Work­ing On It

● A mas­sive stock­keep­ing unit re­duc­tion is planned for the next sev­eral months.

WWD Digital Daily - - Front Page - BY AL­LI­SON COLLINS

Hit by a truck strike in Brazil, Avon saw a 2 per­cent sales de­cline in the quar­ter — and ad­mit­ted its turn­around will take time.

Avon Prod­ucts Inc. is still work­ing to turn around.

The busi­ness posted a 2 per­cent de­cline in net sales for the third quar­ter, which was driven mostly by con­tin­ued chal­lenges in Brazil, Avon’s largest mar­ket, fol­low­ing the truck­ers strike ear­lier in the year. Trou­bles in Brazil also drove the com­pany’s 5 per­cent de­cline in ac­tive rep­re­sen­ta­tives, chief ex­ec­u­tive of­fi­cer

Jan Zi­jderveld, who joined the busi­ness in Fe­bru­ary, told WWD in an in­ter­view.

“What hap­pened in Brazil? It’s still partly a hang­over from the quar­ter-two truck strike,” Zi­jderveld said. “We lost quite a lot of rep­re­sen­ta­tives.”

Since then, Avon has put money and ex­tra ser­vices to­ward get­ting its top rep­re­sen­ta­tives re-en­gaged in the busi­ness, Zi­jderveld said — and it has worked. But the busi­ness has not yet been able to get low­er­level rep­re­sen­ta­tives back, he noted, and that con­tin­ues to take a toll on the busi­ness.

For the third quar­ter, Avon’s net sales were down 2 per­cent, to $1.35 bil­lion, from $1.38 bil­lion in the prior-year pe­riod. Net in­come was up to $112 mil­lion, from $11.9 mil­lion in the prior-year pe­riod. Earn­ings per di­luted share were 21 cents. Avon’s stock ticked down­ward Thurs­day, to $1.87 in mid­day trad­ing.

Since his start at the busi­ness, Zi­jderveld has fo­cused largely on driv­ing dig­i­tal ini­tia­tives, like the com­pany’s e-brochure, as well as build­ing up the team with a stream of new hires. In the in­ter­view, Zi­jderveld shed light on the com­pany’s turn­around sta­tus, rep­re­sen­ta­tive re­cruit­ing plans, as well as his out­look on China, a unit Avon had once con­sid­ered sell­ing, and thoughts on stock­keep­ing unit ra­tio­nal­iza­tion.

WWD: Avon ex­pe­ri­enced an out­sized de­cline in rep­re­sen­ta­tives this quar­ter. How are you look­ing to grow its rep­re­sen­ta­tive base?

Jan Zi­jderveld: We’re re­fo­cus­ing on Asia. I worked in Asia and know that re­gion very well, and that’s where the ma­jor­ity of the pop­u­la­tion live in the world. There’s eco­nomic growth, there’s pop­u­la­tion growth, mid­dle-class growth — it’s a huge mar­ket for beauty and a huge mar­ket for di­rect sell­ing. We’re go­ing to re­fo­cus on growth in Asia, specif­i­cally China and In­dia. Our brand aware­ness in both of those coun­tries is re­ally high.

We’ve got 60 per­cent brand aware­ness in In­dia and we’ve been there for 30 years, but the busi­ness hasn’t re­ally done a lot. We set up this new thing — scaled re­cruit­ment meet­ings. We started do­ing them in In­dia and Malaysia and the Philip­pines and

[the po­ten­tial rep­re­sen­ta­tives] are re­ally get­ting a nar­ra­tive — why be­come an Avon rep­re­sen­ta­tive? Be­cause you can earn money, you have flex­i­bil­ity, we have a huge range of beauty prod­ucts, you can be part of a move­ment. Those are what we call Op­por­tu­nity Meet­ings.

In In­dia, we pulled hun­dreds and hun­dreds of peo­ple at the same time and they be­came rep­re­sen­ta­tives. We ap­pointed more rep­re­sen­ta­tives in one month than we did in 25 years. We’re set­ting up train­ing and we’re go­ing to grow In­dia 25 per­cent in the sec­ond half, and China al­most 50 per­cent in the sec­ond half.

Be­cause of that, we’re learn­ing and we’re now adopt­ing those big scaled re­cruit­ment meet­ings in other coun­tries.

WWD: What’s the plan for China?

J.Z.: We haven’t been do­ing the di­rect-sell­ing model in China for some time. We have our own Avon stores, well over 1,000 of them, and we’re go­ing to up­grade those to make those stores feel bet­ter and cre­ate them as ex­pe­ri­ence cen­ters. Two, we are go­ing to ex­pand our re­tail foot­print — think about your phar­macy stores and your per­sonal care beauty stores — we’re in­creas­ing distribution and ac­cess to our brand in re­tail. The most im­por­tant is e-com­merce... we are re­ally dou­bling down on build­ing our e-com­merce busi­ness in China.

We have a fra­grance called Lit­tle

Black Dress — we started ac­ti­vat­ing that in e-com­merce and ... year to date in e-com­merce, it’s num­ber one in unit sales in China in the fra­grance mar­ket.

WWD: What’s your real-es­tate strat­egy in China?

J.Z.: Our bou­tiques were set up his­tor­i­cally as a way of get­ting a di­rect-sell­ing li­cense — our rep­re­sen­ta­tives were al­lowed or en­cour­aged to set up those bou­tiques. They are all over China. Our strength, if any­thing, is in the tier two, three and four cities.

WWD: You’ve fo­cused a lot on dig­i­tiz­ing Avon — how are those ini­tia­tives be­ing re­ceived?

J.Z.: The e-brochure was a quick way of get­ting into the dig­i­tal busi­ness and that has been rolled out now to 50 coun­tries. We’re ex­per­i­ment­ing with lots of dif­fer­ent e-brochures, it’s not just a brochure in a dig­i­tal ver­sion, we’re do­ing ded­i­cated ones, we’re do­ing tar­geted ones, we’re mak­ing it in­ter­ac­tive and putting video in it, etc. The trick now is re­ally to cre­ate adop­tion, which goes back to train­ing.

The sec­ond e- com­merce ini­tia­tive is My E- Com­merce Store, which is ba­si­cally a shopfront [with] the rep­re­sen­ta­tive as the shop­keeper. That’s now rolled out in 20 coun­tries.

WWD: How is the adop­tion of these tools so far?

J.Z.: The adop­tion rate is re­lated to the level of com­mit­ment and train­ing we put be­hind it. What we have now...is 2.6 mil­lion views from an e-brochure. To give it con­text, that’s about 10 per­cent of our phys­i­cal brochure. The con­ver­sion of peo­ple who look and then buy is be­tween 2 and 7 per­cent. In Brazil, where we taught the rep­re­sen­ta­tives, we saw a 50 per­cent in­crease in sales.

WWD: You’ve hired many new peo­ple — how is this af­fect­ing the busi­ness?

J.Z.: We needed an in­jec­tion of new tal­ent, but also new ca­pa­bil­i­ties. It’s a lit­tle bit, “the team that got us here won’t get us there.” If you have a sports team that hasn’t been win­ning games for a long time, you need a bunch of new play­ers on the field. We also need to build some new ca­pa­bil­i­ties, es­pe­cially in e-com­merce and dig­i­tal. [With our chief brand and beauty of­fi­cer] we needed to re­fresh and mod­ern­ize our brand, and see how to cre­ate more value in our brand. We’re in­ject­ing new tal­ent but we’re blend­ing it with ex­ist­ing tal­ent...and cre­at­ing a cul­ture that is much more ex­ter­nal, much more fo­cused on the mar­ket­place. WWD: Prod­uct-wise, how is the new in­no­va­tion res­onat­ing? J.Z.: I al­ways go out and talk to the rep­re­sen­ta­tives wher­ever I am. They have said, “we like big­ger in­no­va­tion” be­cause it’s much eas­ier for her to sell cool, new stuff — stuff that’s on trend, where she has a story to tell. The [lip tat­too prod­uct] was done with a third party in 20 or 22 weeks...the sales have come in in Q3 as the third most suc­cess­ful lip launch ever.

When you ex­e­cute with scale and a lit­tle bit of brav­ery it re­ally works and the rep­re­sen­ta­tives like it and drive it. That’s a re­peat­able model. We’re talk­ing a lot in­side the com­pany about re­peat­able mod­els — the things that work, and how do we repli­cate those.

WWD: How are you go­ing to repli­cate Lip Tat­too?

J.Z.: We’re in­ter­nally call­ing them moon shots — what are the big­ger projects that cre­ate new news around an in­no­va­tion or new­ness that cre­ates ex­cite­ment? That’s why we’ve got new heads of mar­ket­ing... to re­ally go away from what we used to be do­ing. Let’s do big­ger stuff that re­ally moves the nee­dle, that’s ex­cit­ing, that’s a bit more dar­ing, and that the rep­re­sen­ta­tives feel [that it gives] them a story to tell.

WWD: Can you give an up­date as to where Avon is in the turn­around process?

J.Z.: We’re early in the process. Avon is on the oper­at­ing ta­ble. Then, there’s rein­vent­ing our di­rect-sell­ing model and re­ally re-teach­ing our or­ga­ni­za­tion about the im­por­tance of look­ing af­ter [the rep­re­sen­ta­tive] and driv­ing her earn­ings and train­ing her. It’s about re­fresh­ing the brand and adding more value to the brand to cre­ate de­mand. It’s about dra­mat­i­cally sim­pli­fy­ing our busi­ness. We’ve got too many un­pro­duc­tive prod­ucts, we’ve got too many as­sets and in­fras­truc­ture that we’re not us­ing.

We’re start­ing to see some green shoots. Take Mex­ico — we’re land­ing lots of our ideas in terms of re­boot­ing our di­rect­selling model and Mex­ico is grow­ing, this quar­ter, about 7 per­cent. What we’re do­ing there is dou­bling down...on how we re­boot the di­rect-sell­ing model, im­prov[ing] the qual­ity of the re­cruit­ing so we get bet­ter peo­ple...and iden­ti­fy­ing are you go­ing to be a con­sul­tant that wants to take this busi­ness se­ri­ously or are you just a beauty fan and want to buy Avon prod­uct. If you’re go­ing to be a con­sul­tant, we’re go­ing to in­vest in you — we’re go­ing to train you and in the first 90 days, we’re go­ing to get you up to a cer­tain level of earn­ings.

WWD: What about sku ra­tio­nal­iza­tion, what’s go­ing on there?

J.Z.: We’ve got way too many sku’s and we have a hugely long tail. We have way too many slow-mov­ing prod­ucts that are sell­ing thou­sands of bot­tles worth.

It’s a re­ally ba­sic thing that won’t af­fect sales, but fo­cus will im­prove, ser­vice will im­prove, fore­cast­ing will im­prove — it’s re­ally the busi­ness 101 thing that we should be do­ing. In Brazil, be­fore the end of the year, one-third of the skus will be out.

Avon Life Colour fra­grances.

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