Avon set to perform complete makeover
New corporate look to include downsizing Bringing key staff closer to consumers
NEW YORK—
Avon Products Inc., the world’s biggest direct seller of beauty products, has announced a major restructuring that includes downsizing and other actions to restore growth after business weakened last year amid heightened competition from rivals and a softening economy.
External and internal factors have pressured the business to an extent the company has never seen before, Andrea Jung, Avon’s chairman and chief executive officer, told investors at an analysts’ meeting yesterday. “A newly heightened environment has raised the ante to compete and the costs to compete.’’ Jung didn’t specifically mention job cuts in her address and offered few details. She did, however, say the goal is to “ de- layer” the company to bring senior management closer to consumers so that Avon can respond more quickly.
“ There are too many layers between key decision makers and the customer,” she said. Among other measures, Avon plans to make more products in countries with lower production costs, realign facilities as part of a global manufacturing strategy and increase advertising spending. The company projects that advertising spending will more than double by 2008. The company will also be reviewing the compensation of sales representatives. The sweeping moves are occurring as Avon has watched its competitors, such as L’Oreal SA, increase their advertising spending and turn out more innovative products, particularly in antiaging skin care. Jung also noted that Avon has felt pressure even in emerging markets, where the company still holds a lead.
“ Companies have certainly woken up in emerging markets,” said Jung, noting that expanding into other countries now “ requires a different level of investment.’’ The company forecast pre-tax restructuring costs between $300 million ( U. S.) and $500 million, most of which will be incurred next year. Avon said it expects to record initial pre- tax costs of $20 million to $40 million in this year’s fourth quarter, which will reduce profit by 4 cents to 7 cents per share after taxes. As a result of the restructuring, Avon forecast revenue would start to improve in 2007. The company estimated revenue growth would be flat to up slightly next year, and average in the mid- single- digit range in local currencies after 2006. Avon also projected “ modest improvement” in operating margin starting in 2007, driven by the restructuring and greater investment.