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Ding Dong! "Avon Calling..." As one of the world's first global cosmetics companies, Avon established itself as a household name in the 1950s and 1960s with a worldwide network of door-to-door salesladies. More recently the company has been overtaken in sales by the likes of L'Oreal, but the Avon organisation remains one of the world's largest direct sellers of cosmetics products with local operations in 60 countries and distribution in more than another 40. A new management team installed in 1999 successfully dragged the company's image upmarket after years of decline, with the result that sales and profits boomed in the first half of the 2000s. Mid-decade, though, performance began to slow dramatically, with recessionary forces dragging down sales in developed markets. The group continued to develop in newer economies like Brazil and Central & Eastern Europe, but was plagued by accounting problems and allegations of bribery. In 2012, Avon rebuffed a $10.7bn takeover bid from Coty. Yet three years later, that earlier self-confidence appeared misplaced. Following a steep decline in US sales, Avon launched a strategic review of its business, leading to the sale of its North American business to private equity investor Cerberus.
Who handles Avon's advertising? Click here for Agency Account Assignments for Avon from Adbrands. Traditionally, Avon has not invested heavily in advertising, relying instead on word of mouth and its team of representatives. That approach has changed steadily in recent years. The group declared advertising expenses of $109m in 2016 (excluding brochure preparation costs).
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Once-tired Avon underwent a remarkable resurrection in the 1990s, embarking on a steady programme of international expansion, especially into new markets such as Latin America, Central and Eastern Europe, and later India and China. The company's continued sales growth seemed to demonstrate the power left in direct selling methods, especially in these developing regions, where a job as an Avon representative gives women access to financial independence and status which had previously been out of their reach. As the company's own literature puts it, "Avon is the largest engine of economic opportunity for women on earth".
However progress wasn't without its hurdles. Fierce competition from the likes of P&G and L'Oreal caused Avon's turnaround to slow after 2005, especially in developed markets, forcing the company to ramp up its expenditure on mainstream advertising. It also wrestled with a series of accounting scandals that forced the removal of several senior managers, as well as, ultimately, the resignation of long-term CEO Andrea Jung. Soon afterwards came a takeover bid from Coty. An initial offer of $10bn was rebuffed. Coty raised its bid to $10.7bn in May 2012, but withdrew it a few days later when Avon refused to engage in friendly discussions. Calm was restored under new chief Sheri McCoy, but only limited financial progress, and the group announced a strategic review of its operations in early 2015.
In early 2016 it agreed to sell its North American operations to private equity firm Cerberus Capital for $170m; at the same time Cerberus acquired a 17% stake in Avon's remaining international operations for $435m. Following that deal, Avon announced plans to move its operation HQ to the UK. The North America operations of the company are now managed by New Avon LLC, a unit of Cerberus. Avon Products retains a 20% shareholding in New Avon. The two companies continue to work together, with New Avon acting as the local licensee for the US and Canada.
Despite its age - it was 130 years old in 2016 - Avon remains one the world's leading beauty products manufacturers, with its own sales operations in 60 countries and availability in a further 41 though partner distributors. In an industry dominated by retail brands, the continuing success of Avon in developing markets demonstrates that old sales methods still have a place. Direct selling remains the core of Avon's business, contributing around 90% of revenues. Around the world, the company still uses the services of sales representatives, or Avon Ladies. At its peak in 2010 there were around 6.5m representatives worldwide. These women operate as independent agents, purchasing products direct from Avon and then reselling them at a profit to neighbours, friends, within an office environment or online. It's an old-fashioned system, but it still works, and the economic downturn of 2008 provided a perfect platform for the recruitment of new reps in even developed markets such as the US. However, that growth was ended by US economic recovery, and the domestic market in particular has experienced dramatic decline since 2007, with sales effectively halving. At the same time, the total number of global representatives has fallen from their 2010 highs to around 6m in 2016. The number of US representatives fell by 15% between 2010 and 2013, though there was an improvement during 2014. Even so, Avon was overtaken that year as the world's biggest direct seller by long-time rival Amway.
A key element of the company's strategy has been to acknowledge that its market - primarily working-class or middle-class women - aspire to the luxury associated with upscale beauty brands such as Estee Lauder or L'Oreal's Lancome, but can't afford those prices. Avon's range is carefully packaged and marketed to emulate the same values but at a considerably lower price. As a result, the company's popular Anew anti-ageing cream sells for around $20, as much as a quarter of the price of the equivalent Lancome product. The direct selling route pays dividends here too, since it eliminates the enormous advertising costs paid by Avon's upmarket rivals. At the same time, the company introduced a new commission structure for Avon Ladies in 2001, encouraging existing reps to recruit and train their own subsidiary representatives in a pyramid system. As a result, recruitment levels in the core US market began to increase for this first time in two decades. The group also scored a major coup by signing up tennis star sisters Venus and Serena Williams to appear in its marketing. Actress Reese Witherspoon was appointed as Avon's first ever global brand ambassador in 2007.
Avon sells products in three groups. By far the biggest is the Beauty portfolio which comprises a range of cosmetics, fragrances and toiletries. The best-known is the group's cosmetics range led by the flagship mass-market Avon Color brand. This is supported by anti-aging cosmetic line Beyond Color, the Hydra Finish range of natural cosmetics, long-lasting Perfect Wear and value-priced, youth-oriented Color Trend. A high-end colour cosmetics line launched in 2012 as Luxe by Avon. Mark is a separate range of cosmetics targeting younger women, launched in the US towards the end of 2003. Sold by a separate team of representatives, it is also promoted through a catalogue mailed out to more than 7m young women across America.
The Skincare range is led by the Avon Solutions range of general products, as well as premium anti-aging line Anew - which broke the $1bn barrier in annual sales in 2010 - and value-priced Avon Care. UK-based active skincare brand Liz Earle was acquired in 2010; but then sold on in 2015 to Walgreen Boots Alliance. In 2004, Avon stepped up its efforts to target the fast-growing men's grooming sector with the launch of two skincare ranges, Pro Sport and Pro Extreme, and its first ever catalogue for men.
The group claims to be the world's largest seller of perfumes, releasing a new global fragrance each year. Its biggest launch to-date was Outspoken by Fergie, introduced in 2010 in a partnership with the former Black Eyed Peas singer. Other Fergie fragrances have followed. Other leading brand families include Little Black Dress, Far Away, Imari and Today-Tomorrow-Always. The group also offers a range of men's fragrances led by Black Suede, Full Speed, Musk, Wild Country and Ironman. Brand ambassador Reese Witherspoon has appeared in several fragrance campaigns, including her own signature fragrance In Bloom in 2010. Olivia Wilde joined the ambassador team in 2012 for Today Tomorrow Forever. There have also been signature fragrances for Grey's Anatomy actor Patrick Dempsey and racing driver Derek Jeter. Basketball star Chris Paul is the face of men's fragrance Untouchable, launched in 2013.
There are also separate ranges of Haircare (including the Advanced Techniques brand) and Bath Products (including Skin-So-Soft and Naturals cleansers). Combined sales from the Beauty portfolio were $6.27bn in 2014. Skincare is now the biggest single contributor to that total, generating revenues of $2.59bn in 2014. Fragrances add an additional $2.12bn, and colour cosmetics $1.56bn. Those figures included North America, now separate from the main business. For 2016, Avon Products reported international beauty sales of $4.12bn, including $1.61bn from skincare, $1.51bn from fragrances and $997m from colour cosmetics.
Avon also retails two other ranges through direct sales and catalogues. The Avon Fashion range (known until 2008 as Beauty Plus) consists of a collection of accessories, watches and jewellery (revenues of $1.41bn in 2014, and $850m in 2016, excluding North America) while Avon Home (known as Beyond Beauty until 2008) comprises home products, gifts and decorative candles (revenues of $939m in 2014, or $596m in 2016). Although it is the group's smallest unit, this has been a key focus for development for new CEO Sheri McCoy. One of the group's single best-selling items over Christmas 2014 were dolls based on characters from the Disney movie Frozen.
In 2010, the group acquired Silpada Designs, a direct seller of sterling silver jewellery, for $650m. That deal added a new line to Avon's non-cosmetic operations, with sales of around $230m annually. However, profitability was unsatisfactory and the business was sold again in 2013 for just $85m.
More recently, the group was plagued by rumours that local officials had been bribed in developing markets such as China and Latin America. Several senior managers were dismissed or suspended in connection with these charges during 2010 and 2011, and the group paid out almost $500m in fines.
After a slight decline in 2008, group revenues continued to rise over the following three years, hitting a new high of $11.3bn in 2011. That result was helped considerably by currency fluctuations. Since then though the group has struggled to halt a steady decline in performance. Revenues for 2014 alone slipped 11% to $8.85bn, their lowest level since 2007. Exchange rates were mainly to blame; at constant currency values, revenues were flat. A variety of restructuring and devaluation charges resulted in a net loss of $389m.
Avon's biggest problems were centred in North America, where sales have halved since 2007. In 2014 alone, sales fell 17% to $1.2bn, including just over $1.0bn in the US. However, Avon has been making operating losses in its home market for several years. Instead, Brazil is the group's single largest market, contributing sales of $1.91bn in 2014. Latin America as a whole is the group's biggest region, contributing almost 48% of group revenues in 2014. China was for several years the company's fastest growing market, especially after Avon obtained a license to market door-to-door there. It also opened a network of retail outlets in that market, causing sales to jump by 65% in two years to over $350m in 2008. A decision to withdraw from the retail sector in favour of pure direct selling has caused sales to fall back significantly since 2010. Avon also ended direct involvement in Japan in 2012, selling its operations there to private equity. As a result, the EMEA region is the second largest after Latin America, contributing 30% of revenues, the largest proportion from Central and Eastern Europe. Avon is the #1 beauty brand in Russia and seven other Central and Eastern European markets.
Excluding any revenues or expenses from North America, total revenues for 2015 crashed to $6.16bn, down 19% on a like-for-like basis, largely as a result of currencies. At constant rates, but excluding Liz Earle, revenues would have risen 3%. A large tax charge and losses on the sale of North America, as well as from continuing operations, resulted in a net loss of $1.15bn.
For 2016, Avon Products reported revenues of $5.72bn. South Latin America was the biggest region, contributing $2.15bn in revenues, with EMEA markets just behind at $2.14bn. North Latin America added $830m and Asia Pacific $556m. The company reported a third consecutive net loss, though the amount reduced to negative $93.4m. This was generated by an interest charge of almost $137m on the group's $1.9bn of debt, and a large charge against the shutdown of operations in Venezuela. Operating profit almost doubled in 2016 to $322m. The EMEA region was the group's most profitable region.
Door-to-door salesman David McConnell formed the California Perfume Company in 1886 when he discovered that his customers were more interested in the rose water he was giving away as a free gift than the books that were his main line of business. Despite its name, the company was based in New York, and for the first several years of business McConnell operated both manufacturing and administration of the company out of a single tiny office. Meanwhile sales were managed by the much revered Mrs Persis Albee, a widow from New Hampshire with five children who broke with all social conventions of the day to become what was probably America's first female travelling salesperson. When the business took off, she headed a recruitment drive to find other sensible and headstrong young women prepared to act as independent sales representatives around the country, selling the company's products to their friends and neighbours. This approach proved remarkably successful. For one thing, at the end of the 19th century it offered women a very rare opportunity to earn respectable income and establish their own independence. This was, after all, some 30 years before American women were even allowed to vote.
By 1906, the company had established its own sizeable manufacturing plant to supply Mrs Albee's team, which now numbered more than 10,000 women across the country. In 1914, the company began operations in Canada, and by the late 1920s, sales had grown to more than $2m. The company introduced the Avon brand for the first time in 1928, with the launch of a toothbrush, talcum powder and vanity set loosely inspired by William Shakespeare and named after his birthplace, Stratford upon Avon. McConnell died in 1937, and the business was taken over by his son, David Jr. He changed the company's name in 1939 from the California Perfume Company to Avon Products Inc. However David McConnell Jr himself died young, in 1944, and management passed to JA Ewald, who took the business public in 1946.
It was during the following decade that Avon finally established itself as a household name, particularly after the launch of the immensely successful Avon Calling television ad campaign which launched in 1954. Over the next few years the company also embarked on massive international expansion, opening offices throughout Latin America, Europe and Asia by the early 1960s. As a result of this phenomenal growth, in just over 15 years from 1954 to 1970 group sales rocketed from $55m to more than $750m. A decade later they had reached $3bn. In 1979, the group sealed its prestige, acquiring world-famous jewellers Tiffany & Co.
However the Tiffany purchase, followed by a disastrous diversification into healthcare services, brought the company's growth to a crashing halt in the 1980s. Weighed down by debts and under-performing sidelines, the company struggled to maintain profits. Meanwhile cosmetics sales also began to fail as the core brand became tired, too strongly associated in the minds of modern women with the cosmetics their grandmothers used. This led to increasing attention from predatory buyers, and the group fought off a number of takeover attempts (including one from rival direct seller Mary Kay).
In a bid to tighten its operations, newly appointed CEO Jim Preston refocused the company on its beauty portfolio, selling off non-core businesses (including Tiffany's) and then mounting another expansion programme, moving further into Asia as well as into the newly commercialised eastern European territories. In these countries, the Avon brand had no past history, but instead seemed to epitomise western glamour. On the back of newly revitalised sales, and a strong portfolio of new products, performance soon began to take off once again in the core US market.
Preston also overhauled the company's management culture. Despite its dependence on its army of Avon Ladies, the Avon boardroom was male-dominated and there were few women among the company's senior managers in the early 1990s. Preston eliminated this mentality and created a new team dominated by women, including the manager who inherited his role in 1999. Andrea Jung that year became the first woman to run this quintessential women's company in its 115 year history, and underlined this commitment by rebranding Avon as the "company for women", supporting a wide variety of women's charities.
Jung continued as CEO until May 2012, making her the longest-serving female CEO of any Fortune 500 company. However, the company's rapidly slowing growth during 2010 and 2011 prompted the board to seek a new leader. She agreed to step down as soon as a successor could be found. After a protracted search, former Johnson & Johnson executive Sheri McCoy was named as Avon Products' new CEO in April 2012. Jung stepped down as executive chairman at the end of that year. McCoy stepped down as CEO of Avon Products at the beginning of 2018, to be succeeded by Jan Zijderveld, previously president of Unilever's Europe division.
Last full revision 30th April 2017
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