"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. With sales and distribution operations in more than 100 countries, the company is working to transform its business amid falling sales and a spurned takeover bid.
Avon calls on households in some 65 countries worldwide. Indeed, Avon Products rings up just 15% 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 nearly 20%.) It also operates in Russia, China, the UK, and Germany, among other countries.
Avon sells beauty, fashion, and home goods, accounting for 73%, 18%, and 9% 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.
Sales and Marketing
Avon Products 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.
Avon's 2012 sales declined 5% vs. 2011, and the company posted a $42.5 million loss for the year. The pain was widespread. Beauty and fashion, Avon's two largest product segments, each saw year-over-year sales declines of about 5%. Home product sales declined by nearly 4%. Also, Avon's sales declined across all of its markets, including the major markets of Brazil (down 12%) and the US (down 8%).
Avon has struggled to consistently grow sales, while dealing with a steep decline in net income. Cash flow from operations again decline in 2012 for the third consecutive year. Avon blamed its falling sales on unfavorable foreign exchange rates
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 is reducing global headcount, including about 650 jobs by the end of 2014, and exiting 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).
Mergers, Acquisitions and Divestitures
Avon in July 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, allows Avon to focus on reviving its core business.
The struggling company became a takeover target in 2012 when its smaller rival Coty made an unsolicited $10.7 billion offer for the business, which Avon rejected.
Investment firm T. Rowe Price owns more than 10% of Avon Products' shares.