Our fundamental Key Drivers analysis of Revlon’s past quarters foreshadowed their historic collapse. Declines in Market Position and Headwinds/Tailwinds were present in the quarters prior to the pandemic, which only worsened as the lockdowns ensued. We go into further details on additional market forces that played a major role in the evolving dynamics that led to the Revlon collapse.
Using our Key Drivers platform we analyzed Revlon (REV), the cosmetics company that recently filed for bankruptcy. Examining the past few quarters we noticed a downward trend in a few of our Key Driver scores that foreshadowed the ensuing collapse of the iconic company.
Our Key Drivers scores show declines in Market Position and Headwinds/Tailwinds in the quarters before the pandemic, with outlook worsening as society moved towards the lockdown periods. Looking at this from the standpoint of Porter's 5 Forces, competition and substitute goods played a major role in the evolving dynamics leading up to Revlon’s collapse.
Market forces impacted the company including lower lipstick sales due to the pandemic and the onset of people wearing masks. Industry experts have also pointed out that other competitors have been more savvy on social media, attracting a younger audience. Also within the Personal Products category, companies that offered self-care items, like vitamin supplements and skincare products, fared better during the pandemic as those products still provided value to consumers during the lockdown periods.
Revlon also cited supply chain issues as a concern in recent quarters, with rising raw material costs and vendors even halting services recently due to insolvency. Supply chain issues fall into our category of “Social” in our ESG framework, and have been a driving force in markets since the onset of COVID-19. The company is working to secure loans and remain solvent to continue operations, but it is clear they have been fighting an uphill battle for some time. The iconic company has turned some heads as a distressed asset to buy on the cheap, and it will be interesting to see how this plays out in the coming weeks. What is clear is that Revlon was ill-suited from a product standpoint to weather the pandemic due to the social nature of its products, but failed to adapt to the market when competing with more versatile businesses.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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