"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 calls on households in some 65 countries worldwide. Indeed, Avon Products rings up just over 10% 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 20%.) It also operates in Russia, China, the UK, and Germany, among other countries.
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.
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. The company reported advertising expenses of about $202 million, $251 million, and $309 million is 2013, 2012, and 2011, respectively.
Avon has struggled to consistently grow sales, while dealing with a steep decline in net income. Its sales declined 7% in 2013 versus 2012, to just shy of $10 billion, and Avon reported a loss of $56.4 million. A decline in the number of active independent sales reps in 2013 compared with 2012, was partially offset by a 1% increase in average order size. Sales of beauty and fashion products declined, while sales of home products increased.
On a geographic basis, the decline in sales and profits was driven by lower sales in North America and the Asia-Pacific region, partially offset by improvements in Latin America, and Europe, the Middle East, and Africa (EMEA). Growth in Latin America was led by Brazil and Venezuela, primarily due to inflationary pricing. In EMEA, growth was driven by South Africa, Russia, and Turkey, while revenue fell in the UK. The poor performance in Asia Pacific was due to weak sales in China, where Avon's business is predominantly retail, and operational challenges in the Philippines.
Cash flow from operations again declined in 2013 for the fourth consecutive year.
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). 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 will sell select Coty fragrances in Brazil.
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.