Why Revlon’s Bankruptcy Could be a Canary in the Coal Mine

A 90-Year Run

Last week Revlon (REV) filed for bankruptcy. The iconic brand established 90 years ago has struggled in recent years, largely supported by bondholder-provided debt. It narrowly escaped joining the dozens of retail bankruptcies in 2020. The protracted supply chain disruption triggered by the pandemic proved to be an insurmountable blow to its solvency as the company struggled to fulfill orders.

The US government’s attempt to help consumers and companies alike by distributing stimulus dollars may have served as a life preserver for some. For others, it could have simply postponed the inevitable. It seems Revlon may have been one of those firms. Now investors are considering what might be in store for the broader sector as a whole.

Multiple Headwinds

Market observers predict a storm may be coming to retail as the sector faces multiple strong headwinds. The supply chain remains in chaos and now inflationary pressures, coupled with the prospect of a recession, threaten to curb consumer spending. Meanwhile, shipment delays routinely cause a mismatch between product delivery and seasonal merchandising, leaving many stores with a pile-up of stale inventory.

All eyes will be on the back-to-school and holiday shopping seasons which may serve as a temperature check for the retail sector.

Consumers as Influencers

Consumer behavior could ultimately determine how the retail landscape changes over the coming years. Rising prices may disproportionately impact lower income Americans as they cut back on things like travel and restaurants in order to pay for necessities, like groceries. Other consumers may continue to spend, especially in light of pent-up demand, as pandemic restrictions fade.

Industry analysts contend there may be more consolidations, with bigger companies acquiring smaller, less financially-nimble operations. Ultimately, shoppers could see fewer stores to choose from, including bargain companies and mom-and-pop operations.

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