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STRATEGIC
MANAGEME
NT
REVLON, INC
Revlon, Inc-2007
Page | 2
Introduction
Revlon is an American cosmetics, skin care, fragrance, and Personal Care Company founded in
1932. Revlon operates as one of the world's leading cosmetics companies and markets its
products in over 100 countries under such familiar brands as Revlon, Color Stay, Age Defying,
Almay, and Skin-lights.
History
In 1932, Revlon was founded in the midst of the Great Depression. Two brothers named Charles
and Joseph Revson, they had an idea to create nail polish using pigments instead of the normal
dyes. They believed this would make the polish last longer and would allow for a larger variety
of colors. To come up with their formula, they partnered with a local chemist named Charles
Lachman. Using the Revson name, plus an "L" for Lachman, they named their new nail polish
company "Revlon." Within 6 years, the 3 men had turned Revlon into a million-Dollar Company,
selling only their special nail polish. In 1940, Revlon offered an entire manicure line, and added
lipstick to the collection. In 1994, The Color-Stay line of long-lasting cosmetics was introduced
with the debut of Color-Stay lipsticks, which soon captured the top spot in its category. As more
women began working, they needed makeup that stayed on all day. This has led Revlon to
develop its Color-Stay product lines.
Growth and innovation led the way for Revlon. In 1985, Revlon was sold to a subsidiary of
MacAndrews & Forbes Holdings. In the 1990's, Revlon revitalized its cosmetics business and
strengthened its industry leadership role. Revlon introduced the first transfer resistant lip color
which led to a full Color-Stay TM Collection of transfer-resistant products. The company closed
the gap on its closest competitors and reached a dramatic goal - the #1 brand in mass color
cosmetics. In 1996 Revlon again became a public company, listed on the New York Stock
Exchange
Vision & Mission Statement
Vision Statement
Revlon, Inc-2007
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Revlon
Vision Statement
Graphic
Directional
Focused
the future
Is specific enough for managers to provide
them with guidance for making decisions and
Flexible
allocating resources
Is Not-Once-And-All-Time-Statement, the
directional course management has charted
may has to be adjusted as
product/customer/technology/markets
Feasible
Desirable
Easy to communicate
Revlon, Inc-2007
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Mission Statement
Revlon Is A World Leader In Cosmetics, Skin Care, Fragrance And Personal Care And
Is A Leading Mass Market Cosmetics Brand
To Emerge As Dominant Cosmetics And Personal Care Firm In The Twenty-First
Century By Appealing To Young/Trendy Women, Health Conscious (Skin Care), And
Elder Women With Its Variety Of Brand
Organizatio
Customer
Product
Market
Concern
Technolog
Philosoph
Self-
Concer
Concern
s or
for
Concep
n for
for
Public
Employee
Image
Services
Survival,
Growth,
Profitabilit
y
Revlon
Statement 1
No
Yes
No
Yes
No
No
No
No
No
Statement 2
Yes
Yes
Yes
Yes
No
No
No
No
No
Analysis
Revlons mission statement is too narrow considering the Corporate Social Responsibility (CSR)
factor into consideration Revlon needs a new mission statement which primarily focus on CSR
topics like concern for public image, self concept, concern for employees etc and among other
factors its philosophy which can give customers, employees & stakeholders a decent idea about
the organizational and their investment in it
Revlon, Inc-2007
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To meet customers need for superior quality services. Provide secure & challenging work
environment for all employees. Meet everyday needs for nutrition; hygiene and personal care
with brands that help people feel good, look good, and get more out of life. Total commitment to
exceptional standards of performance and productivity, to working effectively, and to a
willingness to embrace new ideas and learn continuously
SWOT Analysis
Since the Industry Averages werent available we have used the competitors financial
ratios for financial analysis.
*In the context of the year 2008
Strengths
women
Strong Social Responsibility programs
Large mass merchandisers
Great operating efficiency use of capital assets
Continues new product development
Big share of share of sales in the foreign market (43% in 2006)
Net sale in 2007 increased from 2.6% after suffering a loss in 2006
The baby boomer chunk of the population tends to be brand loyal
Joint venture of Revlon and Pacific World Corporation into establishing a new line of nail
Revlon, Inc-2007
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High restricting cost that amounted up to $29 million when David Kennedy was in
command . From the year 2006 2007. First there was a layoff of 15% before Kennedy
in 2000 then another reduction of 8% when he took charge
Higher prices than competitors
Decrease in sales by 1 million (from 2005 - 2006)
High net losses in 2006, which resulted because of the discontinuation of Vital Radiance
and because of the long term debt
Discontinued vital radiance in 2006. The brand was launched in 2006 but was
discontinued as the customers didnt respond to it. Negative impact of this product line
Opportunities
cosmetics
Sales of personal care products increased form 428 to 499.4 in 2006 which indicates a
new trend
Men also using the cosmetic products
Expansion in Hair coloring market among youth
The young migrants to America are increasing
Personal care products usage is increasing
Latin America represents a growth opportunity
Older age women entering into the cosmetic industry
Revlon, Inc-2007
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makeup products
Disposable income of Americans decreasing
Consumers concerns about product safety and CSR activities
Major retailers reducing inventory levels due to recession
Decrease in the value of dollar
Ageing US population
Young age women are decreasing
Liquidity Ratios
Current Ratio:
= Current Assets/ Current Liabilities
2008
1.32
Avon
1.21
Estee lauder
1.9
Analysis: Current ratio is above 1 which indicates that for every $1 of CL there is $1.32 of CA.
This means that the company is managing its short term obligations quite well. For a creditor this
value would be quite satisfactory as opposed to its investors.
Quick Ratio:
Revlon, Inc-2007
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= CA Inventory/ CL
2008
0.84
Avon
0.6
Estee Lauder
1.1
Analysis: This ratio indicates the extent to which it can meet its short term obligations without
relying on the sales of its inventory. This ratio is below 1 which refers to the fact that the
company relies quite a lot on its inventory to meet its short term obligations. The figure is below
1 which signifies a little trouble for the company. The company may not be doing great but is
definitely not the worst one in the industry.
Leverage Ratios
Debt to Equity Ratio:
= Total Debt/ Total Stock holders equity
2008
-119.48%
Avon
4: 1 or 40%
Estee Lauder
58.2%
Analysis: The negative value indicates that the share of the owners equity as compared to the
creditors in lending the money is a larger one. The company depends mostly on equity. For Estee
Lauder this value amounts up to 58%, which is an alarming sign for the company.
Activity Ratios
Inventory Turnover
=Sales/ Inventory Of Finished Goods
2008
3.18 times
Avon
3.7
Estee Lauder
2.1
Revlon, Inc-2007
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This ratio states the number of times a company's inventory is sold and replaced over a period.
The lower the ratio (as compared to the industry average) the better it is for the company. A low
ratio implies poor sales and excessive inventory levels which is not the case here as Revlons IT
is 3.18, following Avons after 3.7.
Avon
1.8
Estee Lauder
1.5
Analysis: This ratio includes all the categories of assets, namely; receivables, and fixed assets.
The lower the ratio the sluggish the companys sales, again this value is a satisfactory one and
denotes that the company is managing its assets well.
Accounts receivable turnover
=Annual credit sales/Account Receivables
2008
Avon
Eatee Lauder
7.6X
14.6X
2.1X
Analysis: A low ratio indicates problems in collection which is the case over here, the highest
value is of Avon that has collected its receivables 14.6 times throughout 2008. Revlons low
turnover could be because of the bad debt.
Days sales in inventory
Revlon, Inc-2007
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2008
Avon
114.6 days
98
Estee Lauder
Analysis: There is considerable difference between the amounts of Revlons DSI and its
competitors. Because of a higher value the companys efficiency has been hindered. This meant
the company is taking more days to sell off its inventory as compared to its rivals in the industry.
Profitability Ratios
Gross profit margin:
= Sales CGS/sales
2008 Revlon
Avon
Etee Lauder
64.8%
76.79%
Analysis: There is a margin of 63.5% for the company to cover its operating expenses and still
yield a profit. As compared to its rivals its not doing well.
Operating Profit Margin
= EBIT/Sales
2008
Avon
Eeste Lauder
155m/1346m = 11.5%
13.10%
15.31
Analysis: The profit left off before paying up interest and tax amounts up to 11.5% which again
is not a good thing even when we compare it with the competitors ratios the value is the lowest.
Net Profit Margin:
= NI/Sales
Revlon, Inc-2007
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2008
Avon
Estee Lauder
57.9m/1346m =4.3%
8.18%
5..98%
Analysis: 4.3% may not be a good value but considering that its not a negative one indicates that
the company has improved as the values before the year 2007 were in negative because of the
negative income
ROA
= NI/TA
2008
Avon
Estee Lauder
57.9/813.4 = 7.11%
14.4%
10.87%
For every one dollar of assets the company yields a profit of $0.0711which is not exactly a good
sign and the amount of profit generated from total assets after tax and interest is quite low.
ROE:
= NI/Total Stockholders equity
2008
Avon
Estee Lauder
57.9/(1113) = (5.20)%
129.6%
26.73%
Analysis: The per dollar profit for every stockholders equity amount up to -5.20 which again is a
seriously bad sign as its not giving the investors/owners any attraction to keep the shares.
Price Earnings Ratio
= Price/Earnings per share
2008 Revlon
Avon
Estee Lauder
Revlon, Inc-2007
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1.13
7.88
Analysis: This ratio shows the attractiveness of the firm on the equity market, as in how much an
investor is willing to pay for one share of the company. Over here, Revlons ratio is low in
comparison to its competitors. Its not at all an attractive figure to the investors as they dont
expect to get the highest returns from this company as opposed to the other ones in the industry.
Growth Ratios
Sales
= P2 P1 / P1 * 100
2008 Revlon
1346-1367/1367 =
(1.5)%
Amount in $
(21) m
Avon
7.56%
Estee Lauder
11.03%
Analysis: The sales decreased which is why the growth rate is negative for the company. The
company is not doing well against the others in the industry as the rest of its competitors have a
positive growth rate.
Net Income
2008
Amount in $
Avon
Estee Lauder
57.9 (13.1)/13.1
=502%*
71m
64.9%
5.47%
*In 2007 the loss decreased to $16.1 million and in 2008 the net income came out to be a
positive figure; $57.9 million
Analysis: The figure is so huge because the income from 2007 was negative and its value
changed into a positive one in 2008. So in case of NI Revlon seems to be performing as
compared to its rivals.
Revlon, Inc-2007
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Matrices
Internal Factor Evaluation Matrix for Revlon
Weight
Strengths
1.
$25 million spend on CSR program
2.
Spend $24.4 million on R&D
3. Aggressive Advertising worth 120 million
4.
Great operating efficiency and use of capital assets
5.
Quality manufacturing standards and having ISO-9000
certification
6.
Strong Brand recognition
7. The company tries to introduce new products
8.
Produces products for all type of women, young, trendy, health
conscious and older women
9.
Strong Social Responsibility programs
10. Continues new product development
Weakness
1.
Extension of 87million debt by Mac Andrews; high restricting
cost
2.
Long term debt 2.3 billion
3.
High prices than competitors
4.
Decrease in sales by I million
5.
High net losses in 2006, which resulted because of the
discontinuation of Vital Radiance and because of the long term debt
6.
Discontinued Vital radiance in 2006. The brand was launched in
2006 but was discontinued as the customers didnt respond to it.
Negative impact of this product line was estimated to be $110 million
Rating
Weighted
Score
0.05
0.06
0.09
0.05
0.04
3
3
4
4
4
0.15
0.18
0.36
0.2
0.16
0.06
0.04
0.04
2
3
3
0.12
0.12
0.12
0.05
0.03
3
4
0.15
0.12
Weight Rating
0.03
Weighted
Score
0.03
0.07
0.09
0.04
0.04
2
1
1
2
0.14
0.09
0.04
0.08
0.05
0.1
Revlon, Inc-2007
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0.02
0.05
0.04
0.06
1
2
1
3
1
0.06
0.04
0.05
0.12
0.06
2.43
Revlon, Inc-2007
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6.
Decrease in the value of dollar
7. Ageing US population
8. Young age women are decreasing
Total
0.06
0.04
0.05
1
1
2
2
0.06
0.08
0.1
2.67
Avon
Rating Score
3
0.63
4
0.64
3
0.18
4
0.36
4
0.36
3
0.39
4
0.56
4
0.48
3.6
Revlon, Inc-2007
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Employ layoff by 8%
Revlon, Inc-2007
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WO Strategies
Target a New growing potential Market. (W4,O5)
ST Strategies
Launch a campaign to make people
aware about their Social Responsibility
programs. (S9,S1,T4)
Opportunities
WT Strategies
Invest in R & D to come up with better Products.
(W5,W6,T2)
Threats
uncovered by Revlon
growth opportunity
2006)
Revlon, Inc-2007
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Revlon, Inc-2007
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Analysis:
In the internal analysis matrix Aggressive Advertising worth 120 million is the major strength as
one can see that I have assigned .09 weights to it. The reason why this is the major strength, there
are still markets where Revlon has not catered yet, by aggressive advertising they can introduce
their products in untapped markets which would ultimately fulfill their business goal to earn
huge profits. The major threat for the company is its high prices than its competitors because
there is an intense competition in the market, user do need quality products but they what low
cost as well. Their brand loyalty is minor strength so they should do something in order to
overcome this weakness. If we look at the weighted avg. score of internal factors then we can say
that Revlon is unable to overcome its weakness by utilizing its strengths. Its 2.43 weighted avg.
score shows that it is not doing well internally, has poor control and weak performance.
In the external analysis matrix Asian markets still 60% uncovered by Revlon is the major
opportunity as one can see that I have assigned .09 weight to it. The reason why this is the major
strength, there are still markets where Revlon has not catered yet, by introducing their products
in untapped markets by which they can fulfill their business goal of earning huge profits. The
major threat for the company is intense competition because its prices are high than its
competitors, user do need quality products but they also want low cost. Women in China, India
and Middle East are rapidly growing interest in purchasing more cosmetics so they have a new
potential market to serve. They can reap the benefit. If we look at the weighted avg. score of
external factors then we can say that Revlon is able to overcome threats by utilizing
opportunities. Its 2.67 weighted avg. score shows that it is doing well externally, has control over
market and performance is good.
Revlon, Inc-2007
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By looking at the weighted avg. scores we can say that Revlon is not doing well as compare to its
competitors. Estee lauder weighted avg. score is 3.3.28 and Avon weighted avg. score is 3.6.
Both competitors are doing well.
In the SWOT matrix by utilizing their strength of Aggressive Advertising worth 120 million they
can cater Asian markets which are still 60% uncovered by Revlon so they can Introduce the
products in untapped Markets. It would be beneficial for them and they could easily reap the
benefit. By Target a New growing potential Market which is Women in China, India and middle
East has rapidly growing interest in purchasing more cosmetics to boost their sales which would
be helpful in compensation the previous Decrease in sales by I million. They should Launch a
campaign to make people aware about their Social Responsibility programs. They have already
spent $25 million on CSR program this would be turn into high gain because now a days
Consumers concerns about product safety and CSR activities. They should Invest in R & D to
come up with better Products because there is Intense competition n they have suffered from
High net losses in 2006, because of the discontinuation of Vital Radiance & Long Term Debt and
one more reason for this failure is that Customers didnt respond to it which resulted in Negative
impact $110 Million.
Revlon, Inc-2007
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Space Matrix
Environmental
Ratings
Competitive
Ratings
-5.0
Advantage (CA)
Control over supplier
-3.0
demand
Competitive pressure
Demand variability
Price range of
-4.0
-4.0
-5.0
and distributors
Market share
Customer loyalty
Product life cycle
-4.0
-3.0
-4.0
competing firms
Risk involved in
-2.0
Product price
-3.0
-20.0
Total
-17.0
Stability (ES)
Price elasticity of
business
Total
Financial Strengths
Ratings
(Fs)
Operating Income
Net Income
Working Capital
1.0
1.0
1.0
Growth Potential
Profit Potential
Ease Of Entry Into
4.0
3.0
3.0
The Market
Resource Utilization
4.0
Leverage
Inventory Turn Over
Earnings Per Share
Total
1.0
2.0
1.0
7.0
14.0
Revlon, Inc-2007
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Analysis
From the above analysis and diagram we can conclude that the best strategy for Revlon is
competitive strategy which contains backward, forward and horizontal integrations, market
penetration, market development, and product development.
ES average is -20/ 5 = -4.00 IS average is +14/ 4 = +3.50
CA average is -17/5 = -3.40 FS average is +7/ 6 = +1.17
FS
Conservative.
Aggressive
Market penetration
Vertical integrations.
Market development
Market penetration
Product development
Market development
Related diversification.
Diversification.
IS
CA
Defensive
Competitive
Retrenchment
Vertical integrations
Divestures
Market penetration
Liquidation
Product development
ES
Revlon, Inc-2007
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Market
Market
product
Forward
Backward
Horizontal
Related
diversification
Weak
Strong
Competitive
Competitive
Position
Position
Quadrant III
Revlon, Inc-2007
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Quadrant IV
Retrenchment
diversification
Related diversification
diversification
Unrelated diversification
ventures
Divestiture
Liquidation
Related
Unrelated
Joint
Star
Industry
sales
growth
rate
Question Marks
Revlon
Cash
cows
Dogs
It says company market share is in medium position relative to industry market share
Revlon, Inc-2007
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Internal-external matrix
3.
0
4.0
2.0
1.0
2
3
4
Revlon
5
6
Revlon, Inc-2007
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Recommendations
As we saw in the case study of Revlon which was actually written in 2007 that the company is in
great troubles. The financial position is also very weak and it generates losses in the recent years.
After applying the tools and techniques of strategic management our conclusion
is as follow.
1) The company should develop new markets, which is not tapped by the competitors.
2) The company should improve the quality of products as well as the price minimization
Efforts should be taken.
3) The company also needs to increase sales through increasing marketing efforts.
4) The other strategy option is the integration it may be forward, backward or horizontal
Integration.
5) The company should sell some unprofitable division.
6) The last option is liquidation. If the company fails to follow the above strategies then it
Should liquidate the business.