New CEO submits unglamorous orders for Avon Products makeover

BOCA RATON, Fla./NEW YORK Thu Feb 21, 2013 3:54pm EST

BOCA RATON, Fla./NEW YORK Feb 21 (Reuters) - Avon Products Inc's path to restoring its former luster will be a series of unglamorous steps like updating computer systems, reducing its use of paper and air freight and improving the lighting in its stores in China.

In her most detailed comments yet about her plans, Chief Executive Sheri McCoy on Thursday said the world's largest cosmetics direct seller would not be shy to exit unprofitable markets, was working on improving sales representatives' compensation, and will keep innovating in areas where Avon is lagging rivals, such as skin care.

"Avon has been underperforming for years, our financial health has eroded, and unfortunately we disappointed stakeholders," McCoy said less than five minutes into the company's hour-long presentation at the Consumer Analyst Group of New York meeting, or CAGNY, in Boca Raton, Florida.

McCoy has kept a low profile in her first year as CEO and sought to first stabilize the company. Last year, she famously told Wall Street the last thing Avon needs is another restructuring, hinting at the failed attempts of her predecessor Andrea Jung to fix Avon through big master plans..

Avon last week rose more than 20 percent after fourth-quarter results showed signs the business is improving as her first set of actions kicked in. Avon's profit and global beauty market share have been declining for years.

But McCoy said a lot more needs to be done to reach the goal she set out last year of achieving mid-single-digit percentage revenue growth by 2016. In 2012, revenue fell 5 percent.

"The presentation reinforced our stance that management is committed to making the hard decisions that are necessary for the long-term health of the business. That said, we don't expect things to turn around overnight," said Morningstar analyst Erin Lash, who attended the presentation that was also webcast.

McCoy and her financial chief Kimberly Ross went over each Avon category and market in an almost surgical manner, giving examples of how to spur growth and simultaneously cut costs.

For example, its classic Far Away fragrance for women generates about $200 million a year in sales, one of its biggest hits. McCoy said she wants to tap Avon's significant research and development abilities to make the fragrance longer lasting and give it a higher-end aura.

In China, a market where Avon has fallen dramatically behind rivals, Avon has put new lighting into its stores.

The company is also investing up to $200 million by 2016 to update computer systems to make inventory management and ordering more efficient and improve the social media tools sales reps can use to drum up business. The company is also investing in demand-forecasting software.

On the cost-reduction side, Ross said there were no sacred cows, from travel expenses to using air freight to how much paper is used.

"Everything is under review," Ross said.

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