Are Avon Products’ Persistent Weaknesses Ever Going to End?

by Trefis Team
+24.57%
Upside
2.08
Market
2.59
Trefis
AVP
Avon Products
Rate   |   votes   |   Share

Avon Products is currently trading at around $2.50, its lowest level in the last one year, reflecting around 55% y-o-y erosion in its stock price. The company’s strategic initiatives to revive sales, the infusion of funds by Cerberus Capital and other equity investors to the tune of $650 million, the selling-off of its North America business, none of these seem to be helping the company in recovering from its continuous and seemingly never ending slump. During its Q2 2017 earnings call, the company announced the stepping down of its chief executive, Sheri McCoy. Since Ms. McCoy took her position as the CEO five years ago, Avon is yet to see a turnaround in its performance. The 130 year-old company, witnessed its last revenue growth way back in 2011. With its continuous weak performance in its major regions of sales, problems with representative retention, and the failure to make a significant turnaround, Avon Products doesn’t offer much hope for the future.

Avon Is Not Being Able To Overcome The Persistent Challenges In Its Way

Avon was almost on the verge of a bankruptcy in 2015 when Cerberus Capital and some other equity firms came to its rescue.  Avon’s sell-off of its North American business, receiving a $650 million funding, and subsequently undertaking a few major restructuring plans seemed to indicate that the company had finally embarked on the road to recovery. However, for the whole of last year, and so far this year, though Avon had shown some signs of recovery, yet no sustainable growth has been visible so far. Even its focus on the top ten markets and its top 40 brands for growth, doesn’t seem to have brought about a significant turnaround in the company’s performance.

It seems some challenge or the other keeps forming roadblocks on Avon’s way. Even while Avon is trying to make positive changes, those seem to be backfiring in some cases. For example, in Q2 2017, some of Avon’s transformation plans brought a halt to the product delivery system which, in turn, made the representatives face challenges with getting a steady supply of products to sell. This was coupled with Avon’s continuous problems in its most important market, Brazil, where it continued facing bad debt, challenges with representative retention, as well as stiff competition from other players. Also, the new categorization of its color segment product is yet to receive a positive customer response.

Avon’s net sales declined by 1% y-o-y in the first half of 2017 to $2.65 billion. It incurred a net loss of around $82 million during the same time period. As a result of this disappointing performance, Avon’s management now expects the revenue in the second half of this year to remain flat or increase by a mere 1%. The lack of demand, economic slowdown, coupled with stronger competition, in some of its important regions is the main reason for Avon’s continuous poor performance. Along with this, its continuous problems with active representatives’ retention is a major problem for the company.

Avon’s Challenges With Representative Retention

One of the most important drivers for a direct selling company like Avon is the retention and growth of its active representative base. Avon has been constantly struggling with growing its representative base and its retention. While it is struggling to retain and hire younger representatives and has also done campaigns such as the Beauty Boss Campaign to attract them, its own glitches such as not being able to keep up with the demand in Mexico or having delivery issues in the U.K. are further disrupting its supply chain thereby leaving representatives frustrated and prone to leave.

Can Avon Recover Soon?

While it was initially expected that Avon will indeed make a turnaround after Cerberus Capital and other investors infused funds into the company and Avon itself chalked out a transformation plan, but things look bleak even after close to two years of these changes. Avon doesn’t have the wealth to buy companies like the bigger beauty players to expand its portfolio, neither does its direct selling model have much appeal in this era of online shopping. Things do not look hopeful for the company going forward, we can only wait and see whether its new CEO, who is about to take their position in March 2018, brings forth some miracle cure.

Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at content@trefis.com

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Avon Products

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!