Will Avon Be Able To Rise From Its Slump In 2018?

Avon (NYSE: AVP) had been struggling with its financial performance over the first nine months of 2017 with very little signs of recovery. The company needs some major boost in its performance for this year to tide it out of its slump. In Q3 2017, though its revenues showed a slight improvement in constant dollar terms, the bottom line still remained dampened. Over half of its top 15 markets are showing gradual signs of improvement though problems in Brazil, its most important market in terms of revenues, are still adversely impacting the company. Avon’s active representative base has also been dwindling lately mainly due to the challenges in Brazil where Avon has tightened the credit policies after bad debt issues last year. The loss of relevance of its business model and the company’s inability to invest in growth opportunities is taking a major toll on its performance. However, Avon is still trying to fight back and hopefully its effort might bear fruits this year. We have a $2.59 price estimate for Avon’s stock, which is higher than the current market price.

Avon Has Not Been Able To Keep Up With The Times

Avon’s direct selling model is losing relevance with the digital revolution in the market space. Beauty companies these days are targeting its users mostly through social media and other forms of digital advertising. Even though Avon has joined the digital bandwagon, its effort seems little when compared to the industry behemoths. Another important strategy that beauty giants are embracing to grow in the current scenario is the acquisition of niche brands. L’Oreal and Estee Lauder have both been successful with this strategy in winning a bigger customer base. Avon doesn’t have the resources to undertake acquisitions. 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.

Active Representatives Are Losing Interest In The Company

A strong and loyal representative base is essential for a direct seller like Avon and its growth. Even though Avon is trying to project how representatives can build their own futures with the help of campaigns, such as its recent #BeautyBoss campaign, the company is still struggling to retain its representatives and attract newer ones into its fold.

Avon’s Turnover Plans For The Short Run

After five years of weak performance, Avon’s CEO, Sheri McCoy has announced she will step down from the position which will happen in March of this year. Avon has recently hired a group of new executive members, and the fresh induction of talent is expected to steer the company towards the path of growth.The company will channel its investments towards the upgradation of its systems and the ease of mobile use in different markets, two things that will help the representatives in their roles of selling its products. Brazil has witnessed an upgraded system toward the beginning of 2017 and pilot projects are being run in other countries like China, Russia, and Poland. The management will try to understand the micro level functioning better by gathering analytical data on each representative’s business. Finally, the company will be more focused on improving the end-to-end of its business model starting from forecasting customer demand, planning of operations, distributions, shipments to representatives, and so on.

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