Tuesday, February 14, 2012

Avon - Update

Lucas Jackson / Reuters

Andrea Jung, CEO of Avon Products.
By msnbc.com news services

Updated at 3 p.m. ET:

It is important for us to stay informed with what happens in the industry.

Soon there could be far fewer Avon sales representatives ringing doorbells to sell the company’s cosmetics directly to consumers.

Cosmetics giant Avon Products reported a fourth-quarter net loss Tuesday amid declining sales and rising commodity costs. Chief Executive Officer Andrea Jung said the company doesn’t expect its margins -- the revenue the company keeps after paying its costs -- to improve this year.

The downbeat forecast comes amid a Bloomberg News report that says the company is planning to restructure its global operations with the help of consulting firm McKinsey. On a conference call with investors Tuesday, executives said they see “immediate” potential savings through reducing headcount, which likely means fewer door-to-door sales representatives in the not-too-distant future.

advertisementThat would surely hurt a company that markets itself as the world’s leading direct seller. Avon markets to women in 100 countries through a network of 6.5 million independent sales representatives, according to information on the company’s website.

Once a thriving cosmetics company, Avon is now seeking to right the ship of its sinking operations after years of tepid earnings and declining profit.

In December it announced the departure of longtime Chief Executive Jung as soon as a replacement could be found. Additionally, Avon has been hurt by an internal bribery investigation that began in China, and its stock has come under pressure over the past year because of the company’s poor performance in countries like Brazil.

Shares of Avon have declined some 60 percent since hitting a high in 2004.

Bloomberg News reports that a company overhaul will include cutting costs in Avon’s North American unit, where sales have dropped every year since 2007 and slid about 7 percent in the third quarter.

Bloomberg interviewed one analyst who was skeptical of the plan's potential success.

“This is a rudderless ship right now, and trying to turn it massively may not get you anywhere,” said Ali Dibadj, an analyst at Sanford C. Bernstein in New York. “The problem with Avon isn’t that it needs a restructuring, it’s that it has been in perpetual restructuring, literally for the past 15 years.”

1 comment:

  1. To be honest I am not surprised considering how low Avon prices are. I don't know how they can profit when they are selling items for pennies. I own a small business (selling soap, bath products and candles) and by small I mean we have 15 employees and a small factory and retail store. We make our products in the US with American made ingredients. I know how expensive it is to make some of these products and even though big corporations can manufacture in China and their ingredient costs are the lowest possible, I still cannot see how Avon can make any money selling at such low prices.


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