S.M Case (Revlon)

REVLON, INC.-2007By: Syeda Muzeadhy Fatima, Moshin Javed Sethi & Noorullah

Khan

Sec-G BBA IV

14-03-2012

Revlon, INC-2007

Contents

Introduction...............................................................................................................3

Vision Statement.......................................................................................................3

Proposed Vision Statement........................................................................................3

Mission Statement.....................................................................................................4

Proposed Mission Statement.....................................................................................4

External Audit - Opportunities & Threats.................................................................5

Internal Audit - Strengths & Weaknesses.................................................................6

SWOT Matrix............................................................................................................7

Competitive Profile Matrix (CPM)...........................................................................9

Financial Ratio Analysis For the year 2006............................................................10

External Factor Evaluation EFE..............................................................................13

Internal Factor Evaluation IFE................................................................................15

IE Matrix.................................................................................................................16

Space Matrix............................................................................................................17

Grand Strategy Matrix.............................................................................................19

The Quantitative Strategic Planning Matrix (QSPM).............................................20

Recommendations...................................................................................................23

References...............................................................................................................24

2

Revlon, INC-2007

Introduction

Revlon Inc. has a 75- year history of providing high quality products at affordable prices to women. Revlon products are sold in more than 100 countries around the world with sales outside the United States comprising 43% of sales in 2006. Revlon’s product category includes skin care, cosmetics, personal care, fragrance and professional products. Some of the company’s most recognize brand names are Revlon, Ultima II, Colortay, Almay, Charlie, Flex, Mitchum, Jean Nate and ColorSilk. The company continues to introduce new products. Almay Intense Eye Color (package that combines eye liner, mascara and eye shadow) was successfully introduced in 2005 and Almay Smart Shade (colorless foundation that changes to correct color when applied) and ColorStay Smooth Lip Color were introduced in 2006.

Revlon Inc. was formed in 1932 by brothers Joseph Revson and Charles Lachman with a $300 investment. Charles Lachman, who contributed the "L" in the REVLON name. Starting with a single product nail enamel unlike any before it - the three founders pooled their meager resources and developed a unique manufacturing process. The company began its success with opaque long-lasting nail enamel sold to beauty salons. Revlon sold its nail enamel through department stores and selected drugstores. Revlon contributed directly to the war effort, by manufacturing first aid kits and dye markers for the navy. At war's end, Revlon began to produce manicure and pedicure instruments. This company initially began with only one single product-nail enamel. Today company's product portfolio comprises off various different products such as:

Cosmetics Skin Care Products Personal Care Products Fragrance

According to the company’s web site, Revlon is a world leader in cosmetics, skin care, fragrance and personal care and is a leading mass-market cosmetics brand.

Vision Statement"Our vision is to provide glamour, excitement and innovation through quality products at affordable prices."

Proposed Vision Statement"Our vision is to provide beauty at its best through environmentally safe and high quality products at affordable prices."

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Revlon, INC-2007

Mission Statement" To emerge as dominant cosmetic and personal care product firm in twenty first century by appealing to young people with its variety of brands"

Company

Customers

1

Products & Services2

Markets3

Technology4

Concern for Survival5

Philosophy6

Self Concept7

Concern for Public Image8

Concern for employees9

Revlon Yes Yes Yes No Yes No No No No

The above mentioned mission statement lacks few important components which are essential for a successful mission statement such as the important aspect of corporate social responsibility. It is important for a company to be environmentally, ethically and socially a responsible one. Hence below another mission statement has been proposed considering various important components.

Proposed Mission Statement"Revlon aims to provide its prestigious customers (1) with a fulfilling experience of beauty and

care globally(3). We believe in servicing our valuable customers by providing them with a

solution through our quality products(2). Revlon also enrich its environment and community by

giving back love and care(8). We aim to be a company which is economically successful, has

motivated workforce (9) and is committed to provide excellence(6)through innovation (7) We

aim to diversify our product portfolio(5) through extensive research and development (4)."

4

Revlon, INC-2007

External Audit - Opportunities & ThreatsOpportunities

1. Target market is not just confined to women but potential market of men is also increasing for skin products.

2. Old age women are entering to cosmetic industry.3. Aging population are a significant market for aging

cosmetics.4. Baby boomer Americans are a significant market for the

cosmetic/personal care industry.5. Women in China, India and Middle East are rapidly growing

interested in purchasing more cosmetics and fragrances.6. Market for hair coloring has expanded with teenagers and

adults wanting more vibrant coloring options.7. Potential for sales of personal care products around the

world is excellent.8. Baby boomers have high levels of disposable income and are

brand loyal customers.9. Social media is now being widely used for promotion10. The trend of makeover accelerates the demand of beauty

products.

Threats1. Intense Competition from competing brands2. Global ethnic-racial issues3. Gas prices are high and rising leaving most Americans with

less disposable income for purchasing cosmetics4. Retailers selling their own brands such as Gap, Victoria's

Secret.5. Consumer concern about product safety and use of animal

testing by cosmetic companies.6. Older people tend to spend less on cosmetics7. Competing brand products available for comparatively low

prices.8. Availability of substitute products in a wide range.9. Environmental concerns are increasing.10. Retailers reducing inventory levels

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Revlon, INC-2007

Internal Audit - Strengths & Weaknesses Strengths

1. Socially responsible company as mentioned Revlon and its employees are active in supporting women's health programs and other community efforts

2. Strong research and development programs as stated Revlon spent more than $25 million on services and research that help women

3. Increased operating efficiency and better use of capital assets4. Use of internet as medium of sales (website)5. Continuous new product development6. Its primary customers are large mass merchandisers and

chain drug stores.7. Has a wide product range8. Provides high quality products at affordable prices9. Holds a strong goodwill since it’s a known brand10. Has a wide range of nail enamel colors

Weaknesses1. Excessive long-term debt2. Lower net sales than other competing brands3. Less diversified portfolio as compared to other competitors4. Lack of financial resources5. Lost grounds in cosmetics due to unwise diversification in

health products6. A weaker financial position as current assets and total assets

have decreased while current and total liabilities have increased.

7. New brand was not welcomed as it was comparatively expensive

8. Less focus on improving financial position9. Most of their products such as nail enamel, have a shorter life

because they use color instead of dyes.10. Had to cut down on promotional budget to reduce operational

costs.

6

Revlon, INC-2007

SWOT Matrix

Strengths Weaknesses

1. A socially responsible company as mentioned Revlon and its employees are active in supporting women's health programs and other community efforts


3. Increased operating efficiency and better use of capital assets

4. Use of internet as medium of sales (website)

5. Continuous new product development6. Its primary customers are large mass

merchandisers and chain drug stores.7. Has a wide product range8. Provides high quality products at

affordable prices9. Holds a strong goodwill since it’s a

known brand10. Has a wide range of nail enamel colors

1. Excessive long-term debt2. Lower net sales than other competing

brands3. Less diversified portfolio as compared to

other competitors4. Lack of financial resources5. Lost grounds in cosmetics due to unwise

diversification in health products6. A weaker financial position as current assets

and total assets have decreased while current and total liabilities have increased.


8. Less focus on improving financial position9. Most of their products such as nail enamel,

have a shorter life because they use color instead of dyes.

10. Had to cut down on promotional budget to reduce operational costs.

Opportunities SO & WO Strategies1. Target market is not just confined to women

but potential market of men is also increasing for skin products.

2. Old age women are entering to cosmetic industry.

3. Aging population are a significant market for aging cosmetics.

4. Baby boomer Americans are a significant market for the cosmetic/personal care industry.

5. Women in China, India and Middle East are rapidly growing interested in purchasing more cosmetics and fragrances.

6. Market for hair coloring has expanded with teenagers and adults wanting more vibrant coloring options.

7. Potential for sales of personal care products around the world is excellent.

8. Baby boomers have high levels of disposable income and are brand loyal customers.

9. Social media is now being widely used for

SO-Strategies1. Through strong research and

development Revlon can come up with more vibrant hair coloring options and can cater to expanding hair coloring market and to eventually increase its market share. (S2, O6)

2. With the strong goodwill and popular brand name, they can cater brand loyal customers who have high levels of disposable income. (S9, O8)

WO-Strategies1. Can increase sales by catering to men

as well since they are a potential market. (W2, O1)

2. Can improve its financial position by catering to markets other than US such as China, India and Middle East as women of these areas are rapidly growing interested in purchasing

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Revlon, INC-2007

promotion10. The trend of makeover accelerates the

demand of beauty products.

cosmetics and fragrances. (W8, O5)

Strengths Weaknesses

1. A socially responsible company as mentioned Revlon and its employees are active in supporting women's health programs and other community efforts




5. Continuous new product development6. Its primary customers are large mass

merchandisers and chain drug stores.7. Has a wide product range8. Provides high quality products at

affordable prices9. Holds a strong goodwill since it’s a

known brand10. Has a wide range of nail enamel colors

1. Excessive long-term debt2. Lower net sales than other competing

brands3. Less diversified portfolio as compared to


diversification in health products6. A weaker financial position as current

assets and total assets have decreased while current and total liabilities have increased.





Threats ST & WT Strategies

1. Intense Competition from competing brands

2. Global ethnic-racial issues3. Gas prices are high and rising leaving

most Americans with less disposable income for purchasing cosmetics

4. Retailers selling their own brands such as Gap, Victoria's Secret.

5. Consumer concern about product safety and use of animal testing by cosmetic companies.

6. Older people tend to spend less on cosmetics

7. Competing brand products available for comparatively low prices.

8. Availability of substitute products in a wide range.

9. Environmental concerns are increasing.

ST-Strategies

1. Revlon is a socially responsible company hence realize consumer concern about safe products and thus provides high quality products at affordable prices. (S1, T5)

2. Continuous new product development helps Revlon to compete with substitute products available in wide range. (S5, T8)

WT-Strategies

1. Should use competitive pricing to bring in new brands rather than competitively higher prices. (W7, T7)

2. Should improve sales to fight back the

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Revlon, INC-2007

10. Retailers reducing inventory levels intense competition from competing brands. (W2, T1)

Competitive Profile Matrix (CPM)Revlon Estee Lauder L'Oreal

Critical Success Factors Weight Rating Score Rating Score Rating ScoreAdvertisingProduct QualityPrice CompetitivenessManagementFinancial PositionCustomer LoyaltyGlobal ExpansionMarket ShareTotal

0.200.200.100.100.150.140.100.01

1

44321332

0.80.80.30.20.150.420.30.022.99

34323233

0.60.80.30.20.450.280.30.032.96

44333333

0.80.80.30.3

0.450.420.3

0.033.4

CPM identifies the major competitors of Revlon. The total sum shows that Loreal is the best out of the three. This can only be stated from a calculation perspective but doesn’t stands true from comparison point of view because all these values are on the basis of own judgment.

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Revlon, INC-2007

Financial Ratio Analysis For the year 2006

Financial Condition

1. Current Ratio = Current Assets/ Current Liabilities

Revlon Avon Estee Lauder488/377.2 = 1.29 3334.4/2550.1= 1.31 2176.9/766.3 = 1.51

Current Ratio which comes out to be greater than 1 is satisfactory. Though in this case Revlon's current ratio is greater than 1 which suggests satisfactory but if compared from the other two competitors Revlon needs to improve a bit to get more stable.

2. Quick Ratio = Current Assets - Inventory/ Current Liabilities

Revlon Avon Estee Lauder488 - 186.5/377.2 = 0.79 3334.4 - 900.3/2550.2 = 0.95 2176.9-766.3/1438.2 = 0.98

From an industry point of view, 1 is satisfactory however less than one doesn’t sounds good. Revlon's quick ratio is less than one which means they need to work on their financial issues to reach to the satisfactory level.

3. Debt-to-Equity Ratio = Total Debt/Total Stockholder's Equity

Revlon Avon Estee Lauder1784.5/(1229.8) = - 1.45 1897.7/790.4 = 2.4 698.2/1622.3 = 0.43

Price Ratio

4. Price Earnings Ratio = Market Price Per Share/ Earning Per Share

Revlon Avon Estee Lauder0.01/(0.62) = - 0.02 0.25/2.13 = 0.12 0.1/2.63 = 0.04

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. In this case Revlon's ratio is lower in comparison to

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Revlon, INC-2007

Avon and Estee lauder. It doesn’t sounds to be an attractive figure to the investors as they don't expect to get the highest returns from this company as opposed to the other ones in the industry.

Profit Margins

5. Gross Profit Margin = Gross Profit/Sales

Revlon Avon Estee Lauder785.9/1331.4 = 0.59/59% 5242.7/8677.3 = 0.64/60.4% 4777.2/6463.8 = 0.74/74%

The above results show that there is still 59% margin available for the firm to cover its operating expenses. As compared to other two brands Revlon essentially needs to work on its margins.

6. Net Profit Margin = Net Income/Sales

Revlon Avon Estee Lauder(251.3)/1331.4 = -0.188/18.9% 477.6/8677.3 = 0.055/5.5% 244.8/6463.8 = 0.037/3.78%

The above value has come out to be negative which is not favorable for the firm. it shows that firm is incurring losses and firm essentially needs to improve its situations.

Investment Return %

7. ROE = Net Income/Stockholders Equity

Revlon Avon Estee Lauder(251.3)/(1299.8) = - 0.204/20.4% 477.6/2550.1 = 0.187/18.72 244.2/1622.3 = 0.15/15%

Since in 2006 the company is facing loss and has shareholder's deficiency and no equity therefore the sign is negative. All these are bad signs for the company and they need to improve their financial position in time.

8. ROA = Net Income/Total Assets

Revlon Avon Estee Lauder(251.3)/931.9 = -0.27/27% 477.6/5238.2 = 9.12% 244.2/3784.1 = 6.45%

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Revlon, INC-2007

For every one dollar of assets the company yields a loss of ($0.27) which is not good. Firm is earning nothing out of the assets being employed and from competitive perspective the situation is worse too.

Asset Turnover Ratio = Sales/Total Assets

Revlon Avon Estee Lauder1331.4/443.9 = 2.99 times 8677.3/5238.2 = 1.66 times 6463.8/849.2 = 7.6 times

This ratio shows that company is utilizing its assets efficiently.

Growth Rates

Sales

Revlon Avon Estee Lauder1367.1-1331.4/133.4 *100= 2.68%

9845.2-8677.3/8677.3*100= 13.46 %

7,037.5-6463.8/6463.8*100= 8.87%

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Revlon, INC-2007

External Factor Evaluation EFEKey External Factors Weight Rating Weighted ScoreOpportunities

1. Target market is not just confined to women but potential market of men is also increasing for skin products.








9. Social media is now being widely used for promotion

10. The trend of makeover accelerates the demand of beauty products.

0.09

0.040.03

0.04

0.06

0.07

0.05

0.05

0.04

0.03

3

23

3

3

4

3

3

2

2

0.27

0.080.09

0.12

0.18

0.28

0.15

0.15

0.08

0.06

Threats1. Intense Competition from competing brands2. Global ethnic-racial issues3. Gas prices are high and rising leaving most

Americans with less disposable income for purchasing cosmetics


5. Consumer concern about product safety and use of animal testing by cosmetic companies.

6. Older people tend to spend less on cosmetics7. Competing brand products available for

comparatively low prices.8. Availability of substitute products in a wide range.9. Environmental concerns are increasing.10. Retailers reducing inventory levels

431

2

3

33

332

0.360.210.04

0.06

0.15

0.150.18

0.120.090.08

Total 1 2.9

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Revlon, INC-2007

The above weighted average score has come out to be 2.9 which is greater than the industry average score that is 2.5. This means the company is doing above average. However there is still enough room for improvement because the highest total weighted average score would be 4.0. By looking at ratings this business needs to counter the tough competition from other brands and should work on ways to increase its sales.

14

Revlon, INC-2007

Internal Factor Evaluation IFEKey Internal Factors Weights Ratings Weighted ScoreStrengths




4. Use of internet as medium of sales (website)5. Continuous new product development6. Its primary customers are large mass

merchandisers and chain drug stores.7. Has a wide product range8. Provides high quality products at affordable

prices9. Holds a strong goodwill since it’s a known

brand10. Has a wide range of nail enamel colors

0.14

0.10

0.05

0.020.030.03

0.030.04

0.040.02

4

4

3

333

33

43

0.6

0.4

0.21

0.060.120.09

0.090.12

0.160.06

Weaknesses1. Excessive long-term debt2. Lower net sales than other competing brands3. Less diversified portfolio as compared to


diversification in health products6. A weaker financial position as current assets

and total assets have decreased while current and total liabilities have increased.





0.10.040.02

0.060.02

0.13

0.04

0.040.03

0.02

111

11

1

1

11

1

0.10.040.02

0.060.02

0.13

0.04

0.040.03

0.02

Total 1 2.41

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Revlon, INC-2007

The above weighted average score which is 2.41, shows that company's internal position is quiet weak since its score is below industry average score which is 2.5. The company needs to essentially work on its financial issues in order to get hold of this weakening position which might lead to serious consequences if not catered properly in time.

IE Matrix

Hold & Maintain Harvest or Divest

Market Penetration Retrenchment Product Development Divestiture

The EFE and IFE total weighted scores of Revlon fall in cell V of the IE Matrix. Divisions that fall into this category can be managed best with Hold and Maintain Strategies which are Market Penetration and Product Development. Revlon is already into continuous product development and should now also focus on market penetration strategy.

16

I

Grow & Build

Revlon, INC-2007

Space Matrix

X Axi

s

(-6 worst, -1 best) Competitive Advantage (CA) (+1 worst, +6 best) Industry Strength (IS)

Product Quality - 1Product Life Cycle - 4Market Share - 4Control over Suppliers - 3& Distributors

Average -3

Growth Potential 4Resource Utilization 4Ease of entry into market 3Profit Potential 3

Average +3.5Total X axis Score = 0.5

YAxi

s

(+1 worst, +6 best) Financial Strength (FS) (-6 worst, -1 best) Environmental Stability (ES)Working Capital 2Leverage 1Inventory Turnover 3Earnings per share 2

Average +2

Price range of competing - 4productsCompetitive pressure - 3Price elasticity of demand - 4Risk involved in business - 2

Average - 3.2Total Y axis Score = -1.2

FS

Conservative Aggressive

Market Penetration Backward, forward, horizontal Market Development integrationProduct Development Market penetrationRelated Diversification Market development

Product DevelopmentDiversification (related or unrelated)

CA ISDefensive

Competitive

Retrenchment ( 0.5, -1.2 ) Backward, forward, horizontalDivestiture integrationLiquidation Market penetration Market development

Product Development

ES

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Revlon, INC-2007

This particular space matrix tells us that Revlon should pursue a competitive strategy which includes backward, forward and horizontal integration; market penetration; market and product development. It suggests that the company needs to work on its internal dimensions. Though the company is into continuous product development, it should now also consider entering into new markets too.

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Revlon, INC-2007

Grand Strategy Matrix

In the above matrix, Revlon is positioned in the second quadrant which means that they need to evaluate their present approach to the marketplace seriously. Though their industry is growing, they are unable to compete effectively may be due to financial constraints as mentioned earlier, they had to consolidate some sales and marketing functions to reduce operational cost. They need to analyze why their present approach has come out to be ineffective and what best changes they can make to improve their competitiveness.

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Revlon, INC-2007

The Quantitative Strategic Planning Matrix (QSPM)Strategic Alternatives

Key Factors Improve marketing strategy

Backward forward, or horizontal integration

Key External Factors Weight

AS TAS

AS TAS

Opportunities1. Target market is not just confined to

women but potential market of men is also increasing for skin products.








9. Social media is now being widely used for promotion

10. The trend of makeover accelerates the demand of beauty products.

0.09

0.04

0.03

0.04

0.06

0.07

0.05

0.05

0.04

0.03

4 0.36

4 0.16

3 0.09

-

-

3 0.21

-

-

4 0.16

-

-

3 0.12

-

-

-

-

-

-

-

-

Threats1. Intense Competition from

competing brands2. Global ethnic-racial issues3. Gas prices are high and rising

leaving most Americans with less disposable income for purchasing cosmetics


5. Consumer concern about product safety and use of animal testing

0.09

0.070.04

0.03

0.05

2 0.18

--

3 0.09

1 0.05

-

- -

-

-

20

Revlon, INC-2007

by cosmetic companies.6. Older people tend to spend less

on cosmetics7. Competing brand products

available for comparatively low prices.

8. Availability of substitute products in a wide range.

9. Environmental concerns are increasing.

10. Retailers reducing inventory levels

0.05

0.06

0.04

0.03

0.04

4 0.2

-

-

-

2 0.08

4 0.2

3 0.12

Strengths





5. Continuous new product development

6. Its primary customers are large mass merchandisers and chain drug stores.

7. Has a wide product range8. Provides high quality products at

affordable prices9. Holds a strong goodwill since it’s

a known brand10. Has a wide range of nail enamel

colors

0.14

0.10

0.05

0.02

0.03

0.03

0.030.04

0.04

0.02

-

-

3 0.15

-

-

-

-

-

-

-

-

2 0.25

-

-

-

-

-

-

Weaknesses1. Excessive long-term debt2. Lower net sales than other

competing brands3. Less diversified portfolio as

compared to other competitors4. Lack of financial resources5. Lost grounds in cosmetics due to

unwise diversification in health products

0.10.04

0.02

0.060.02

--

4 0.08

--

- -

3 0.06

2

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Revlon, INC-2007

6. A weaker financial position as current assets and total assets have decreased while current and total liabilities have increased.


8. Less focus on improving financial position

9. Most of their products such as nail enamel, have a shorter life because they use color instead of dyes.

10. Had to cut down on promotional budget to reduce operational

costs.

0.13

0.04

0.04

0.03

0.02

-

3 0.12

-

-

4 0.08

3 0.39

-

-

-

- 0.08

Total 1 2.01

1.22

The total attractiveness score of Alternative 1 versus Alternative 2 is 2.01 vs. 1.22 suggests that Revlon should go for strategy 1which is improving marketing strategy. This is an excellent way to boost sales and promote the brand. Revlon is already a market leader and people are aware of the brand. However, through more aggressive advertisement campaigns, sales promotions, mail-in discounts/coupons, increase internet presence and bill boards. They can further heighten brand awareness, build customer loyalty and create appeal for their products by new and existing customers.

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Revlon, INC-2007

Recommendations

1. The company should sell the products to new markets such as India, China and

Middle East.

2. The company should take the prices of competitors into account when they

make a decision such as pricing, packaging distribution etc.

3. The company should develop products according to the needs created in the

market such as developing products for men.

4. The company should open its retail outlets to resolve the problem of retailers

cutting back inventory.

5. The financial situation can be improved by retrenchment strategy and

improving its efficiency.

23

Revlon, INC-2007

References1. http://www.annualreports.com/Company/784

2. http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/

avp2008.pdf

3. http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/

avp2008.pdf

4. http://www.google.com.pk/imgres?

q=revlon&um=1&hl=en&sa=N&biw=1366&bih=673&tbm=isch&tbnid=A0

n0-SmQaee2xM:&imgrefurl=http://www.infobarrel.com/Revlon_Coupons_-

_Instant_Savings_and_Free_Samples&docid=tJx19GhekzM7BM&imgurl=h

ttp://www.infobarrel.com/media/image/

5601.jpg&w=400&h=400&ei=YClfT7PWLIqnrAfN_sWPBg&zoom=1&iac

t=hc&vpx=777&vpy=174&dur=1842&hovh=225&hovw=225&tx=130&ty=

104&sig=102767382920004149296&page=1&tbnh=146&tbnw=146&start=

0&ndsp=22&ved=1t:429,r:4,s:0

5. http://www.loreal-finance.com/eng/regulated-information

6. http://www.revlon.com/Revlon-Home/Revlon-Corporate/Corporate.aspx

7. http://www.lorainhealth.com/documents/reports/2007_Annual_Report_-

_AVON_LAKE.pdf

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Documents

S.M Case (Revlon)