"Avon calling" -- calling for a younger crowd, overseas reps, and improved global operational efficiencies. Avon Products, the world's top direct seller of cosmetics and beauty-related items, is busy building a global brand and enticing more consumers to buy its products. Direct selling remains its modus operandi; sales also come from catalogs and a website. Its lineup includes cosmetics, fragrances, toiletries, apparel, home furnishings, and more. Avon boasts more than 6 million independent representatives worldwide. With sales and distribution operations in more than 100 countries, nearly 90% of sales come from outside the US. Avon is working to transform its business amid falling sales and profits.
Avon sells beauty, fashion, and home goods, accounting for 71%, 16%, and 10% of sales, respectively. The company's core beauty business consists of color cosmetics, fragrances, skin care, and personal care. Fashion consists of fashion jewelry, watches, apparel, footwear, accessories, and children's products. Home consists of gift and decorative products, housewares, entertainment and leisure products, children's products, and nutritional products. It exited direct jewelry sales in mid-2013 with the sale of Silpada Designs.
Avon calls on households in some 60 countries worldwide. In addition to these countries and territories, its products were distributed in 41 other countries and territories. Indeed, Avon Products rings up just 11% of its sales in the US. Latin America is a major market for the cosmetics company, accounting for nearly 50% of sales. (Brazil alone contributes 22%.) It also operates in Russia, China, the UK, and Germany, among other countries.
Sales and Marketing
Avon recruits sales reps and customers largely through personal contact, including recommendation from current representatives and customers, and local market advertising. Sales promotions and sales development activities are directed at assisting reps. The company also relies on television and print advertising to sell its cosmetics and other products. The company reported advertising expenses of some $177 million in 2014, $202 million in 2013, and $251 million, in 2012.
Avon has struggled to consistently grow sales in recent years, while dealing with a steep decline in net income. Its sales decreased by 11% in 2014 due to a drop in the number of active independent sales reps, partially offset by the higher average order size. Sales of beauty and fashion and home products declined.
The was driven by lower sales in North America, the Asia/Pacific region, Latin America, and Europe, the Middle East, and Africa as a result of the unfavorable impact from foreign exchange and the drop in active independent sales reps.
The company’s net loss increased by 589% in 2014 due to lower revenues and an increase in income taxes. The effective tax rate in 2014 was negatively impacted by a non-cash income tax charge of $405 million, largely due to a valuation allowance against deferred tax assets of $384 million primarily due to strong US dollar.
Operating cash flow decreased by 33% in 2014 due to the higher net loss and a change in inventories.
In late 2015 the company agreed to sell its North American operations to investor Cerberus Capital Management. A group of activist Avon shareholders is trying to block the deal.
CEO Sheri McCoy, who joined Avon in 2012, is working to stabilize the business and return it to sustainable growth. To the end, the company has set a cost-savings target of $400 million by the end of 2015. To get there, Avon reduced global headcount, including 15% of total jobs in 2014, and exited the South Korea and Vietnam markets, as well as noncore businesses.
For a company known for its personal touch, Avon in recent years appears to have lost touch with its customers. The company's plans to use money freed up by its recent reorganization to fund investment in consumer research, product innovation, and advertising (for selling products and recruiting sales reps). In 2014 the company launched a redesigned website, which is a critical component of its digital strategy to enhance the social selling experience for Avon representatives and their customers.
Building on its growing business in Latin America, in 2014 the company and Greek skincare brand KORRES entered into a partnership there to develop, manufacture, and market KORRES products. Also in 2014, Avon stuck a deal with fragrance giant (and former hostile suitor) Coty under which Avon Brazil's 1.5 million independent sales reps sell select Coty fragrances in Brazil.
Avon in 2013 sold its Silpada Designs (acquired in 2010) direct sales sterling silver jewelry business for $85 million in cash (plus an earn-out of up to $15 million if Silpada achieves specific earnings targets over two years.) The sale to Rhinestone Holdings, a newly-formed company created by Silpada's founders, allowed Avon to focus on reviving its core business.