Avon is a well-known and well-established company that has struggled to maintain financial health over the past decade. Under new leadership, a turn-around has begun. An in-depth industry analysis identifies several internal and external considerations for the company, such as the effects of globalization, the benefits of technology, the strength of the existing direct-sales model, brand recognition and business-process efficiencies.
Financially Avon is in good shape, and the financial health of the company continues to improve over time. Avon is performing well in the areas of liquidity, profitability, debt and returns. Interest coverage has declined due to financing of growth through debt, but this situation will improve with time, although further expansion in the short-term through debt is not recommended.
Key strategies include staying the course with the current restructuring plan, pursuing new markets globally and demographically (with an emphasis on pre-teens and teens), and attracting men as a clientele to buy products for the women in men's lives.
Short-term strategies include implementing the existing makeover of Avon by Andrea Jung. Medium-term strategies include developing a retail relationship with mass-merchandisers, and launching a credit-card-based loyalty program. Long-term strategies include growth through acquisition of other direct-sales competitors.
At the beginning of 2002, Avon Products Inc. (Avon) remains the world's largest direct seller of cosmetics, fragrances and toiletries (CFT), a position held by Avon for over a century. Despite this position as global leader in direct sales of CFT, Avon places only fourth in global sales of personal care products, with a significant spread in sales between Avon and the top three competitors ($10.3 billion for L'Oreal in top spot compared to $3.5 billion for Avon). The overall business model for Avon failed to deliver respectable returns in growth in the 1990s, languishing in the 1.5% growth range. The company is also plagued by a falling stock price. A tired image, poor-quality products, untimely and unappealing new product lines, and an aging and evolving clientele posed problems to Avon's success over the previous two to three decades.
Andrea Jung, appointed CEO of Avon in 1999, quickly launched a strategy to improve the company's overall performance in an aggressive turnaround effort. The strategy included changes to the company's existing product lines, expansion through new business lines, transformation of business processes and the value chain, evolution of the direct sales model to reflect contemporary clientele and the inclusion of entering the retail sector, introduction of e-commerce initiatives, and rejuvenation of Avon's image beyond being a product for everyone's grandmothers, great-aunts and aged professors. The bold new direction set by Andrea Jung included transforming Avon into a company that would embody the ultimate relationship marketer of products and services for women. By the end of 2001, many of Andrea Jung's turn-around initiatives delivered positive returns to Avon. However Andrea Jung and her team cannot become complacent and rest on these recent achievements for a prosperous future. Much more work needs to be done in the future to sustain the level of recent successes experienced by Avon.
Avon differentiates itself from other sellers of CFT through its direct-sales model. Growth in traditional markets using existing product lines is almost stagnant. However significant opportunities exist to expand both the clientele through further globalization, and the creation of new product lines that appeal to untapped demographics such as preteens, teens and young adults. Women remain the primary consumer of Avon's products and services, but opportunities exist to sell Avon products to men for the women in their lives, expanding beyond grandmothers, great-aunts and aged professors to wives, mothers, sisters and daughters. E-commerce, retail sales, expanded global application of the tried-and-true direct-sales model, reinvigorated relationships with existing Avon sales representatives, new products and services to satisfy the renewed vision of becoming the ultimate relationship marketer of products and services for women, and rejuvenated image-building campaigns are at the heart of an ongoing plan to strategically rebuild Avon as an industry leader - not only in the direct-sales segment, but across the overall CFT industry.
ASSUMPTIONS few key assumptions underlie this analysis and recommendations, including:
No significant changes globally in commerce practices (as were experienced in China with the banning of direct sales in April, 1998), and that improvements will be made in re-introducing free-enterprise practices in the future in China
Women of all ages will continue to consume CFT products at current or expanded levels, and men will continue to elude these products, therefore supporting women as the primary audience for Avon's products and services
No significant economic downturns will occur, thus allowing Avon as a business to pursue growth in an unrestricted environment
Board and stakeholder (primarily sales representatives) support will remain for an aggressive turn-around campaign to grow company sales, profits and shareholder returns
SITUATION ANALYSIS range of internal and external factors must be considered when determining strategic directions. These are presented in the SWOT Analysis, Industry and Competition Analysis, Company Analysis, Stakeholder Analysis, Portfolio Analysis, and Macro-Environmental Analysis that follows.
Strengths internal to the company include:
The proven abilities of Andrea Jung as Chairman and CEO of Avon, and the proven abilities of Susan Kropf as President and COO of Avon, to lead the company through a turn-around and into a new era of conducting business globally and electronically clear vision to become the ultimate relationship marketer of products and services for women, supported by sufficient resources in research and development (R&D) and marketing to advance this vision within the global marketplace. Diversification already exists, with 60% of sales coming from CFTs, 20% from jewelry, watches, accessories and apparel, and 20% from home products, gifts, health and nutrition products, with the greatest growth coming from CFTs high level of brand recognition in established markets such as North America and Europe, and admirably high levels of brand recognition in new markets (53% brand awareness in China and the highest beauty brand image index within global CFT brands in Eastern European countries such as Hungary, Poland, Russia and Ukraine)
Streamlined business processes including significant improvements and efficiencies in supply-chain management, and product development cycles that are becoming more responsive to consumer needs
An extremely dedicated direct-sales network with global reaches
Growing use of e-commerce to improve access, support the direct-sales model and achieve supply-chain improvements
Most financial trends are positive such as earnings per share from continuing operations (upward overall trend for both basic and diluted), increased growth in earnings of 1.4% from 1998 to 1999 compared to 6.8% from 1999 to 2000, growth in profit margin from.05 in 1998 to.06 in 1999 to.08 in 2000, growth in net earnings, a more favourable cash position and liquid ration (details will be discussed under Company Analysis); overall Avon is doing well financially
Weaknesses internal to the company include:
Unclear emphasis of the vision concerning the level of attention to be paid to Avon's core business (the CFT industry) compared to new and unrelated product lines for women such as banking, insurance, fitness, clothing and so on An improving brand image in the marketplace, particularly in established markets, but still battling decades of misperceptions that Avon isn't for working women (or even young women)
An extremely limited presence in the all-important retail sector
Too many non-performing products within business lines, yet not enough business lines to cater to the needs of a broad demographic (pre-teens through to seniors)
Financially, interest (times earned) is on a downward trend, along with cash (interest coverage), indicating that an increase in assets has been financed through debt, and that this asset growth has strained cash-flow (but not to the point that the company is in financial jeopardy)
The current sales force is not representative of the general population, with U.S. sales representatives under the age of 35 making up only 17% of the workforce (compared to 34% of the population), while sales representatives over 35 make up 83% of the workforce (compared to 65% of the population). No data on ethnicity of sales representatives is available, but equity should be pursued between workforce and population
Opportunities external to the company include:
New markets through globalization, including tapping new demographic segments of the female population around the world for both clients and direct-sales representatives, particularly in new and emerging markets like China, Eastern Europe, the Middle East and Africa
Expansion of product lines to complement the existing line of CFT products, such as wellness products (health and well-being items including nutritional supplements, vitamins and life-style items) and wide-ranging services that cater to women
Development of global product lines supported by a limited number of suppliers who can provide a quality product quickly and efficiently, as part of a renewed strategy to more effectively manage the supply chain
New societal trends such as more women working around the world, who can be supported by an Internet-based direct-sales workforce when selecting personal items
Threats external to the company include:
Consumer trends, with markets (particularly pre-teens and…