Revlon files for bankruptcy over supply chain woes

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Revlon files for bankruptcy over supply chain woes
The pandemic has stretched ship delivery times since 2020, raising freight costs, while the war in Ukraine and recent Shanghai lockdowns have added to supply chain chaos for Revlon.
  • Revlon blames global supply chain snags driving up raw material costs and vendors demanding upfront payments amid weak sales for its insolvency
  • The 90-year-old cosmetics maker said supply chain issues in spring fired up competition for ingredients it used for its products, resulting in steep prices for scarce raw material
  • The bankruptcy filing on June 15 sent Revlon shares diving as much as 44% in New York on June 16 before closing 33.3% down

Cosmetics giant Revlon has filed for bankruptcy, claiming global supply chain disruptions that pushed up raw material costs and vendors demanding upfront payments in a highly competitive environment have driven into insolvency.

The 90-year-old company built on chic nail polishes and lipsticks has lost shelf space and sales to start-ups backed by celebrities such as Kylie Jenner’s Kylie Cosmetics and Rihanna’s Fenty Beauty, according to a Reuters report.

In its bankruptcy filing on June 15, Revlon said supply chain disruptions in spring led to intense competition for ingredients used to make its products. Vendors that traditionally offered up to 75 days for payment also began demanding cash in advance of new orders, while labor shortages and inflation added to its troubles, it said.

“For example, one tube of Revlon lipstick requires 35 to 40 raw materials and component parts, each of which is critical to bringing the product to market,” Robert Caruso, who was hired as Revlon’s chief restructuring officer, wrote in a court filing.

“With shortages of necessary ingredients across the comany’s portfolio, competition for any available materials is steep.”

The COVID-19 pandemic has lengthened ship delivery times since 2020, raising freight costs, while the Russia-Ukraine war and Shanghai lockdowns have added to supply chain disruptions.

News of Revlon’s bankruptcy filing sent its shares tumbling as much as 44% at midday on June 16 on the New York Stock Exchange before closing down 13.3% at US$1.95.

Between last June 9 and close of trading on June 15, the share had shed half of its market value. Media reports of a potential bankruptcy filing emerged on June 10, Reuters said.

Revlon, which was formed in 1932 by brothers Charles and Joseph Revson and Charles Lachman, started off selling nail enamel. It was sold in 1985 to MacAndrews & Forbes, US diversified holding company wholly owned by billionaire investor Ronald Perelman.

MacAndrews & Forbes is still the controlling shareholder even after Revlon went public in 1996. Revlon bought Elizabeth Arden in a US$870-million skincare bet in 2016 to fend off competition and carried brands, including Britney Spears Fragrances and Christina Aguilera Fragrances.

Revlon’s sales lagged over the years and in 2021 fell 22% from its 2017 levels while competitors like CoverGirl, owned by Coty, gained market share by investing heavily to improve supplies.

Reuters said Revlon made headlines two years ago when Citigroup accidentally sent nearly US$900 million of its own money to Revlon’s lenders.

Revlon asked its bankruptcy judge to confirm the Chapter 11 filing would not stop Citibank’s appeal over US$504 million it is still trying to recover from Revlon lenders. A quick resolution of the dispute would help its bankruptcy case move forward, it said in court papers.

The mistaken payment is part of a complex battle between Revlon’s pre-bankruptcy lenders, who have jockeyed for control during Revlon’s attempts to defer debt payments.

An attorney representing junior creditors, Clark Whitmore, said in court that the senior lenders’ “feeding frenzy” would destroy value for stakeholders that are lower on the food chain.

Revlon plans to fund its bankruptcy case with US$575 million in debtor-in-possession financing from its lender base. It listed over US$3.54 billion in liabilities in its court filing late Wednesday.