237 Park Avenue
Revlon strives to create and develop the most consumer-preferred brands; to be the most valuable partner to our retail customers; and to profitability grow the business and its value for our stakeholders.
Revlon Inc. operates as one of the world's leading cosmetics companies and markets its products in over 100 countries under such familiar brands as Revlon, ColorStay, Age Defying, Almay, and Skinlights. Revlon also sells skin care products (Ultima II, Vitamin C Absolutes, Eterna 27), fragrances (Charlie), and personal care products (High Dimension, Flex, Mitchum, Colorsilk). Ronald Perelman, who gained control of the company in a nasty hostile takeover in 1985, owns approximately 83 percent of Revlon.
A Nail Polish Company Is Founded in 1932
Revlon's first beauty item was nail enamel. Opaque and long-lasting, it was an improvement over the more transparent, dye-based products of other manufacturers. Revlon's nail polish owed its superiority to the use of pigments, which also allowed a wider color range than the light red, medium red, and dark red then available. Initially, the revolutionary "cream enamel" came from the tiny Elka company, in Newark, New Jersey, a polish supplier to beauty salons for whom Charles Revson began to work as a sales representative in 1931. Charles Revson and his older brother Joseph distributed Elka nail polish as Revson Brothers. Within a year, however, Charles Revson decided to open his own nail polish company, going into partnership with his brother and a nail polish supplier named Charles R. Lachman, who contributed the "l" to the Revlon name. Revlon was formed on March 1, 1932.
Revson had a keen fashion instinct, honed by his seven years of sales experience at the Pickwick Dress Company in New York. Coupling this with his experience at Elka, he noted that the permanent wave boom was making beauty salons more popular and that demand for manicures was rising in tandem. He therefore targeted beauty salons as a market niche--a fortunate choice whose importance would grow.
Within its first nine months, the company boasted sales of $4,055. There was a sharp rise in sales to $11,246 in 1933, the year the company incorporated as Revlon Products Corporation. At the end of 1934, the company had grossed $68,000. By 1937, sales multiplied more than 40 times. In that year, Revson decided to enlarge his market by retailing his nail polish through department stores and selected drugstores. This gave him access to more affluent customers as well as those with a moderate amount of money to spend on beauty products. Formulating a maxim he followed for the rest of his life, Revson steered clear of cut-rate stores, selling his product only at premium prices.
Advertising helped Revson stick to this rule. Its use was a fateful step for the industry; never again would major cosmetics companies attempt to sell beauty items without it. Revson began by labeling his nail enamels with evocative names such as Fatal Apple and Kissing Pink, which served both to describe a particular color while offering the promise of novelty at the same time. The company's first commercial advertisement appeared in The New Yorker in 1935. Aimed carefully at the upper-income clientele Revson was trying to attract, the advertisement came with a price tag of $335, constituting Revlon's entire advertising budget for the year.
By 1940, Revlon had a whole line of manicure products. Lipstick, Revlon's next major item, appeared in 1940. A perfectionist by nature, Revson made sure that its quality was the best he could produce. Its introduction was marked by a full-color advertising campaign stressing the importance of cosmetics as a fashion accessory and featuring the novel idea of "matching lips and fingertips." The campaign's success showed in the 1940 sales figures; reaching $2.8 million, they more than doubled those of 1939.
World War II brought shortages of glass bottles and metal lipstick cases. Paper had to be substituted. Also in short supply were aromatic oils, fixatives, and packaging materials, which had previously been imported from Italy, Ethiopia, and France. Since the shortages affected the entire industry, secrecy was replaced by mutual cooperation, new synthetics and domestic sources of supply were shared, and a new U.S. aromatics industry was born.
During wartime, patriotic activities replaced expansion. In addition to cosmetics, Revlon turned out first-aid kits, dye markers for the navy, and hand grenades for the army. Characteristically, Revson's military products were the best his company could produce. His attention to detail was rewarded in 1944 with an army-navy production award for excellence.
By the end of the war, Revlon listed itself as one of America's top five cosmetic houses. Expanding its capabilities, the company bought Graef & Schmidt, a cutlery manufacturer seized by the government in 1943 because of German business ties. Costing $301,125, this acquisition made it possible for Revlon to produce its own manicure and pedicure instruments, instead of buying them from outside supply sources.
Postwar Promotions and Growth
Postwar sales strategy, too, was influenced by increases in spending and department store credit sales. Returning interest in dress sparked the company's twice-yearly nail enamel and lipstick promotions, which were crafted in anticipation of the season's clothing fashions. Each promotion featured a descriptive color name to tempt the buyer, full-color spreads in fashion magazines, color cards showing the range of colors in the promotion, and display cards reproducing or enlarging consumer ads. Packaging was designed specifically for each line.
The Fire and Ice promotion for fall 1952 was one of the most successful. Its features included the cooperation of Vogue magazine, which planned its November issue around the lipstick and nail enamel, "push" money given to demonstrators in stores without Revlon sales staff to insure full retail coverage, and radio endorsements written into scripts for performers such as Bob Hope and Red Skelton. These efforts produced excellent publicity and helped to raise 1952 net sales to almost $25.5 million.
The company received its next boost from its 1955 sole sponsorship of the CBS television show The $64,000 Question. Though initially reluctant to go ahead with this project, Revson was persuaded by the success of rival Hazel Bishop, whose sponsorship of This is Your Life was providing serious competition for Revlon's lipsticks. Attracting a weekly audience of 55 million people, The $64,000 Question topped the ratings within four weeks of its debut. Revlon's advertising budget for the year, $7.5 million, proved Charles Revson's adage that publicity had to be heavy to sell cosmetics; as a result of the television show, sales of some products increased 500 percent, and net sales for 1955 grew to $51.6 million, from $33.6 million one year previously.
In November 1955, an allegation of wiretapping was filed against Revlon by Hazel Bishop. In testimony given in a hearing before the New York State Legislative Committee to Study Illegal Interception of Communications, the charge was denied by Revlon controller William Heller, who nevertheless admitted "monitoring" employees' telephones for training purposes. Underscoring the denial of Hazel Bishop's charges, a Revlon attorney added a denunciation of wiretapping for industrial espionage and promised cooperation in efforts to stop it.
Also in November 1955, Revlon reorganized as Revlon, Inc. A month later, in December 1955, the company went public. Initially offered at $12 per share, Revlon stock reached $30 within weeks, and the company was listed on the New York Stock Exchange at the end of 1956.
Meanwhile, the success of The $64,000 Question soon spurred a spinoff called The $64,000 Challenge. The two shows helped to raise the company's net sales figures to $95 million in 1958 and to $110 million in 1959. The three-year bonanza came to an end, however, in 1959, amid charges that both shows had been rigged. At the resulting congressional hearings, the shows' producers and the Revsons blamed each other. Nevertheless, the committee's verdict cleared Revlon of any blame in this matter.
A Segmented Product Line in the 1960s
As the 1960s began, Charles Revson became aware that his company was in danger of locking itself into a narrow, upper-middle-class image that could restrict sales. To avoid this, he borrowed a technique from General Motors and segmented his product line into six principal cosmetics houses, each with its own price range, advertising program, and image. Princess Marcella Borghese aimed for international flair, Revlon was the popular-priced house, Etherea was the hypoallergenic line, Natural Wonder served youthful consumers, Moon Drops catered to dry skins, and Ultima II offered the most expensive products. Top-priced lines were sold only in department stores, while others were available in other outlets. This strategy allowed the company to cover a wide market area without in-house conflict.
Early attempts to diversify into other fields were unsuccessful. For instance, Knomark, a shoe-polish company bought in 1957, sold its shoe-polish lines in 1969. Other poorly chosen acquisitions, such as Ty-D-Bol, the maker of toiler cleansers, and a 27 percent interest in the Schick electric shaver company were also soon discarded. Evan Picone, a women's sportswear manufacturer which came with a price tag of $12 million in 1962, was sold back to one of the original partners four years later for $1 million.
The company's first successful acquisition came in January 1966, when Revson bought U.S. Vitamin & Pharmaceutical Corporation in exchange for $67 million in Revlon stock. The buyout brought Revlon a company with annual sales of $20 million, most of them coming from a drug used to treat diabetes. Within a year, U.S. Vitamin proved its worth with its acquisitions of Laboratorios Grossman, a Mexican pharmaceutical company, as well as comparable concerns in Argentina and Chile. In 1971, Revson traded U.S. Vitamin's diabetes drug and $20 million cash for a group of drugs Ciba-Geigy was required to divest for antitrust reasons. Another U.S. Vitamin acquisition was Nysco Laboratories and its Nyscap process for timed-release medication. This, in turn, led to the introduction of vasodilation drugs. Fully disposable injectables, introduced in 1968, also came from U.S. Vitamin.
The company had begun to market its products overseas at the end of the 1950s. By 1962, when Revlon debuted in Japan, there were subsidiaries in France, Italy, Argentina, Mexico, and Asia. Revlon's entrance into the Japanese market was typical of its international sales strategy. Instead of adapting its ads and using Japanese models, Revlon chose to use its basic U.S. advertising and models. Japanese women loved the American look, and the success of this bold approach was reflected in the 1962 sales figures, which were almost $164 million.
By 1967, expanding worldwide markets produced sales of $281 million, showing a 5.7 percent increase over the figure of almost $266 for 1966. Planning further expansion, Revlon spent $12.5 million on improvements to existing facilities plus a new cosmetics and fragrance manufacturing plant in Phoenix, Arizona.
During the 1960s, the company consisted of four divisions: International, Professional Products, Princess Marcella Borghese, and U.S.V. Pharmaceutical. In 1968, Revson decided to add two more divisions: Cosmetics and Fragrances, headed by Joseph Anderer, and the Revlon Development Corporation, which was headed by Evan William Mandel and concerned chiefly with long-range planning concepts and strategies for marketing opportunities.
Acquisitions and Restructuring in the 1970s
The 1970s began with annual sales of about $314 million. The Cosmetics and Fragrances division, its six lines separately aimed, advertised, and marketed, was the industry leader in all franchised retail outlets. Revlon fragrances, such as Norell and Intimate for women and Braggi and Pub for men, had also become familiar to U.S. consumers. Revlon also had a new line of wig-maintenance products called Wig Wonder.
An important 1970 acquisition was the Mitchum Company of Tennessee, makers of antiperspirants and other toiletries. Mitchum joined the Thayer Laboratories subsidiary, formerly Knomark. Mitchum-Thayer division's widely publicized products required a 1971 advertising budget of $4 million.
In 1973, Revlon introduced Charlie, a fragrance designed for the working woman's budget. Geared to the under-30 market, Charlie models in Ralph Lauren clothes personified the independent woman of the 1970s. Charlie was an instant success, helping to raise Revlon's net sales figures to $506 million for 1973 and to almost $606 million the following year.
High profits notwithstanding, 1974 was a difficult year. Charles Revson was diagnosed with pancreatic cancer. Determined to leave a worthy successor, he picked Michel Bergerac, a president of International Telephone and Telegraph's European operations. Terms of Bergerac's contract included a $1.5 million signing bonus, an annual salary of $325,000 for five years, bonuses, and options on 70,000 shares.
Company profitability was Bergerac's chief interest. Impressed with Revson's experienced management team, he induced them to stay by introducing the Performance Incentive Profit Sharing Plan, which allotted each executive points based on profit objectives achieved for the years 1974 to 1976. He also cut company spending with tighter inventory controls and instituted an annual savings of $71.5 million by the elimination of 500 jobs. Bergerac installed a management-information system requiring that all managers report monthly on problems, sales, and competition.
Through acquisitions, Bergerac tried to reduce Revlon's dependence on the increasingly crowded cosmetics market. His first major purchase came in 1975. Coburn Optical Industries was an Oklahoma-based manufacturer of ophthalmic and optical processing equipment and supplies which cost 833,333 Revlon common shares. Barnes-Hind, the largest U.S. marketer of hard contact lens solutions, was bought in 1976 and strengthened Revlon's share of the eye-care market. Other acquisitions included the Lewis-Howe Company, makers of Tums antacid, acquired in 1978, and Armour Pharmaceutical Company, makers of thyroid medicines, acquired in 1977. These health-care operations helped sales figures to pass the $1 billion mark in 1977, bringing total sales to $1.7 billion in 1979.
By the late 1970s, company pharmaceutical research and development had extended into plasma research and new drugs for the treatment of osteoporosis and hypertension. The markets for soft contact lenses and their rinsing solutions were also growing. Bergerac compounded a successful 1979 by buying Technicon Corporation, a leading maker of diagnostic and laboratory instruments for both domestic and international markets, in 1980.
During the mid-1970s, Bergerac also organized the six cosmetics lines into three groups for easier administration. Revlon, Moon Drops, Natural Wonder, and Charlie now belonged to group one. Group two was comprised of Flex hair-care products and other toiletries, while group three included Princess Marcella Borghese and Ultima II, the prestige cosmetic brands sold in upscale department stores. The domestic cosmetics operations also included the government sales division, carrying almost all the beauty lines through military exchanges and commissaries in the United States and overseas. By the mid-1980s, Revlon's health-care companies, rather than Revlon's beauty concerns, were innovating and expanding. Reluctant to initiate beauty-product development or department store promotions, Revlon lost ground to Estée Lauder, a privately held company whose marketing strategy of high prices with accompanying gifts had earned it almost universal center-aisle department store space. This caused Revlon's share to drop from 20 percent to 10 percent of department store cosmetics sales.
Drugstore and supermarket sales were also suffering; Natural Wonder, a low-priced line, lost 24 percent of its supermarket volume in 1983 alone, and competitor Noxell's inexpensive Cover Girl line was claiming more drugstore sales. Comparisons of profits from total operations told the story: $358 million in 1980 sank to $337 million in 1981, which fell to $234 million by 1982.
By 1984, industry analysts believed that Revlon would be worth more if it were broken up and sold. Within a year, this opinion was borne out by a takeover bid from the much smaller Pantry Pride, a subsidiary of Ronald Perelman's MacAndrews & Forbes Holdings. In defense, Bergerac accepted a $900 million offer for the cosmetics businesses from Adler and Shaykin, a New York investment company. The rest of Revlon was to go to Forstmann Little & Company, a management buyout corporation, for about $1.4 billion. These sales, however, were disallowed by a Delaware judge, who ruled that the deal was not in Revlon's shareholders' best interests. On November 5, 1985, at a price of $58 per share, totaling $2.7 billion, Revlon was sold to Pantry Pride, becoming a private company and giving the name of Revlon Group to the former Pantry Pride. The highly leveraged buyout--engineered with the help of junk bond king Michael P. Milken--saddled Revlon with a huge $2.9 billion debt load, which was an albatross around the company's neck for years to come.
Perelman immediately began to divest the company of the healthcare businesses. By 1987, only National Health Laboratories remained. By the end of 1988, Perelman had recovered $1.5 billion of his borrowed funds, partly by selling the eyecare businesses to the British firm of Pilkington for $574 million.
Divested companies were replaced with others geared to the Perelman objective--restoring the luster to the original beauty business. Costing about $300 million, Max Factor joined the Revlon lineup in 1987, along with its Halston perfume and its Almay toiletries. Other newcomers were Yves Saint Laurent fragrances and cosmetics; Charles of the Ritz, Germaine Monteil, and Alexandre de Markoff followed soon after. In 1989, Perelman spent another $170 million to acquire Betrix, a German makeup and fragrance maker.
Other innovations of the 1980s meshed with national trends. The concern of a burgeoning older population with health and fitness led to wider company research on skin-care products as well as on makeup. International concerns for animal rights found a response in Perelman's Revlon, which abandoned the Draize test in 1989 after closing its animal testing center in 1986. Revlon also sought to improve the company image when it signed supermodels Cindy Crawford and Claudia Schiffer for its advertising in the late 1980s and early 1990s.
During the late 1980s, fears of an approaching recession made bankers generally wary of highly leveraged transactions, and Revlon's junk bonds began to lose value. Internal problems stemmed partly from the department store market, where an attempt by Revlon to economize by grouping its Ritz, Monteil, and Borghese prestige brands at one counter failed. Other problems included the introduction of No Sweat, a deodorant which, despite its $12 million introductory advertising budget, failed to garner market share; the reformulation of Flex, a popular shampoo which lost market share when Revlon introduced a new formula with new packaging and a higher price; and a 2 percent shrinkage in the fragrance market that affected the entire industry.
Turning the Corner in Mid-1990s
By 1990, Revlon held only 11 percent of the U.S. mass-market cosmetics market. Losses were mounting year after year thanks in large part to the money that had to be spent each year to service the debt. In 1991 alone, $131.6 million went toward debt service, contributing to an operating loss of $241.7 million ($226.9 million of which stemmed from extraordinary restructuring charges). Perelman was forced to sell still more assets to keep Revlon from defaulting on its loans.
In addition to selling 80 percent of National Health Laboratories by 1992, Perelman had to also sell off some assets from the core cosmetics area. In 1991, Max Factor and Betrix were sold to Procter & Gamble for $1.14 billion in cash. Sold off the following year were the high-end Halston and Princess Marcella Borghese brands. Unfortunately for Perelman, such moves were not enough to gain the confidence of Wall Street. In 1992, Perelman tried to sell 11 million shares of Revlon stock in an initial public offering (IPO) at about $18 to $20 per share. The IPO failed, a victim of a sluggish stock market, poor Revlon earnings, and the huge debt that continued to weigh down the cosmetics giant.
To shore up sagging sales, Revlon CEO Jerry Levin boosted Revlon's advertising budget by 25 percent in 1992 to $200 million. Much of this money was spent on television advertising, with less spent on print ads and in-store promotions than in the past. While the Revlon line was promoted in this fashion and through mass-market retailers, the company's only remaining premium brand, Ultima II, was shifted down from upscale stores to JC Penney and Dillard's department stores. Early indications were positive for these moves as overall market share for the Revlon Group hit 14.7 percent in 1992. By 1993, the company was finally able to report operating income--$51.5 million--although debt service remained high at $114.4 million.
Meanwhile, the company started to develop successful new products. The ColorStay line of longlasting cosmetics was introduced in 1994 with the debut of ColorStay lipsticks, which soon captured the top spot in its category. The Age Defying line of cosmetics for women over 35 soon followed and also proved popular. By 1995, overall market share had reached 19.4 percent and what Advertising Age called the "reborn cosmetics juggernaut" unseated Maybelline from the number one position in cosmetics. Net sales were improving steadily from $1.59 billion in 1993 to $1.73 billion in 1994 to $1.94 billion in 1995. In addition, while debt service remained high ($137.7 million in 1995), it was finally exceeded by operating income ($145.1 million).
Backed by what was clearly a remarkable, though long-in-coming turnaround, Perelman felt confident enough to try another initial public offering in early 1996. This time he succeeded, and Revlon once again became a public company, although Perelman retained 99.7 percent of the voting stock. About 15 percent of overall shares were sold in the initial public offering, raising about $150 million.
Financial Woes in the Late 1990s and Beyond
Revlon's turnaround was short-lived, however, and by the late 1990s the company was plagued with problems. Losses began to pile up, due in part to intense competition, dwindling shelf space in stores, inventory overstock, and problems overseas. Saddled by over $2 billion in debts, Perelman announced that he was looking for a buyer for Revlon. He was unable to strike a deal, however, and instead began selling off parts of the company. He sold Revlon's professional products business and its Plusbelle line in 2000 and divested the Colorama brand the following year.
CEO Jeff Nugent resigned in 2002, leaving Coca-Cola executive Jack Stahl at the helm of Revlon. Losses continued to mount as the new CEO and his team worked to save Revlon from bankruptcy. Overall, sales had fallen by 40 percent since 1998 as competitors stole market share. To make matters worse, cosmetic sales at drugstores, supermarkets, and discount stores had slowed significantly over the past several years. Perelman set plans in motion to bail out the company, offering a cash infusion of $150 million in 2003 to help eliminate some of the firm's debt.
In an attempt to bolster Revlon's sales, the company launched an expensive marketing campaign featuring Hollywood stars Halle Berry and Julianne Moore. Market share for Revlon and Almay increased slightly, and the company posted a 16 percent increase in sales as a result. While the company focused on strengthening its brands, restoring growth, building stronger relationships with its retail partners, and revamping the organization as a whole, Stahl continued to have his work cut out for him. A November 2003 Business Week article stated, "Today, the company isn't making a dime--and Stahl can't get away with that for long. Sales may be rising, but only because of a pricey ad blitz that some outside Revlon think is unsustainable." Indeed, without the financial backing of Perelman and potential debt-for-equity transactions that would reduce Revlon's debt, the company faced a long road of financial difficulties.
In late 2003, the company launched Destination Model, a business plan designed to get profits back on track. The model's strategies were based on improving promotional and advertising success, reducing manufacturing and supply chain costs, and developing successful new products while effectively managing current products. Despite its financial position, Revlon management remained optimistic about its future. Regardless of what happened in the years to come, Revlon's brands would no doubt continue to be recognized across the globe.
Principal Subsidiaries: Almay, Inc.; Charles of the Ritz Group Ltd.; Charles Revson Inc.; Cosmetics & More Inc.; North America Revsale Inc.; PPI Two Corporation; Revlon Consumer Corporation; Revlon Consumer Products Corporation; Revlon Development Corporation; Revlon Government Sales, Inc.; Revlon International Corporation; Revlon Products Corporation; Revlon Real Estate Corporation; RIROS Corporation; RIROS Group Inc.; RIT Inc.
Principal Competitors: L'Oréal SA; The Proctor & Gamble Company; Unilever NV.