Revlon Becomes More Fragrant: Expands Fragrance Portfolio While Targeting Travel Retail Growth

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Revlon (NYSE:REV) is set to launch its new perfume, Love Is On, in the upcoming TFWA show in Cannes (also known as, The Duty Free & Travel Retail Global Summit). This will be the first fragrance launch in over a decade by the mid-market beauty and cosmetics company. Post its acquisitions in the fragrance segment, this might be another step by Revlon towards building a stronger fragrance portfolio. Also, Revlon is targeting a demand gap in the travel retail segment for achieving significant growth. Since, travel retail is mostly dominated by premium cosmetics, Revlon’s affordable cosmetics might find a new category of enthusiastic buyers, which, in turn, can help the company reap benefits and grow through this channel.

Our current price estimate of $34 for Revlon’s stock is at around a  10% premium to the current market price.

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Revlon’s Recent Interest In The Fragrance Business

A few months ago, Revlon acquired U.K. based fragrance company CBBeauty (CBB) and its U.K. distributor, SAS & Company. CBB has a presence in over 80 countries and it also offers sales and strategic services to select celebrity and fashion fragrance brands. SAS & Company looks after the distribution and marketing aspects of perfumes and beauty products from leading brands such as Burberry, Carven, One Direction, and Rihanna. [1]

The acquisitions helped Revlon to strengthen and expand its fragrance portfolio and is expected to aid Revlon with its entry into the fragrance licensing business in the U.K. After receiving the licensing capability, Revlon plans to pursue further acquisitions in this segment and hence expand its fragrance selection. [2] The launch of a new perfume after more than a decade, suggests that Revlon is using the strengths of its recent acquisitions to further expand its fragrance portfolio. 

Revlon’s management had implied in its  Q2 2015 earnings call, that there is scope for growth in the fragrance business by stating that the fragrance industry is largely fragmented and hence lacks fierce competition. This provides Revlon with the golden opportunity for licensing smaller brands and developing those into bigger brands. Currently, color cosmetics and hair color comprise around 80% of Revlon’s valuation. Deodorants and fragrances make up for less than 10% of the company’s valuation.

The global fragrance market size is currently estimated to be around $40 billion out of which L’Oreal and Estee Lauder enjoys around 20% and 7% market share, respectively. Hence,  given the fragmented nature of the industry and lack of too many big competitors, Revlon has a huge scope for growth through acquisition, licensing, and further product developments.  Currently, Revlon has a market share of around 0.5% in the ~$70 billion antiperspirant, deodorant, and fragrance market, and it is forecast to grow to only to 0.6% by the end of our forecast period. If Revlon is able to gain even 1% of the market share by the end of our forecast period, the company’s valuation will rise by over 10%. Hence, given such growth potentials in this segment, it is only prudent for the company to attempt to further grow its fragrance business.

Revlon Targets The Travel Retail Segment With Its Relatively Affordable Products

The Love Is On Fragrance resonates well with the company’s recent brand campaign launch with the same message, Love Is On,  implying that Revlon cosmetics exude the feelings of love and attraction. The new perfume comes in a heart-shaped 50 ml bottle and has hints of Italian lemon and Sweet Berry. The perfume is being launched into the travel retail channel, where Revlon will also introduce its Love Series travel sets, that had been exclusively developed for the duty free and travel retail medium. The set contains a Love Series Lips which offers two different lipsticks: red and nude, two lip-gloss and two lip liners, and a Love Series Face which includes a compact primer, a highlighting palette, a blush, and multi-use eye-brightener. The sets come in free cosmetics bags. The company will also present the Revlon Ultra HD Lipstick exclusive travel retail set which offers five shades of the wax-free lipsticks. [3]

Revlon is undertaking a very clever strategy with its host of launches into the travel retail channel. Usually, travel retail signifies luxury or premium cosmetics. Most of these cosmetics are not affordable by a lot of passengers who might be looking for masstige products, that is, high quality and yet pocket-friendly. With the presence of brands like Estee Lauder and L’Oreal in the travel retail segment, and the resultant proliferation of luxury cosmetics, Revlon’s products might be a perfect answer to a lot of customers who aspire to buy good quality cosmetics from the airports, but might not be able to afford premium brands.

Revlon was erstwhile present in the travel retail channels through color cosmetics. This is the company’s first launch of fragrance into this channel.

loveison

(Image Source: The Moodie Report)

 

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Notes:
  1. Revlon Completes Acquisition of CBBeauty and SAS & Company, Revlon Press Release, April 30, 2015 []
  2. Revlon’s (REV) CEO Lorenzo Delpani on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, May 7, 2015 []
  3. Revlon’s first new scent in more than a decade, The Travel Retail Business, October 5, 2015 []