Revlon exits China as sales fall despite booming cosmetics market

Cosmetics maker hopes to save US$11m a year fromthe restructuring

PUBLISHED : Wednesday, 01 January, 2014, 2:34pm
UPDATED : Thursday, 02 January, 2014, 1:56am

Revlon plans to exit the China market, where sales of its cosmetics have been falling, and cut more than 1,000 jobs as part of a restructuring designed to save about US$11 million a year.

The company, which owns the Almay cosmetics brand and Sinful Colors nail polish, said in a filing that its Chinese operations accounted for about 2 per cent of net sales. It posted net sales of US$1.43 billion in 2012.

Revlon said it would cut 1,100 positions, mainly in China, including 940 beauty advisers retained through a third-party agency. It had 5,100 employees at the end of 2012.

Shares in the company, which have risen nearly 70 per cent this year, fell marginally on the New York Stock Exchange after the announcement.

The Chinese cosmetics market more than doubled between 2008 and 2012 to US$22.8 billion, according to a report in March by Fung Group that cited the National Bureau of Statistics.

But China is also a complex market that can bedevil foreign companies.

Avon Products, a direct seller of cosmetics, saw sales decline 24 per cent in 2012 in China, where its reputation has been hit by a bribery probe and it has struggled to adapt to selling through retail stores.

Revlon's sales in China fell in 2012, a trend that continued into the first half of last year. The company, which entered the market in 1996, has attributed the drop to declining consumption linked to a slowdown in Chinese economic growth.

"We made a holistic assessment of the opportunity in China versus the cost of doing business there and we concluded that it made the most sense to exit the market," Revlon spokeswoman Elise Garofalo said.

Retail sales of cosmetics in China grew 13.2 per cent in the January-November period, compared with growth of 17 per cent in the whole of 2012, the statistics agency said.

Some cosmetics companies operating there have also faced pressure from animal rights groups as the authorities require product testing on animals.

Revlon expects to incur about US$22 million of pre-tax restructuring and related charges. About US$10 million of the charges would be employee-related costs, with the rest from sales markdowns and inventory write-offs, it said.

The company said it recorded US$20.9 million of the charges last month, with the rest expected this year. It said about US$8 million of the annual savings were expected to benefit 2014 results.