Why did Revlon file for bankruptcy? 4 simple reasons

Revlon Inc., the 90-year-old cosmetics company, filed for bankruptcy today, citing mounting debts, supply chain issues and industry competition as the main causes. Prior to his Chapter 11 filing this morning, Ron Perelman, who acquired Revlon for $2.7 billion in 1985, was engaged in restructuring talks with potential new lenders. Revlon is one of Perelman’s last major stakes in his investment firm McAndrews & Forbes Inc., and Perelman owns nearly 85% of the cosmetics company’s stock.

The filing follows years of financial turmoil at Revlon. Even before the COVID-19 pandemic, the company was saddled with debt amid increased industry competition and changing consumer cosmetic tastes. In 2020, Revlon announcement that after securing sufficient financial backing from its existing bondholders, it only narrowly avoided bankruptcy.

Revlon stock has fallen more than 80% since the start of the year. How did the beauty company, known for its nail polish and lipstick, go from longest-serving sponsor of the Oscars in the bankruptcy filing? Here are some reasons:

  • There were too many debts. Revlon estimates its debts to be between $1 billion and $10 billion, according to a filing in court. The company expects to receive $575 million in debtor-in-possession financing from existing lenders, a sum that will potentially allow the cosmetics line to continue operations. “OOur challenging capital structure has limited our ability to manage macroeconomic issues in order to meet this demand,” Debra Perelman, president and CEO of Revlon, said in a statement. Press release. “By addressing these complex legacy debt constraints, we hope to be able to simplify our capital structure and significantly reduce our debt, allowing us to unlock the full potential of our globally recognized brands. “
  • Supply chain issues caused by the pandemic. Revlon’s financial troubles come at a time of widespread turmoil in the beauty industry following the peak of pandemic shutdowns. Between ingredient shortagesincluding paper, glass and other key oils – along with soaring ingredient prices, cosmetics companies around the world are facing similar issues. Rising prices for raw materials, energy and packaging have pushed up cosmetics production costs by 25-30%, according to consultancy Bain & Company. As product demand remains relatively flat, these cost increases pose major challenges for businesses, especially for companies like Revlon that have pre-existing financial issues.
  • Revlon competes with top celebrities. He couldn’t follow. Traditional beauty brands like Revlon have found themselves competing not only with each other, but also with celebrity-backed brands like Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty. But they’re not just A-list stars. There are fewer and fewer barriers to not just launching a beauty brand, but promoting it. Between platforms like TikTok and Instagram, influencers at all levels can reach consumers in new ways. For more generic beauty companies like Revlon, it’s fierce competition.
  • America’s malls are dying. However mall foot traffic has exceeded pre-pandemic levels in July 2021 for the first time since 2019, the rise of online retailers and shifting consumer preferences over the past 10 years has decimated the once-standard American shopping experience. For brands like Revlon, where products can be found at retailers like Bed Bath & Beyond, Walmart, and Ulta, those buying preferences are sure to be felt. Bed Bath & Beyond alone announcement the closure of 37 stores in 19 states in February.

Revlon expects to maintain standard operations despite filing for bankruptcy. According to a post-filing press release, the company will continue to pay suppliers and partners without interruption.

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