By Jessica Wohl and Phil Wahba
BOCA RATON, Fla./NEW YORK Feb 21 Avon Products
Inc's path to restoring its former luster will be a
series of unglamorous but important 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
direct seller of cosmetics 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 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's shares rose more than 20 percent last week after
fourth-quarter results showed signs the business is improving as
McCoy's first actions kicked in. Avon's profit and global beauty
market share have been declining for years.
On Thursday, the shares closed down 0.1 percent at $20.41.
McCoy admits 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.
McCoy aims to improve in fast-growing emerging markets while
also revitalizing the market where Avon began in 1886. If she
had to pick one market to fix first, McCoy would choose the
United States, even though it trails Brazil and other markets in
"It's so visible and the U.S. market is important, that's
sort of the heritage of where the brand came from, that's the
area I would cite as the area of opportunity," McCoy said in an
interview after her presentation. "Although I worry about all of
them for different reasons," she added with a quick laugh.
Another area of focus is trying to improve how Avon uses its
"very strong" science and technology expertise that has allowed
it to innovate, though not always in ways that spur sales
growth, McCoy told Reuters.
"What we need to do is make innovation work harder for us,"
she said. In some launches, products were too similar and
"people don't understand that differentiation. So while we're
innovating, we're not getting the incremental sales because
people are saying, 'Well, I'll trade one off for the other.'"
Avon will try to improve innovations for its key markets,
rather than pushing products that do not find favor with
consumers. McCoy gave the example that a fragrance desired in
the United Kingdom or United States might fall flat in Brazil.
"It's listening to the markets and then developing the
portfolio, versus developing the portfolio and giving it to the
markets," she said.
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.
"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.
In China, a market where Avon has fallen dramatically behind
rivals, Avon has outfitted roughly 3,300 stores that women run
on their own with a more premium look and better lighting.
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. It is also investing in
Analysts praised how frank McCoy and Ross were, though some
wondered how they will cut costs and make pricey improvements.
"These financial targets are inevitably limiting Avon's
reinvestment levels," said Consumer Edge Research analyst Javier
Escalante. "The issue is what is the cost of implementing
whatever strategies they'll come up with."
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.