By  on September 28, 2007

NEW YORK — David Kennedy freely admits that he likes to solve problems, sometimes to a fault.

A year ago, Kennedy's aptitude for problem-solving was put to a severe test when he was appointed chief executive officer of Revlon Inc., after his predecessor, Jack Stahl, was abruptly ousted following a series of key strategies that backfired — the most painful of which was the introduction of Vital Radiance, a premium-priced cosmetics brand for older women that failed to gain traction at retail.

Revlon's primary owner and ceo of MacAndrews & Forbes Holdings Inc., Ronald Perelman, swiftly orchestrated the management shake-up, prompted by an acceleration of market share erosion of Revlon.

In the last year, Kennedy has been attempting to usher in a rebound by instituting a launch program that mandates each item in the portfolio be backed by a succession of new products and marketing over a planned period of time.

The strategy, while seemingly simple on the surface, marks a decisive departure from Revlon's former habit of heralding one-hit wonders that once introduced were largely forgotten about within a year. The new strategy is designed to bring sustainability and ultimately growth to the troubled beauty firm.

Kennedy, who prior to taking over the helm served as Revlon's chief financial officer, was acutely aware of the company's mounting challenges from that vantage point. Once promoted to the top spot last fall, he took bold and immediate action to reverse course.

A week into his new post as ceo, Kennedy axed Vital Radiance, then spent the year pulling the floundering cosmetics line from retailers' display walls and refocusing the spotlight on Revlon, the firm's marquee brand. He also cut Revlon's staff by more than 250 employees, dissolving key positions, including the roles of ousted executive vice president and chief marketing officer Stephanie Klein Peponis — who was the most ardent proponent of Vital Radiance, according to several sources close to the situation. He also eliminated the role of former chief creative officer Rochelle Udell, who left in the shake-up.

Reflecting on his decision to pull the plug on Vital Radiance, Kennedy said, "We had a decision to make about whether we would continue to spend and invest behind Vital. At that time we were looking at projections that would have had us losing money on it for at least two more years. So we made a decision. We could have stayed in it. We had enough space on the [display] wall, but at the same time it would have been a drain on the company. We decided to cut our losses on that brand and, in effect, the corollary of that decision was to refocus the company on Revlon color cosmetics."Perelman — who with a net worth of $10 billion has moved up a dozen spots to land at 28 on Forbes' 2007 list of the 400 richest Americans — said of Kennedy, "He's very straightforward and honest."

It's a description Kennedy also uses to describe himself. Referring to Revlon's former management team, he said plainly, "The last 18 months there were some walls built. What I did immediately was open the door. I am very transparent with Ronald and the board."

Revlon, as Kennedy reminded, is a $1 billion brand globally. "I felt strongly, the board felt strongly and Ronald felt strongly that we need to focus on the Revlon brand, because that would be the key driver of profitable growth both inside and outside the U.S."

Revlon generated $1.33 billion in sales last year, but still struggles under a heavy debt load of $1.44 billion as of June 30.

William Chappell, an analyst with SunTrust Robinson Humphrey, who noted that Vital Radiance exhausted resources and shifted the spotlight away from the Revlon brand, said, "In my view, Revlon is in a stabilization phase. Now that the company has cut a lot of heads and costs, it's time to see if it can maintain and grow its revenue base within that revenue structure."

Kennedy — who speaks with a gentlemanly Southern drawl and exudes a roll-up-his-sleeves, get-it-done demeanor — is quick to point out that his predecessor left Revlon in a stronger position than he found it in when he joined the company in early 2002. After all, Stahl recruited Kennedy — his former colleague at the Coca-Cola Co. — to bolster Revlon's international business. And that he did. From 2001 to 2002, prior to Kennedy's arrival, Revlon's international sales declined 8 percent each year and the business generated operating losses. In 2003, the year after Kennedy joined Revlon, the company's international sales were up double digits and operating profitability was restored. In January 2006, Kennedy swapped roles with Revlon's then cfo, a post that resulted in a close relationship with Perelman, noted Kennedy.

Prior to joining Revlon in 2002, Kennedy was managing director and board member of Coca-Cola Amatil Ltd., a publicly held firm based in Sydney. During his 18-year tenure at Coca-Cola, Kennedy held various senior management positions, such as general manager of the Coca-Cola USA fountain division and vice president of corporate business development, and senior vice president of finance for Columbia Pictures Industries Inc., which, at the time, was a subsidiary of Coca-Cola.Kennedy, who is the sixth ceo to lead Revlon since Perelman acquired the company in 1985, credited Stahl with putting a strong management team in place and mending relationships with retailers that had turned sour after a series of shipment troubles and spotty in-store execution. But he is not shy about detailing Stahl and his team's fumbles.

Stahl's product strategy, as recounted by Kennedy, was to introduce a cosmetics brand for an older customer, Vital Radiance; relaunch the Almay brand from the ground up to position it as the Clinique of the mass market; reenter the department store fragrance business with Flair, and refresh Revlon's key franchises, including ColorStay, Super Lustrous and Age Defying.

"It was a pretty comprehensive strategy," recalled Kennedy. The problem, he said, is that two elements of that strategy fell flat, namely Vital Radiance, which despite a costly customer call center and pricy products, never gained traction with shoppers, and the Flair fragrance, which failed to win the support of department store buyers. Revlon has since redirected Flair to the mass market, where it launched in June. Kennedy also acknowledged that despite the overhaul of Almay "from the ground up" the relaunched brand did not perform up to expectations. Almay's share of mass market color cosmetics has stubbornly remained at around 6 percent, on par with its share prior to the revamp, acknowledged Kennedy.

"In 2006, and most of 2005, there was a tremendous amount of attention and effort — not to mention resources and money — devoted to the implementation of that strategy," said Kennedy.

But the most startling missed opportunity seems to be the Revlon brand. Over the last three years, management had done extensive housekeeping across the flagship brand, successfully reintroducing its core franchises, namely ColorStay, Super Lustrous and Age Defying, complete with new packaging and in some cases, new technology. Unfortunately, a year after the updated lines were launched, they were largely forgotten about and sales dwindled as a result, said Kennedy.

In fact, Kennedy blames the company's current market share erosion on Age Defying, which was relaunched and reformulated in early 2005 with Botafirm, a technology said to lessen wrinkles in two weeks flat. Revlon even recruited actress Susan Sarandon for the purpose of putting a contemporary spin on the then 11-year-old franchise, which is credited with introducing the first antiaging foundation to the marketplace.Its reintroduction fueled increases in Age Defying's foundation sales by more than 65 percent to $28.7 million from January 2005 to the fall of that same year in food, drug and mass stores, excluding Wal-Mart, according to Information Resources Inc. But for the most recent 52-week period ended Sept. 9, Age Defying foundation sales fell nearly 13 percent to $30 million and unit sales nose-dived more than 22 percent to 2.6 million, according to IRI.

"Part of our share problem in the U.S. is because of Age Defying. It has declined more rapidly than anybody ever anticipated. The reason for that is that the competition came in — seeing that it was a great idea — right over the top of us within a year and eroded our share," explained Kennedy.

In his view, if Revlon had a plan to extend the franchise with innovations, the company's share may not have suffered as a result. In its most recent quarter, ended June 30, the beauty firm's total share of color cosmetics — which includes Revlon, Almay and the discontinued Vital Radiance line — in the U.S. mass market dipped 2.5 points to 19.5 percent from 22 percent in the year-earlier period, according to ACNielsen. As a point of comparison, in the mass market sales of color cosmetics declined 0.5 percent in the quarter compared with the year-earlier period.

"You can trace that Age Defying decline right back to the fact that there's been no new products or news," said Kennedy. Referring to previous management's strategy, he continued, "There was no thinking beyond the launch year."

The same is true for Revlon's nail care business, which once had a leadership role and was instrumental in the company's success in its earliest days. Del Laboratories' Sally Hansen has since usurped Revlon's once dominant nail care position.

"Our thinking was good about a particular new product or product line, but then it would just kind of stop. We didn't think out how we were going to evolve that launch or what role it had. We didn't ask, 'Was it going to be a short-term hit, or would it have a life of two to three years,'" said Kennedy. He punctuated the point with the example of LipGlide, a lip gloss housed in a click-pen wand with foam tip that launched in 2002."LipGlide was a packaging idea. It did very well, and in fact it is still on the market. We could have possibly built that into a strong franchise over time, or we could have done much better potentially making it more profitable during a limited life of five years....Those implicit decisions were not made."

Those types of decisions and strategy forecasting are now top of mind, declared Kennedy.

Referring to the role of a robust product pipeline, he said, "We have to have something every year that we can market in each of those power franchises across face, lip, eye and nail. In addition to that we need to layer on new products, and potentially new collections that we can build and evolve into new franchises."

As the company has worked to stabilize the business, that product pipeline during the last year seems to have all but run dry. Revlon's recent launches include 3D Extreme Mascara fronted by spokesmodel Jessica Alba, whom the firm signed last spring; Renewist Lipcolor; Age Defying Makeup Primer, which Revlon plucked from its now-defunct Vital Radiance line, and a blush and a bronzer version of Almay Smart Shade, a colorless foundation that imparts color after it's smoothed onto skin.

Kennedy emphasized that a full slate of new products was in store for 2008, although he was mum on details. "I'm almost through the roof on some of these ideas, so I hope they work out," he quipped.

Retailers, which need a healthy Revlon to grow their beauty businesses, seem encouraged by next year's lineup.

Kathy Steirly, vice president and general merchandise manager of Walgreens Beauty and Fashion Division, said, "We continue to grow our very strong relationship with Revlon. The company is bringing both product innovation and marketing flexibility to enhance the growth of its brands at Walgreens. We have every confidence and high expectations that its sales will grow dramatically for spring 2008."

Mark Griffin, president and ceo of Lewis Drug, echoed that sentiment, saying, "We've noticed that Revlon has produced more items going forward. The company seems to be making a concerted effort to come out with more exciting products. It also appears to be spending considerably more on marketing and advertising. Those are the two areas of improvement in the last few months."Kennedy acknowledged that the beauty industry is nearly entirely product-driven, but clarified, "It's a product-driven business, but that doesn't mean you offer a product of the week or of the month. You've got to do it strategically." He later added, "We are looking for a portfolio that gives us the profitable growth we need, but it also needs to be intensely competitive."

Part of that is ensuring that more ideas bubble to the surface. The old guard developed new product ideas once a year and then championed a half dozen, he said. The new approach is to have a host of ideas in play at any given time so Revlon can quickly react to trends and take advantage of holes in the market.

"Now I want to have a lot more ideas in development that are moving toward commercialization, so that we always have options as things change in the marketplace, as our portfolio changes and as trends change," said Kennedy. In terms of pockets of opportunity, he said natural and organic product ideas are in the company's idea pipeline. When asked if Revlon would be interested in creating a cosmetics line around a celebrity, he said it's possible, but that he will likely steer clear of celebrity fragrances. Former employees said that under the former management team ideas were solely generated at the top, and naysayers to those ideas were shut out of the creative process.

Kennedy has implemented a corporate structure designed to establish accountability for brand performance. Under the new structure, Elizabeth Crystal, senior vice president, Worldwide Marketing for Revlon and Almay brands; Caroline Kolompar, senior vice president, Marketing Beauty Care, and Kiki Rees, senior vice president, Media, Internet and Public Relations, all report directly to Kennedy.

He added that research and development maintains a separate function in operations, and that the new product development groups work closely with the brand groups.

Noticeably absent from the executive lineup is the role of chief creative officer. Perelman, Revlon's chairman, said that rather than recruit a creative czar the beauty firm is considering bringing in creative consultants from sister industries, such as fashion. Their input could then be expanded to a series of limited edition cosmetics collections touting each prominent consultant's involvement. For his part, Perelman said he has become more involved on the creative and advertising side of Revlon's business. His interest in visual aesthetics is apparent from the jaw-dropping art collection, ranging from Jean Dubuffet to Mark Rothko, displayed in his Midtown office.But several industry experts warn that in beauty the lack of a creative figurehead is a glaring omission.

Wendy Liebmann, president of WSL Strategic Retail, commented, "You really have to be incredibly bold about providing new initiatives around products, R&D and consumer research." She continued, "It used to be that you could throw a lot at the wall and hope the proverbial thing stuck. Now, companies don't have the luxury of introducing 'also ran' products." She noted that niche beauty firms are nibbling at larger firms' share by introducing cutting-edge innovations. Retailers are complicating matters by introducing exclusive cosmetics brands of their own.

The challenge for larger firms, like Revlon, said Liebmann, is to continually infuse their brands with innovation. "It's about 'hope in a jar,' to use the words of [Revlon's founder] Charles Revson. Now it also needs to be about innovation in a jar," she declared, referring to the role of a creative force. "Just tending to your knitting and making sure your brands are neat and tidy isn't enough."

Industry consultant Allan Mottus questioned if Kennedy has a true feel for the beauty business, but said his ability to pull things together after last fall's management fiasco showed management skill. Mottus said that under Revlon's previous leadership, "It basically clustered every wrong idea and created a premise for it. Revlon is a national brand without the power of a national brand. As Revlon has become a $1 billion brand it's become tiny."

But Perelman is adamant that Revlon is still a stalwart player. "This company is not in danger of not being afloat," he said, adding that the quality of the products will push up Revlon's market share over time. He has no interest in selling the company, but he is keen on acquisitions, should the right opportunities arise, he said.

When asked about Revlon's time line for profitability, Kennedy said, "We've got to get the Revlon brand going in the right direction. We have to get momentum going and that will be a major driver of profitable growth for us around the world."

He continued, "In terms of financial benchmarks along the way, clearly we want to continue to grow our sales and we must continue to grow our profitability, which means improving our margins. At some point we have to improve our capital structure as well, and we will do that at least through improving the profitability of the company."Kennedy, who said he asks a great deal of questions and spends a lot of time absorbing information, noted that streamlining the company structure has made Revlon more nimble. For instance, he pared down the executive committee from 12 people to five, in addition to two international and regional managing directors. "We have a meeting at 4:15 p.m. every Monday...so we can reach rapid decisions on any particular issues."

"We are in a better place now than we were in 2002. There is no doubt about that," said Kennedy, adding that the firm decided to reallocate Vital Radiance's investment behind the flagship brand to jump-start growth. Before stepping out for a lunch with Perelman, he paused and said, "Another way to look at it is if Almay and Vital had been a big hit, we wouldn't be having this conversation."

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