Avon is a multi-level marketing (MLM) company selling primarily beauty products, and also fashion and home products. It is one of the oldest Network Marketing companies. There sales have been on the decline. Avon have expanded around the world as sales in the U.S. stagnated or declined. In March, 2016, Avon sold its U.S. operations. Its sales are now entirely outside the U.S. Sales have declined for years from a peak of $11.1 billion in 2011 to $5.7 billion in 2017. However, new Management is making a big difference with the improving the company. Learn More
Avon Largest Sales Market
(1) Adjusted for currency fluctuations.
Source: Avon 6/30/18 Form 10Q
As shown above, revenues declined last quarter, but only due to currency fluctuations, especially in South Latin America. The culprit there was primarily Brazil. Brazil is Avon’s largest market and where their full attention is right now.
While revenues were down 3% in the second quarter of 2018, operating income was up. It was 3.9% of revenues in the quarter, up from 3.2% in the first quarter and 2.3% one year earlier. Revenues in the second quarter were up in 3 of their 5 largest markets and 12 of 15. Management is guiding for modest revenue improvement in the second half of 2018. That is a change of direction from prior years. The improvement in the largest markets has come quickly after the new CEO came on board. More detail is below.
Improvements Made By Avon
1. Better Improve Shipping – A big reason the company has struggled with revenues and keeping sales reps is problems with shipping. Shipping was slow, inaccurate and often damaged. New management has quickly changed that. New packing materials has reduced damage from 12% to 3% of items shipped. New boxes have reduced damaged boxes by 30%. More items are now kept adequately stocked. Less items are being returned. The fill rate for beauty has gone from 98% to 99% and for home and fashion from 93% to 96%.
2. Cost New Savings – The company expects to reduce expenses by $65 million in 2018, with $15 million of that realized in the second quarter. This was part of the reason for the improved operating income that quarter, but much more is ahead. Avon is also looking at further expense reductions
3. Avon New Management – After years of mediocre management under Andrea Jung and more recently Sheri McCoy, Avon hired Jan Zijderveld as its new CEO in February, 2018. Mr. Zijderveld has an impressive resume. He previously was president of Unilever’s European unit, where he led a turnaround resulting in new growth. Unilever is one of the largest consumer products company in the world. He was known for being innovative in introducing new consumer products. Mr. Zijderveld has made significant changes to senior management in his first six months.
4.Avon New Products – This is a specialty of CEO Zijderveld. Approximately 200 new products are being introduced in the second half of this year. The development time has been cut in half. This was done in part by using suppliers to help with product development, something not normally done at Avon before.
5. Avon Improve Online Performance – I have written about another MLM, Educational Development Corp (Nasdaq:EDUC). Revenues at that company, which sells children’s books, exploded after it started using “Facebook parties” to sell its books. Avon is moving in that direction. It now has a new mobile e-brochure, which is locally customizable and distributed via social media. It is increasing training in this area.
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