"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, and has sales and distribution operations in approximately 70 countries. In 2015, Avon sold its North American operations to private equity firm Cerberus Capital Management.
Avon sells beauty, fashion, and home goods, accounting for 74%, 15%, and 11% 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.
Avon calls on households in some 57 countries worldwide. In addition to these countries and territories, its products were distributed in 42 other countries and territories. Latin America is a major market for the cosmetics company, accounting for some 53% of sales. (Brazil alone contributes 20%.) It also operates in Russia, China, the UK, and Germany, among other countries.
Corporate headquarters are re-locating to the UK following the divestiture of its North America operation.
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 $128 million in fiscal 2015, down from $166.4 and $173.3 million in fiscal 2014 and 2013.
Avon has struggled to arrest falling sales and net income in recent years. In 2015, following the divestitures of the company's North American operation and its UK-based Liz Earle skincare business, revenue plunged 30% ($2.7 billion) to $6.2 billion. Even exluding the divested North American operations, sales were down across all geographies, with the worst losses coming in Latin America, which saw sales fall by 23%. As a result, net income also worsened significantly to $-1.2 billion, a 196% decrease. Loss on the sale of the North American business was also a factor behind the poor figure.
Cash flow from operating activities fell by 68% ($197.5 million) to $91.4 million due to the fall in revenue.
Avon is facing severe difficulties as the rise in online retail eats into revenue.
In late 2015 the company sold its North American operations to investor Cerberus Capital Management. Cerberus -- through an affiliate -- now controls and manages the North American business as a separate, privately held company operating as New Avon LLC. Cerberus acquired an 80% ownership stake in New Avon LLC after investing $170 million; Avon held on to a 20% stake. As part of the deal, Cerberus also invested $435 million to acquire a 16.6% interest in Avon. The spin off and ownership changes reflect Cerberus's plans to transform the shrinking North American business to ultimately restore Avon's brand presence in the US. As a result of the divestiture, Avon plans to re-locate to the UK.
At the same time, Avon sold off its wholly-owned, UK-based Liz Earle skincare business for £140 million to Walgreens Boots Alliance, the global pharmacy-led health and wellbeing company.
CEO Sheri McCoy, who joined Avon in 2012, is working to stabilize the business and return it to sustainable growth. The company has set a cost-savings target of $400 million by the end of 2015. Avon also reduced global headcount, including 15% of total jobs in 2014, and exited the South Korea and Vietnam markets, as well as noncore businesses.
The company plans to use money freed up by its 2014 reorganization to fund investment in consumer research, product innovation, and advertising (for selling products and recruiting sales reps). It 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.
In 2014, Avon and Greek skincare brand KORRES entered into a partnership in Latin America 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.