Why Is Revlon’s U.S. Business Important To The Company And What Steps Is It Taking To Revive The U.S. Sales?

Though Revlon (NYSE: REV) has historically depended more on the domestic U.S. market for most of its revenues, the trend seems to be reversing now. A few years ago the revenue derived from the North American market was almost 65%, and though it has now reduced to around 50%, North America still remains a key market for Revlon’s business. A slump in sales in the U.S. market has been impacting Revlon’s performance adversely over the last few quarters. Consumers in the region have shifted loyalties to specialty beauty retailers or online purchases. A lot of stores containing its products closed down with several retail partners de-stocking Revlon’s products in their inventory. While the footfall in the U.S. brick-and-mortar market keeps declining, Revlon is taking certain steps to revive its sales in the U.S. We have a $17 price estimate for Revlon’s stock, which is around 20% lower than the current market price.

Why Is The U.S. Business Important For Revlon?

Not only does the U.S. business contribute to half of its revenues, the U.S. business also has a higher margin. This is due to the huge scale of the business compared to other international markets. The international business on account of being more fragmented leads to higher Sales, General and Administrative costs. Along with this, in a lot of these markets the sales take place through a distributor model thereby lowering the gross margins compared to the U.S.

Revlon Is Taking Some Measures To Revive Its U.S. Business

• The top management recently engaged in extensive discussions with the top 10 customers in the U.S. A lot of new marketing and product initiatives might come into place as a result of this.
• Revlon’s online sales are growing impressively. Its online sales have grown by 31% year-to-date up to Q3 2017 and the company believes that online sales have a tremendous potential for future growth as right now it contributes to only 5% of the overall revenues. Revlon collaborated with a leading digital consultancy, Sapient Razorfish, this July, in order to create a stronger digital presence.
• A team of digital professionals joined Revlon’s New York headquarters recently and they’ve been divided into three work streams: The first will help in developing a seamless experience for the customer to purchase its products online. The initial rollout of this project will happen with 100 products from Revlon, Elizabeth Arden, and Almay, and will include a new brand initiative which will be first launched online. The second work stream will aid in enhancing the customer engagements across the social media platforms. The third team will be involved with the other digital aspects such as content, digital assets, costumer relationships, and e-commerce platforms.
• Revlon’s top 10 customers in the U.S. will strive to grow its sales further with the help of its various online initiatives.
• All of Revlon’s brands are undergoing a makeover which is expected to be completed by the first quarter of next year. The company is striving to make its products more relevant for the millennial beauty users, the most coveted group of customers that are the primary drivers of the beauty market sales. Along with that, it is trying to modernize some of its brands that do not appeal to the newer generations. Finally, the company is trying to cater to buyers with diverse purchasing power abilities.