REVLON PLAN ADDRESSES INVENTORY, RETURNS
Byline: Faye Brookman
NEW YORK — Revlon is starting to put its house in order.
Seeking to correct inventory imbalances caused by a push mentality, Revlon rolled out new trade terms on Monday.
The multifaceted package is designed to encourage sell-through while rewarding buying efficiencies. A major component is a plan to slice product returns, a costly headache for both retailers and suppliers.
Retailers, briefed on the new terms, are quick to point out that the program puts a greater risk on them. However, all agreed that the current Revlon model — which resulted in bloated inventories — needs an overhaul. Those inventory problems have haunted Revlon, especially in the face of the 17.4 percent drop in sales last year.
“If you look at this fundamentally, we are providing an incentive to properly manage inventory and change behavior,” explained Larry Aronson, president of North American Sales, Customer Marketing and Business Development for Revlon in a telephone interview with WWD. “We are building partnerships that share risks, but also benefits.”
Kathy Steirly, vice president of beauty merchandising for Eckerd Corp. was encouraged by the news. “They appear to be doing the right thing to get themselves financially healthy.” Steirly, along with other retailers, equated Revlon’s program to a similar plan introduced four years ago by Procter & Gamble. One of P&G’s major goals was to chop returns which the company said are down substantially. “The only difference is,” said one buyer, “P&G has higher turns than Revlon making it easier to justify.”
To tackle returns and encourage efficient ordering, Revlon is installing a bonus program that will offer incentives to retailers who succeed at lowering their merchandise returns. “Revlon is taking a beating on returns,” said one buyer who asked not to be identified. Revlon executives said that in the past the company had a very liberal return policy.
Now, if a retailer’s actual returns fall below targets, that retailer will receive 50 percent of the cost savings from Revlon. A flat rate allowance for damages will be instituted, intended to eliminate the costs and paperwork of handling damaged goods. Retailers such as Rite Aid, Walgreens and Wal-Mart have long struggled with the quagmire of returned goods.
“I’m curious to see how they set the targets,” said Marti Bentley, buyer for Duane Reade. In the past, other retailers added, Revlon’s policies have favored big accounts versus small chains. According to Aronson, Revlon set the targets using results from a variety of volume stores to make it equitable. “There are customers who are doing better and clearly some who fall below the targets,” admitted Aronson. However, Revlon executives said they’ll judge individual door volume versus total chain volume to create realistic expectations on a per store basis.
Revlon has announced plans to rationalize its lineup by cutting 100 stockkeeping units in 2001. To deal with discontinued skus, Revlon will be giving retailers a six-month notice of the discontinuation of any product to allow time for inventory reduction measures. Starting 120 days from discontinuance, Revlon will provide retailers with a 50 percent markdown for all of the discontinued items they sell — an incentive to move the merchandise at 50 percent of full retail. Revlon will accept returns at 85 percent of their list price for any discontinued items they do not sell.
Revlon will also change its incentives for crossdocking and warehousing. Retailers said there are already 5 percent discounts for warehousing Almay, but not for Revlon. “I think this will just even out the same discount but spread across both brands,” said one buyer.
As part of Revlon’s chief Jeffrey Nugent’s plan to reposition Revlon from a push to a pull marketer, the company announced its much-anticipated alteration in promotional allowances. Allowances will be based on the previous year’s consumer sell-through volume rather than shipments of Revlon products to the retailer. Once last year’s sell-through is exceeded, retailers earn additional funds.
The goal is to allow the supplier to hop off the promotional treadmill where Revlon would ship in inventory to make quarterly numbers. Retailers, who often didn’t have a good handle on their own inventory, would take the shipments without realizing they were becoming overburdened with Revlon products. The situation was exacerbated by the fact that Revlon wasn’t producing any blockbuster product hits to help anniversary the sales of items such as ColorStay.
Douglas Greeff, executive vice president and chief financial officer for Revlon, explained that the amount of dollars spent wouldn’t be altered, just the allocations would be more equitable. “It doesn’t incentivize customers based on shipping. It drives the industry to think about consumption.” Revlon’s goals he added are to eliminate the somewhat adversarial relationships between buyers and sellers to forge true partnerships designed to serve the customer.
Retailers draw clear lines in the sand over the push versus pull strategy. “I’m glad Revlon is talking about consumption rather than spending,” said Layana Palmore, category manager for Drug Emporium, Inc. “It’s about time.”
Eckerd’s Steirly agreed, “Forward buying got the industry in trouble over inventory. I like consumption better.”
A buyer for a smaller chain, however, is more leery. “The goods are too slow moving to base the decisions that way,” she said. Another said it would result in a loss of coop dollars for her chain.
However, most agreed there is a need to tailor expectations to reality. “I think what Revlon is doing is going to have the buyers and sellers manage inventories together,” said Allan Mottus, an industry consultant. “The goal is to have responsible forecasting so that you don’t go overboard, but have adequate space for new Revlon programs such as the revamp of StreetWear which I think looks great.”
Retailers want to see more scintillating launches from Revlon, a company they said they need to see survive for their own growth. Many who were glad to see Revlon tackle its inventory problems wondered what was being done to spur sales. “We’re excited about what’s coming, but what do we do in the meantime with our Revlon space,” questioned Kathleen Eiden, buyer for Richardson’s Super Drugs in Canton, Mich.
Aronson said Revlon has a pipeline brimming with innovation. Among the highlighted launches are Skinlights, a new color item for face and two skin care brands. “And we will spend more in advertising than in 2000,” added Aronson who also said Revlon will change its sales structure to provide for more retail coverage. One aspect of that is more frequent and geographically extensive in-store assistance to retailers.
Revlon is also making its new Max fixture available to high volume doors — not only based on chain size — which is created to enhance the shopping environment.
In announcing the plan, Revlon said the new terms would take effect January 1, 2000 with transitional steps to begin this month. As part of the announcement, Revlon also said it wouldn’t raise prices for 2001.
Recently, Nugent noted that Revlon would not pay off its debt for a “very long time.” However, his goal is to focus on bringing debt down to “more reasonable levels.”
Retailers looking for an avenue to boost gross margins need look no further than cosmetics bags. The infusion of fashion into beauty has resulted in trendy bags that change with seasons. For spring 2001 Brad Meyers, executive vice president of RGA Accessories, Inc. in New York, predicted python-style bags would still slither off of shelves. The look, he said, was big for fall, but will return in spring colors for 2001.
“Python is very hot at the department store level now and we feel that the mass will be into colored pythons and textures for spring,” he said. RGA also created a special shape for Revlon featured by Walgreens, Meijer and Phar-Mor. The chains will promote the bag, which features a special lipstick holder, in early 2001 in conjunction with a $1 off event for Revlon’s Super Lustrous Lipstick. “Going forward,” added Meyers, “we plan on doing more coordinated events with Revlon.”