Rodan and Fields
October 13, 2020
Dermatologists Katie Rodan and Kathy Fields built Rodan and Fields into a multilevel skincare company that a private equity firm, TPG, valued at $4 billion when it bought a minority stake about two years before this accounting. Each founder was a billionaire then. By a 2020 ranking of America's richest self-made women, the estimate of each fortune had fallen to $800 million, from $1.5 billion the year before.
Revenue fell to $1.3 billion, from $1.6 billion in 2018, according to Moody's, which in April downgraded the rating on the company's $600 million of debt and said it expected sales to fall further because fewer new consultants were signing up. The company sells through more than 300,000 independent consultants. Product sets often cost $200 or more for a two-month supply.
The consultant count shows the retention problem. The company reported about 397,000 consultants in 2017 and about 411,000 in 2018, then 362,000 in 2019, a 12 percent drop. In January 2020, before the pandemic, it laid off 86 people at its corporate office. A spokesperson said the company was proud of how many people represent the brand. Moody's said social distancing conflicted with the in-person selling model, and that revenue and earnings were already declining heading into 2020.
In April the FTC sent Rodan and Fields a warning letter, one of 16 sent to multilevel marketing companies, saying consultants were making misleading earnings claims on social media tied to the coronavirus. Posts said the business was always open during quarantine and invited people to make an extra $200, $500, or $1,000 a month. The FTC said earnings claims must be truthful and not misleading, and told the company to stop the coronavirus-related claims immediately. The company's own disclosure said 67 percent of consultants made an average of $306 the prior year. A spokesperson said the company takes FTC guidelines seriously and does not tolerate misleading income or product claims.
The company says consultants cannot earn money from recruiting, but it does pay commission on sales made by people those consultants enroll. Revenue grew from $24 million in 2010 to $627 million in 2015, then nearly doubled to $1.2 billion the next year. In 2019 only half of consultants were paid $466 or more, and just 70 earned an average of $1.2 million. From April, Moody's forecast revenue of $700 million to $1 billion over the following 12 to 18 months, and said weak earnings were pushing leverage to a point where the capital structure could become unsustainable without a real turnaround.
The founders met in 1984 at Stanford. By 1989 they had formulated Proactiv, which they licensed to Guthy-Renker in 1995 for an estimated 15 percent royalty. By 2015 that acne treatment had about $1 billion in reported annual revenue. In 2016 they sold their remaining rights to Nestle for an estimated $50 million. Rodan and Fields launched in department stores in 2002. Estee Lauder bought the brand the next year. The founders bought it back in August 2007 and have run it as multilevel marketing since.
A Washington direct-selling trade group reported in August that 61 percent of industry respondents saw a positive effect during the pandemic, so some firms were doing better than before. Company social posts at the time quoted consultants talking about a backup plan and about building community. In 2016 Katie Rodan said, "You have to be able to stand on your own two feet."