Revlon: Negotiating Space with Retailers

If we just take Revlon, for example, it's pretty clear they're struggling in terms of profitability. How does that negotiation go between the suppliers then in negotiating a gross price?

Here in the market, the list price is published and that is what it is. What they're trying to negotiate is how to maintain that published cost sheet. Each of these retailers could be on different efficiency brackets etc. Each retailer could have a different cost structure, and what they're negotiating is keeping this as close as possible to that original cost. We'll take a Revlon, because that's what you asked about.

Revlon would spend more than its fair share, more than what it needs, to maintain its distribution. It has an efficiency bracket cost, and then they pay all these discretionary fees that the retailer has. So there are these different buckets that the retailer asks for. That pure vendor income that the retailer receives from a Revlon, is much greater than what it would receive from a L'Oréal or a Coty because they don't want to lose the distribution, and that's an enormous sucking zone to the operating income of that organization.

Because they're still under the mindset of more space equals more sales, which is a very dated way to look at the business. They're okay maintaining space wherever they can get it, which is strategically not the right thing for them to do in this marketplace. I would beg them to pick the right footage per store, every store they're in, and then just focus on making that sell per linear foot. Profitability and productivity go up, instead of just trying to maintain their space and pay for it. They're just paying to keep their poor distribution. And it's incredibly expensive to do that because they’re not getting the pull-throughs from the register that they need to, to offset that check. That's what they've been perpetually doing for the last eight years, that I know of. From both sides that's where I'm calculating it. From what I said on the retailer side, and what I said on the manufacturer's side.

That's why they're cutting marketing funds. They say they're coming out with innovation. It's not innovation that has a good sell-through, their gross to net hasn't improved, their operating income hasn't improved. So they're paying for space that isn't productive and that, fundamentally, is their problem.