Avon Embarks on $500 Million Restructuring Project

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Avon Inc., New York, announced a major restructuring and turnaround plan this week that will cost up to $500 million before taxes. The moves are in response to a disappointing 2005, when after five years of annual growth in the 10 percent range, Avon said it expects just a 1 percent increase in sales this year.

The restructuring will include a "substantial" downsizing, Avon chairwoman/CEO Andrea Jung told investors in a press conference yesterday. She presented a four-point turnaround effort to revitalize sales that includes increasing spending on advertising, marketing intelligence, consumer research and product innovation. The plan also involves revamping Avon's catalog.

"With this plan, we're taking very aggressive action to address the issues we faced in 2005 and to become a far more streamlined global competitor that is closer to its consumers," Jung said in a statement. "We will, in turn, reinvest much of the projected savings to fuel top-line growth and improve our competitive position."

The author of a recently published book about Avon, however, is unconvinced there's much news in last week's announcement.

"I'm very surprised to hear Avon use the word 'restructuring' because they've really been in a restructuring process since 1997," said Laura Klepacki, author of "Avon: Building the World's Premier Company for Women."

The one element of last week's plan that sounds new to Klepacki is the decision to outsource some services.

"Avon has a lot of customer service centers for their reps," she said. "Maybe they're going to be outsourcing that."

The turnaround plan also mentions strategies intended to reinvigorate Avon's direct-selling model and its catalog.

"The brochure is Avon's store," Klepacki said. "If sales are down, that's one of the first places they would go to make merchandise more enticing."

Avon is the beauty direct-selling channel leader with $7.7 billion in sales last year, far outpacing Amway's $4.7 billion and Mary Kay's $1.8 billion, according to Avon. In addition, Avon has 35 million catalogs in circulation every two to three weeks in its top five markets, with the catalog reaching 300 million homes globally.

Despite all that, Jung told investors that Avon's "shopping experience was diminished in 2005." Factors included uninspired products and the overuse of discounts. For example, in 2000, 65 percent of Avon's sales came from discounted product whereas 80 percent did so in 2005.

The unexceptional catalogs resulted in a decrease in Avon's return on investment. For example, the number of pages in circulation rose 5 percent in 2005 yet revenue per 1,000 pages circulated fell 7 percent.

To breathe new life into the catalog, Avon said it will use new analytics to optimize page investment and allocation. In addition, the catalogs will showcase more co-branded efforts such as the ones the company did last year with Coca-Cola and Curves. The catalog also is being redesigned to move it away from showcasing solutions and toward offering more of a destination shopping experience. This means fewer products per page and more branded stores within the catalog such as are currently done for the brands Anew and mark.

Avon's turnaround plan also includes strategies to reverse a slow

Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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