629.1 709.3 735.7
Other Operating Income or Expenses — — —
Operating Expenses 1125.1 1191.8 1248.7
Operating Income 170.8 155 118.4
Total Non-Operating Income/Expenses -114 -125.8 -129.9
Pre-Tax Income 56.8 29.2 -11.5
Income Taxes 8.3 16.1 7.5
Income after Taxes 48.5 13.1 -19
Other Income
Income from Continuous Operations 48.5 13.1 -19
Income from Discontinued Operations 0.3 44.8 2.9
Net Income 48.8 57.9 -16.1
EBITDA 242.9 254.4 225.2
EBIT 170.7 155 118.3
Basic Shares Outstanding 51 51 50
Shares Outstanding 51 51 50
Basic EPS 0.95 1.13 -0.32
EPS-Earnings Per Share 0.95 1.13 -0.32

Figure 2

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Revlon Inc.’s Financial Position

ANNUAL DATA I MILLIONS OF US $ 2009 2008 2007

Cash on Hand 54.50 52.80 45.10
Receivables 181.70 169.90 196.2
Inventory 119.20 154.20 165.7
Pre-Paid Expenses 44.30 51.60 47.6
Other Current Expenses — — —
Total Current Assets 403.60 428.50 476
Property, Plant & Equipment 111.70 112.80 112.7
Long-Term Investments — — —
Goodwill & Intangible Assets 182.60 182.60 182.7
Other Long-Term Assets 91.50 89.50 117.9
Total Long-Term Assets 390.60 384.90 413.3
Total Assets 794.20 813.40 889.3
Total Current Liabilities 309.30 323.40 348.7
Total Current Liabilities 309.30 323.40 348.7
Other Non-Current Liabilities 68.00 68.90 75.9
Total & Term Liabilities 1,518.50 1,602.80 1622.6
Total Liabilities 1,827.80 1,926.20 1971.3
Common Stock Net 0.5 0.5 0.5
Retained & Accumulated Deficit) -1,878.70 -1,927.50 -1985.4
Comprehensive Income -157.90 -183.10 -88.7
Other Share Holders Equity — — —
Share Holder Equity -1,033.60 -1,112.80 -1082
Total Liabilities and Share Holder Equity 794.2 813.4 889.3

Figure 3

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Financial Ratios

Types of Ratio 2009 2008 2007

Working Capital 94.30 105.10 127.30
Current Ratio 1.30 1.32 1.37
Quick Ratio 0.76 0.69 0.69
Total Asset Turnover 1.61 1.58 1.50
Debt-to-Equity -1.77 -1.73 -1.82
Equity Multiplier -0.77 -0.73 -0.82
Gross Margin 63% 64% 63%
Net Profit Margin 3.77% 4.30% -1.18%

Figure 4

Working Capital

Revlon must interpret their working capital if it is sufficient to provide

some assurance that it will be able to pay its creditors on time and in full.

Maintaining large amounts of working capital is not good. Working capital

must be financed with long-term debt and equity—both of which are expensive.

Furthermore, a large and growing working capital balance may indicate

troubles, such as excessive growth in inventories. In figure 4, we can say that

the working capital of Revlon from 2007 through 2009 is sufficient.

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Current Ratio

The current ratio is a liquidity and efficiency ratio that measures a firm’s

ability to pay off its short-term liabilities using its current assets. The current

ratio is an important measure of liquidity because short-term liabilities are due

within the next year.

An improving ratio might mean that the financial condition of a company

is improving or it might be the result of accumulating inventories. On the other

hand, declining ratio might be an indication of failing financial condition, or it

might the result of eliminating obsolete inventories or other stagnant current

assets. Therefore, having an improving ratio doesn’t necessarily mean it is good

and having low ratio means bad.

The adequacy of a current ratio depends heavily on the composition of

the assets. Year 2007’s current ratio is a little bit farther from 2008 and 2009,

yet we can say that it still sufficient to cover up its current obligations.

Quick Ratio

Quick ratio or aid test measures the ability of a company to pay its

current liabilities when they come due only with quick assets (Cash,

Marketable Securities, Accounts Receivable, etc.) This test measures how well

the company can meet its obligations without having to liquidate or depend

heavily to its inventories. A company with a quick ratio of 1 indicates that

quick assets equal current assets. However, based on Revlon’s quick ratio from
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2007 to 2009, their ratios are below one (1), which means Revlon Inc. will have

a hard time settling their obligations without relying on their inventories.

Total Asset Turnover

This measures a company’s ability to generate sales from its assets

through comparing its nets sales with its average total assets. In other words,

asset runover ratio shows the efficiency of a company in using its assets to

generate sales.

Higher ratio is always more favorable than lower ratio. Having high

turnover ratio only means that the company is using its assets efficiently in

generating sales. On the contrary, lower ratios mean that the company isn’t

using its assets efficiently and most likely have management or production

problem. In figure 4, the asset turnover ratio increased from 1.5 in 2007 to

1.58 in 2008 and 1.61 in 2009, which means that the company improves their

management of assets from year 2007 through 2009.

Debt-to-Equity Ratio

Debt-to-equity ratio compares a company’s total debt to total equity. A

higher debt-to-equity ratio indicates that more creditor financing (bank loans)

is used than investor financing (shareholders). On the other hand, lower debt-

to- equity ratio implies a more stable financial condition of a business. Those

companies with higher debt-to-equity ratio are considered riskier to creditors

and investors than those companies with lower ratio. A negative debt-to-equity

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ratio only indicates that the company had incurred losses from its operations.

Revlon’s debt-to-equity ratio in 2007 is -1.82 which gradually increased in

2008 with -1.73 and decreased again to -1.77 in 2009. Because of these

negative debt-to-equity ratios of Revlon, the company has a high risk of not

being able to pay its debt.

Equity Multiplier

Equity multiplier or leverage ratio shows the percentage of assets

financed by shareholders by comparing the total assets of the firm to its

shareholder’s equity. The higher the ratio means the greater assets are funded

by debt than by equity. In other words, investors funded lesser assets than

creditors. While lower ratio means the company is using more of its equity than

its debt to finance its assets. In Revlon’s situation, the company had negative

equity multiplier. Similar to the debt-to-equity ratio, negative leverage ratio is

also a result of incurred losses from a company’s operations.

Gross Margin Ratio

Gros margin ratio shows how profitable a company can sell its

merchandise or inventory. It is calculated by dividing the gross margin, which

is net sales less cost of good sold, to the net sales. The higher the ratio means

the company will have more money to pay for other operating expenses.

Revlon’s gross margin ratio has been stable for these years with 63, 64, 63

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percent of ratio. Based on the result, we can say that Revlon is capable to pay

its operating expenses for the year.

Net Profit Margin

Net profit margin shows the percentage of how much did the company

earn as profit at the end of the year. Revlon Inc.’s net profit margin in 2007

showed a -1.18% of its profit. However, the company’s net income increased at

an average rate of 1.295%. Though there was an increase in the company’s net

profit margin, those significant factors that brought negative impact to its profit

must be considered and reduced like the cost of sales, general, selling and

administrative expenses.

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ALTERNATIVE COURSES OF ACTION

The following are the possible solutions to the problems of Revlon Inc.

with their corresponding advantages and disadvantages:

1. Strengthen and penetrate the company’s products in the

international market.

Advantages:

- Revlon can develop new products that are more suitable and

applicable for its wider range of market.

- The products they produce will gain popularity in the cosmetics

industry and gain more market shares as well.

- It would help the company increase its sales and overall profitability.

Disadvantages:

- Establishing a new product will require huge amount of investment

and expenses. This might be a big disadvantage for Revlon since it

still has an outstanding amount of debt.

- The market being penetrated requires a thorough study which will

result to another cash outflow of the company.

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2. Build up the loyalty of its current consumers of both genders and

market by constant market developing, and offering new and

innovative products which are not yet tapped by competitors

Advantages:

- The support and patronization of current consumers will be greater.

- Stronger bond between the consumer and the products will be created

which will generate more sales and profit to Revlon.

- Consumer loyalty will benefit the company not just the current time,

but also the future.

- Marketing costs and expenses will be reduced since most consumers

are already knowledgeable about the product.

- The company will have a great edge against its competitors.

Disadvantages:

- Focusing on improving the relationship with its current market will

have a trade-off penetrating with other possible international markets.

- Revlon would have an opportunity cost as to how much could have

been generated when it entered the international market rather than

improving its current market.

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3. Reduce cost of goods sold, general and administrative expenses

and sales return

Advantages:

- This will help the company improve its cashflow, therefore, having

more cash to pay off-its debts.

- It will improve the company’s sales and overall profitability.

- This will create more profits for the company. Revlon will have more

budget for the incentives for the employees to motivate them work

harder.

Disadvantages:

- Cutting-off the company’s administrative expense might affect the

operations of the company such as marketing of the product.

- The reduction of general expenses might bring negative impact for the

safety if employees and maintenance of the assets.

4. Revlon should cut down their spending on the product advertising

Advantages:

- With lesser expenses, there is a higher possibility that the company

will gain more profit if the company’s sales do not decrease.

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- There will be more money for other significant operations of the

company.

Disadvantages:

- The information about the products might not be able to reach a

wider range of consumers.

- With the product unfamiliar or unknown to the market, this may

cause Revlon’s sales to decrease.

5. Make use of cheaper product supplies while ensuring its quality, to

minimize the cost of the product.

Advantages:

- The cost of the product will decrease which will probably lead to an

increase in gross margin

- Revlon may further minimize the price of the product which will

surely attract the consumers’ attention, most especially those who are

tight in budget.

Disadvantage:

- There will be a risk that the products’ quality may differ even just a

bit from its original composition.

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6. Encourage employees to be more innovative and flexible from the

fast-changing global economy by giving incentives

Advantage:

- Better performance will be expected from the employees which will

reflect a positive impact in the company’s operations

Disadvantages

- The company will incur another expenditure because of the incentives

given to the employees

- There is a risk that these expenditures might not be covered back by

the performance of employees

7. Divert their attention to the online market and improve their way of

promoting their products through the use of technology

Advantages:

- There is a higher possibility that Revlon’s products will get noticed

since you can barely see someone who doesn’t know how to use social

media.

- Your audience will be all over the world and not just in a certain area

- There are a ton of online resellers are available to buy and market the

products which can bring your company closer to the consumers

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Disadvantage:

- The company needs to invest more money in studying and developing

their usage of technology in promoting its product

FINDINGS/CONCLUSION

In this study, it was observed that Revlon Inc., though one of the

cosmetics giants, also struggles in keeping itself on the peak of success. There

were many difficulties encountered by Revlon because of (1) the intense

competition with other companies like L’Oreal, Avon, Estee Lauder, etc. Revlon

tried to compete with these companies by expanding its product lines and

creating new products which, in the end, failed to give Revlon its desired

outcome, (2) failure to maintain their customer loyalty due to the stagnation of

the development of its cosmetic products which did not attract the customers

attention and, (3) excessive amount of expenses in advertising, producing, and

marketing its product in which did not give any benefit to the company. These

factors brought negative effect to the company’s operations down to its

financial condition.

Based on the study, we can further conclude that Revlon Inc.’s financial

condition is very weak. Though it produces income in some years, the company

still incurs losses which gives the company a hard time to pay its existing

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debts. The company still doesn’t have enough resources to break through its

financial condition. Continuing competitions among competitors still serve as

one of the hindrances for Revlon’s success is facing. As time pass by,

competitors start to use the help of technology to further improve their

products and to reach more consumers all around the world. Revlon Inc., has

not been able to cope up with this strategy of other companies because of its

negative financial performance which hinders Revlon to invest into something

that can help the company go back to the track. Having this huge gap between

the improvements of other companies and Revlon, surely, Revlon Inc. will

suffer difficulties bringing its customers’ loyalty back. If Revlon Inc. continues

to spend more and earn less, the company is at high risk of bankruptcy and

might be the beginning of their biggest downfall.

RECOMMENDATION

Based on the findings and interpretations stated in this study, the

alternative strategies that Revlon should consider are alternatives (1)

Strengthen and penetrate the company’s products in the international

market, (2) Build up the loyalty of its current consumers and market by

constant market developing, and offering new and innovative products,

and (3) Reduce cost of goods sold, general and administrative expenses

and sales return. (7) Divert their attention to the online market and

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improve their way of promoting their products through the use of

technology.

Though Revlon still has an obscene amount of debt and penetrating the

company’s product in the international market requires a huge investment,

this alternative, if implemented and done well, could help Revlon Inc.

breakthrough its poor financial condition. Wider range of market means more

ideas to come up with to produce a new product that is not yet tapped by other

companies. This can help Revlon win the market and take edge against its

competitors.

Another alternative that Revlon Inc. should consider is building up its

relationship with its current consumers and market. Gaining the loyalty of

consumers is one of the top priorities of most companies since it gives many

positive impacts to the company. A company can indirectly advertise their

products through the use of word of mouth coming from their loyal customers.

Also, the more loyal customers you have, the better your sales’ condition will

be. Regardless of what your competitors produce, loyal customers won’t leave

the products they are attracted of. Therefore, Revlon must think of more ideas

which can really grip the attraction of their customers to their products. Some

of these ideas are could be beauty care products for not just for women but

also for babies and men.

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Reducing cost of goods sold, general, administrative and selling expenses

are also one of the alternatives that Revlon must consider. Cost is what makes

profit low. The lesser the cost, the more profit you will produce from your sales.

Which also means that the company will have enough money to provide

funding in other significant issues like their existing debts. With costs reduced,

and the sales remains in perfect condition, it is not impossible for Revlon to

rise up and once again take the lead in the world of cosmetics.

Lastly, the consideration of the use of technology is a must, especially for

large companies who aims to be in the lead worldwide. Through technology,

reaching people all around the globe is way better and easier than just giving

pamphlets on the street, sticking posters on a wall, or printing huge tarpaulin

to be posted on billboards. Though this kind of advertising still works, the

range of consumers that can be reached through it is low compared to

advertising with the use of technology. Companies having the use of technology

in their operations, especially in advertising, have a huge edge against its

competitors who still uses the old way of advertising. Revlon needs to

incorporate the use of technology in all its operations to expand its customer-

relationship and to immensely promote its product all over the world.

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REFERENCES

https://www.referenceforbusiness.com/history2/10/Revlon-

Inc.html#ixzz6fqm3Ivbq,

https://www.referenceforbusiness.com/history2/10/Revlon-Inc.html

https://www.academia.edu/30413363/Revlon_company

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