Groans could be heard from some of the 115 staff at Revlon’s European head office in London when it emerged last week that the company may be sold to Unilever.
A flurry of rumours on Wall Street about an imminent bid for Revlon – which sells a quarter of the world’s cosmetics – sent its share price rocketing by 54 per cent last week.
The company, 83 per cent-owned by flamboyant financier Ron Perelman, refused to comment. But neither did it deny it was holding talks. Who would be prepared to take on over $3.3bn (2bn) of debt to acquire the troubled make-up giant?
A bid for Revlon has been on the cards since last October, when the company issued a profit warning after sales collapsed in Russia and Brazil and sales fell in the US. Its share price collapsed, almost halving in value. It has suffered from increased competition and consolidation in the international cosmetics market, which has intensified through the Nineties, with Procter & Gamble’s purchase of Max Factor in 1992 and its launch of Oil of Olay cosmetics. Unilever acquired Calvin Klein Cosmetics and Elizabeth Arden in 1989 and sold Rimmel in 1997 to Benckiser. L’Oreal bought Maybelline in 1992.
Unilever and P&G were named as likely predators. P&G refused to comment, but analysts point out it already has a leading share of the US make-up market with brands such as Max Factor and Cover Girl. Revlon would boost its market share to more than 50 per cent, but analysts add that competition authorities would surely block or emasculate such a takeover.
Attention quickly switched to Unilever. At the company’s results in February, chairman Niall FitzGerald returned 5bn to shareholders, but said there was still scope to make an acquisition. Hence the dismay among Revlon’s UK staff, who fear that being swallowed up by the consumer goods giant could lead to the central London head office being moved to a suburban location, and to its independence being compromised.
Unilever officially refuses to comment, though one insider seems to distance the company from the move. “We sold (make-up brand) Rimmel two years ago because it wasn’t a core category for us,” he says. Unilever took the decision to operate in the “prestige” end of the beauty market with brands Calvin Klein and Elizabeth Arden, FitzGerald adds. Revlon is positioned at the top end of the mass market, but at the bottom of the prestige market and its products may not be classy enough for Unilever. Japanese consumer goods group Shiseido has also been named by analysts as a possible bidder.
Revlon said the first half of 1999 would be tough and implemented a $50m (30m) cost-cutting restructure designed to cut 1,200 of 14,000 jobs worldwide and close three out of 19 factories. But critics say Revlon’s marketing strategy of using supermodels to push its products is outdated, harking back to the Eighties. “It is a formula it has used over a long period,” says one observer. “But the trend is toward realism rather than surrealism.” The ads are created by in-house agency Tarlo, and media is bought by Young & Rubicam.
Cigar-chewing Perelman bought Revlon a decade after the death of founder Charles Revson in 1974, who built the company during the Forties and Fifties with fashion-led cosmetics backed by heavy advertising and TV sponsorship. In the Seventies, Revlon launched global mass-market fragrance brand “Charlie” which became wildly popular, notching up sales of more than $1bn (606m). With diversification into pharmaceuticals and healthcare, Revlon was distracted from cosmetics and profits began to fall. It was snapped up by the star-struck Perelman in 1985 with more than $3bn (1.8bn) of debt. He sold off healthcare, bought Max Factor (selling it to P&G in 1992), and began launching new products.
Revlon’s strategy of using supermodels, such as Cindy Crawford, has led many to believe that Perelman loves the cachet of the cosmetics business too much to ever sell out. On the other hand, he is a shrewd businessman and he has a hefty debt-repayment timetable that expires in 2001. He may be forced to forsake the glamour of the business to save his empire from bankruptcy, though some say he could avoid a sell-out with alternative finance.
With the launch of ColorStay in the US in 1994, Revlon pioneered “stay-on” lipstick, and transferred the technology to other make-up products. The launch of ColorStay technology bolstered its position in the US, and appears to have bouyed it up in the UK. But its European operation has suffered from a lack of marketing investment, and Wall Street analyst Carla Cassella of Chase Manhattan says: “It has not fully exploited its overseas operations.”
Revlon recorded falls of more than eight per cent in sales across Europe in the third quarter of 1998, compared with 1997. One source says Revlon should do better in the UK, as a result of its strong relationships with retailers. For an impulse product such as make-up, where women choose between six or seven brands, positioning on the counter will determine the success of a product.
“Revlon hasn’t been as active in the UK as others. It has launched new products, but this is a necessity in a fashion market driven by colour. Revlon hasn’t had the positioning or right marketing support in the UK, although it has good distribution,” says the source.
Revlon has told Wall Street that in the second half of this year it will launch a raft of new products, and believes this will restore its battered position in the US and overseas markets.The products will filter through to Europe in one form or another. But Revlon is without a European marketing director, as Cynthia Passmore has gone to Revlon Canada as general manager.
Mintel figures show UK sales growing 34 per cent between 1995 and 1997 to 22.8m, adding half a point of market share to 3.9 per cent. Revlon spent about 5.5m advertising brands Revlon, Ultima 11 and Almay last year, although the figure is expected to be lower this year.
Outside cosmetics it has the Charlie fragrance brand – relaunched last year – and the Flex haircare brand. Mintel says: “From 1995, Revlon has undergone an intensive programme of new product development backed by press ads, which has helped re-establish its credentials and halt its longer-term decline.”
The new products which Revlon is planning for later this year will certainly be needed to lift its performance in Europe. During the early Nineties, make-up sales suffered from the effects of the recession and a trend towards minimal use of colour.
Since 1997, the industry has managed to engineer the rebirth of a more glamorous, colourful look through manipulation of women’s and girls’ magazine editorial coverage and big marketing budgets. The introduction by retailers of self-selection of cosmetics has turned make-up into a more impulsive product, and mid-market brands have targeted teenage girls more aggressively.
Revlon was a beneficiary of this trend toward colour, and the new products launched later this year will measure whether the company can stay ahead of the trends over coming years. But the cosmetics world has changed irrevocably, and glamour is no longer the sole preserve of Hollywood models and actresses. Women use make-up “for themselves” rather than images of what they should look like, according to Mintel. Revlon needs to communicate more effectively with young women, rather than requiring them to reach impossible levels of beauty, it believes.
In the US, Revlon has said it will start putting more marketing spend behind its established brands rather than simply supporting new products. Observers say Revlon UK would benefit from a greater emphasis on brand building – and that could mean ditching its supermodel strategy in favour of brand building. Boots No7, the market leader, recently launched ads that used no models at all, just splashes of colour.
Collapsing sales over the past year have forced Revlon’s share price to an all-time low, an ideal time for predators to pounce. Unilever may consider Revlon too “downmarket” for its purposes, but the trend toward colour is one gap in its beauty portfolio, and Elizabeth Arden is the one cosmetic brand which has lost market share in the UK, according to Mintel.
Whether the staff at Revlon’s Brook Street headquarters will keep their central London location or be subsumed into a corporate competitor such as Unilever depends on Perelman, and how determined he is to get the debtors off his back.
Perelman’s exuberant endorsement of the celebrity life could ultimately be Revlon’s downfall. Whether the company is sold to Unilever or not, the pressure is on Revlon to ditch supermodels and actresses and develop a more updated image to take into the new millennium.