While having once enjoyed relative popularity with beauty consumers, today, “most beauty MLMs are challenged by the emergence of other gig economy opportunities, the growth of affiliate marketing, stubborn algorithms and a more skeptical public opinion of the model,” according to Jacqueline Flam Stokes, SVP Beauty, Drug & OTC Retail, NIQ. New data from the consumer intelligence company reflects these difficulties, which shows “Beauty MLM DTC sales down -19.4% compared to last year and in steady decline.”
One well-known beauty MLM, Rodan + Fields, is no exception to this decline. Ragini Bhalla, Head of Brand and Spokesperson, Creditsafe, a provider of business credit reports and owner of a business-to-business credit rating database, has shared insight into Rodan + Fields’ financial health and provided insights into the beauty MLM’s current industry outlook.
Inconsistent bill payments & cash flow issues
“Rodan + Fields’ financial health has been a subject of growing concern,” Bhalla explained, “as it recently failed to make the amortization and interest payments that were due on its super priority second- and third-out term loans at the end of June.” In response, “citing declining revenue and negative cash flow for full-year 2024,” Bhalla noted that financial services company Moody’s recently downgraded Rodan + Fields, and as of earlier this month, “it’s reported that Rodan + Fields is in talks to hand control of the company to creditors and receive a new $75 million second-lien term loan and swap existing debt for new, longer-dated obligations.”
Of important note, Bhalla cited that according to Creditsafe data, Rodan + Fields’ “Days Beyond Terms (DBT), or how late it pays bills, has been high and unstable for the last 12 months.” For example, she illustrated in August 2023, “the company had a DBT of 19 but then it jumped to 27 in September 2023 and then rose again 34 in October 2023,” and “the same pattern occurred when its DBT jumped from 26 in December 2023 to 30 in January 2024 and then to 35 in February 2024.”
While Rodan + Fields’ DBT dropped significantly between April and May this year, it increased back to 29 in June, Bhalla shared. These shifts in DBT demonstrate an “inconsistency in how late [Rodan + Fields] pays bills, [which] indicates challenges with cash flow that are likely influenced by revenue declines and debt obligations,” she explained. In contrast, the industry average DBT sits between 9 and 11, indicating that “that Rodan + Fields is paying its bills much later than its industry counterparts, which could make it harder to partner with suppliers and retailers if Rodan + Fields is seen as an unreliable payer,” Bhalla said.
In addition, Creditsafe data revealed that Rodan + Fields’ average for past due bills is 46%, Bhalla shared. “At the start of this year (January 2024), 53.68% of its bills were past due (91+ days),” she said, and while this improved in February 2024, late payments have continued to plague the Beauty MLM company. For example, Bhalla cited that 63.77% of the company’s bills were past due (91+ days) in May of this year, and in June 2024, a whopping 95.02% of its bills were past due (1-30 days).
Response to financial troubles & MLM model changes
In response to the company’s financial struggles, including rising rates of late payments and “cash flow issues resulting in forbearance on loan interest payments, it’s not surprising that Rodan + Fields recently announced a change to its multi-level marketing (MLM) business model,” said Bhalla. These changes include eliminating about 100 positions within the company, “including the Chief Global Sales Officer, Chief Information Officer and five departmental vice presidents,” she explained.
While “these types of changes often reflect an attempt to stabilize the company financially but also underscore the severity of the challenges they’re facing,” she concluded, “the combination of a high and volatile DBT, a significant portion of bills being extremely overdue, restructuring under lender control, credit downgrades, business model changes and layoffs collectively paint a picture of a company in financial distress.”