Revlon built a cosmetics empire on red nail polish, with matching lipstick. But the groundbreaking brand, a mainstay in cosmetics cabinets since the Great Depression, has lost its luster, amid the emergence of a new generation of cosmetics brands, changing shopping habits and tightening of the supply chain. The company filed for bankruptcy this week, and the accounts flooded with red ink.
Revlon filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York, with about $ 3.8 billion in debt. It said it had secured $ 575 million in “debtor-in-possession loans” to help fund its bankruptcy operations. The company has about 5,700 employees.
Revlon’s challenges have been increasing for some time. In the midst of falling sales in 2020, it cut 1,000 positions in the hope of improving profitability. Later that year, it almost avoided filing for bankruptcy by entering into an agreement with the debt holders. More recently, companies have been challenged by coronavirus-related closures in China and supply chain challenges that have swept across the country.
The company was founded in 1932, by Charles Revson, and grew to become the second largest makeup company in the United States, behind Estée Lauder. As is well known, Mr. Revson courted female shoppers by campaigning on the lid with matching red lips and nails.
Revlon was acquired by billionaire Ron Perelman for $ 2.7 billion in 1985 through a hostile takeover, then described as one of the key corporate struggles of the time.
It bought Elizabeth Arden in 2016 in a purchase financed mainly by loans. Meanwhile, a new group of cosmetics entrepreneurs, such as Rihanna and Kylie Jenner, have emerged. The social media superstars have promoted their products directly to their millions of Instagram followers, embraced inclusive color palettes and bypassed the pharmacies Revlon has traditionally relied on to sell their products.
“Consumer demand for our products remains strong – people love our brands, and we continue to have a healthy market position,” said Revlon’s CEO, Debra Perelman, who is Mr. Perelman’s daughter, in a statement. The company’s extensive balance sheet “has limited our ability to navigate macroeconomic issues to meet this demand,” she said.
Dealing with the debt burden has also created problems outside the company. The investment bank Citigroup accidentally sent $ 900 million of its own money to a group of Revlon lenders in 2020, which a federal judge ruled they did not need to return to the bank.