Does Avon Stand A Chance For Recovery?

by Trefis Team
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Avon Products (NYSE:AVP) will soon be reporting its third quarter earnings results. In its Q2 earnings call, in view of its persistent weak performance, the company announced the stepping down of its chief executive, Sheri McCoy, who will formally leave the position by March next year. Ms. McCoy had been unable to turn around Avon’s position since she took her post five years back. Avon’s net sales declined by 7% y-o-y in 2016 and its revenues declined by 1% in Q1 2017 (in constant dollar terms) while it declined by 3% (4% in constant dollars) to $1.35 billion in Q2. the company showed a glimmer of hope with the selling off of its North American business and receiving around $650 million funding towards the beginning of 2016. But though there had been some cost savings and the company had been able to make some positive changes in some of its businesses, nothing substantial had come out of it to show a result in the form of a top line or bottom line growth. The problems in its important markets like Brazil, continue to persist, while its own streamlining and growth effort came in the way of its supply chain management in the last couple of quarters. Currently, a question looms in front of the company: Are its days finally over or can it really bring some breakthrough with its direct selling model and stick around for a few more decades?

But the possibility of a recovery seems more and more ‘miraculous’ at this juncture. Avon doesn’t have enough cash to either make strategic investments or to amplify its digital presence, two of the popular ways through which beauty leaders are winning more and more customers today. Companies like L’Oreal and Estee Lauder are constantly taking over smaller companies and consolidating their positions in the market. Revlon, too, acquired Elizabeth Arden last year and is trying to expand its presence and offering. Additionally, Avon’s door to door selling model is backdated in the current times of social media influencers and omni-channel sales.

Avon’s active representative base, the backbone for its door-to-door selling model, is also dwindling. A lot of changes in several markets left the representatives without enough products to supply, and in turn, unhappy and dissatisfied. Avon is struggling with the retention of its representatives, as well.

The only way that the company can come out of this unfortunate spell might be with a further infusion of funds from an external entity which under the current circumstances looks unlikely. The other option that remains is that of the company being acquired by a bigger entity. However, even when the company was at the brink of bankruptcy in 2015, there were rumors that the company didn’t manage to find a buyer. Hence, we can only wait and watch what happens to the future of this 130-year old company.

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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

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