Dermatologists Katie Rodan and Kathy Fields had hit the jackpot with their skincare agency Rodan + Fields. Two years in the past, personal fairness agency TPG purchased a minority stake that valued the multi-level advertising and marketing firm at a whopping $Four billion, turning every of those flawless-skinned entrepreneurs into billionaires.
However since then, the sheen has come off Rodan + Fields, which depends on a military of greater than 300,000 impartial “consultants” to promote units of scrubs and lotions that price $200 or extra for a two-month provide. Income has fallen to $1.three billion, from $1.6 billion in 2018, in accordance with Moody’s, which downgraded the credit standing on Rodan + Fields’ $600 million of debt in April this 12 months. The credit standing agency stated it expects revenues to fall additional attributable to a drop in enrollment of recent impartial gross sales consultants.
The weaker income and decrease public market values for the skincare sector led Forbes to drop our estimate of the web worths of Katie Rodan and Kathy Fields to $800 million every on the 2020 checklist of America’s Richest Self-Made Ladies, down from $1.5 billion apiece on final 12 months’s checklist.
The success of multi-level advertising and marketing companies like Rodan + Fields—additionally known as direct promoting—depends on the fixed recruitment of ever extra new consultants. Extra consultants usually means extra gross sales. However in accordance with Moody’s and public disclosures made by Rodan + Fields over the earlier three years, the corporate has struggled to retain its consultants. In 2017, Rodan + Fields reported roughly 397,000 consultants. By 2018, that quantity had grown 4%, to about 411,000. However in 2019, the entire variety of consultants fell to 362,000, a 12% drop . In January, Rodan + Fields laid off 86 staff in its company workplace. And that was earlier than the pandemic.
In response to Forbes’ request for perception into its decline in consultants, a Rodan + Fields spokesperson stated: “We’re happy with the massive variety of people who find themselves a part of the R+F group and symbolize and share our model.”
Moody’s, in two stories issued in April, cited the coronavirus pandemic as an additional risk to Rodan + Fields, which can “must navigate social distancing practices,” a public well being necessity at odds with their direct promoting enterprise mannequin. The corporate’s revenues and earnings “have been already declining meaningfully heading into 2020,” the credit standing agency added, whereas weak financial development worldwide provides to working pressures.
Not that some consultants haven’t tried to capitalize on the well being disaster. Rodan + Fields was one among 16 multi-level advertising and marketing firms to obtain a warning letter from the Federal Commerce Fee earlier this 12 months. The FTC stated in an April letter to the skincare agency that consultants have been making deceptive earnings claims on social media tied to the coronavirus. “RODAN and FIELDS is all the time open for enterprise even throughout quarantine! I’ve been working from residence for over three years now and nonetheless earning profits when different folks aren’t!” crowed one of many deceptive posts. “Throughout an unsure time like this, one factor I’m grateful for is residual revenue from my residence based mostly enterprise,” squawks one other, including, “If you wish to make an additional $200, $500, or $1,000 a month, message me!” The FTC concluded the letter by reminding Rodan + Fields that earnings claims “have to be truthful and non-misleading to keep away from being misleading” and suggested that the coronavirus-related claims stop instantly. The reality, as spelled out in an organization disclosure, is that almost all of consultants—67%—made a mean of $306 final 12 months. “Rodan + Fields takes significantly the significance of adhering to and making certain our Advisor Neighborhood follows FTC tips and greatest practices,” an organization spokesperson advised Forbes, and “doesn’t tolerate non-compliant or deceptive revenue or product claims.”
All of this has left Fields and Rodan in a a lot totally different place than when the aspiring dermatologists first met in 1984 at Stanford College. By 1989, Rodan, trying to find new pimples therapies to prescribe, determined to formulate her personal with Fields. Their efforts culminated within the creation of Proactiv, which they licensed to infomercial agency Guthy-Renker in 1995, with the duo getting an estimated 15% in royalties from Proactiv gross sales. By 2015 the pimples therapy had generated reported annual revenues of $1 billion, aided by superstar endorsements from the likes of Justin Bieber and Vanessa Williams. In 2016, the founders bought their remaining rights to the model to Nestle. In alternate, Forbes estimates they acquired a $50 million lump sum.
In the meantime, the 2 dermatologists had devised one other product line. After listening to complaints from youthful ladies about wrinkles, Fields and Rodan created an anti-aging routine underneath the model Rodan + Fields, which launched in 2002 in malls. Cosmetics colossus Estée Lauder bought the model the next 12 months for an undisclosed sum. However the model didn’t get the sort of advertising and marketing push that Fields and Rodan had hoped for. So that they had a Rodan + Fields social gathering, very like the Tupperware events of yesteryear. It was successful—and the duo purchased again their model in August 2007.
Since then, Rodan + Fields has operated by multi-level advertising and marketing, with impartial consultants doing all of the promoting. Most firms of this sort pay consultants (sometimes called distributors) fee based mostly on the quantity of product they promote and the variety of new consultants they enroll within the alternative. Some, like Rodan + Fields, say revenue can’t be made from recruiting new consultants, however the firm does pay fee based mostly on gross sales of recent recruits. The mannequin helped supercharge revenues, which grew from $24 million in 2010 to $627 million in 2015, then practically doubled to $1.2 billion the next 12 months.
It’s notoriously tough to succeed as a multi-level advertising and marketing distributor. In 2019, solely half of Rodan + Fields’ consultants have been paid $466 or extra yearly, in accordance with its revenue disclosure. Much more gorgeous is how few change into really profitable: simply 70 consultants earned a mean of $1.2 million final 12 months, per the disclosure.
Trying forward, Moody’s forecasts an additional drop in revenues over the 12 to 18 months from April to between $700 million and $1 billion, a big decline from the $1.three billion in revenues the scores agency says Rodan + Fields generates. It added that, “weak earnings are pushing monetary leverage larger to some extent the place the capital construction is changing into unsustainable with no significant operational turnaround.”
Might the monetary image enhance for Rodan + Fields? Probably. The Direct Promoting Affiliation, a lobbying group in Washington, D.C., reported in August that 61% of trade respondents noticed a optimistic influence on their enterprise in the course of the pandemic. So some multi-level advertising and marketing corporations are doing higher than earlier than.
Lately it’s all the time sunny on Rodan + Fields’ Fb and Instagram accounts. Brightly lit product pictures are interspersed with portraits of consultants beaming from behind laptops. “Now that I can’t be in my classroom and do what I really like, I’m dwelling my plan B,” one guide is quoted as saying in a company-sponsored Instagram submit. One other chimes in, “Creating group and having empowering conversations with full strangers is kind of my JAM!” Maybe specializing in the optimistic might assist lure prospects. As Katie Rodan advised Forbes in 2016, “You have got to have the ability to stand by yourself two toes.”