CEOs of Avon: Will the Third Time Be the Charm?
Jan Zijderveld, a Unilever ex-Exec has been recently hired as Avon’s Chief Executive Officer, to be the third CEO since 1999. He came after two CEOs who each had worked at this post for quite some time but are not now being remembered with their successes at the captain’s bridge.
Andrea Jung (1999-2012)
Unlike her two successors, Andrea Jung was promoted to the CEO position from within the company. She joined Avon in 1994 to lead its product marketing group. She became Executive Vice President in 1997, and lastly the Chief Executive Officer in 1999, at the age of 41. Jung remained as Avon’s CEO until early 2012 when she was replaced by Sheri McCoy, under shareholders’ pressures.
After she left, Andrea Jung was named as one of The Five Worst CEOs of 2012 in an article on The Washington Post. The article said her marketing know-how had not been enough to overcome her weak operational skills. Despite her operational weaknesses, she chose to manage the company without a chief operating officer after 2006 and failed to groom a successor.
As another sign of Andrea Jung’s mismanagement, analysts showed Avon’s free cash flow problem. An ex-CFO of Avon said the company’s cash management was so bad that in some years, it even had to borrow money to cover its dividend payments to shareholders.
Looking back, many people think under Jung’s leadership Avon was unwilling to fully embrace its door-to-door roots but rather, it wanted to become a beauty company that could compete with blue-chip retail brands. Avon might needed some degree of modernization yet Jung seemed to have wanted to change the company dramatically. In an industry where advertising spending has been largely questioned, Avon’s advertising budget went from $63 million in 1999 to $400 million in 2010. With all the things she had done at the CEO position, she only strengthened the belief that she had not believed in the direct sales model at all.
During the four-year period between 2008-2011, Avon’s sales increased by 16% (from $9.8 billion to $11.3 billion). Its operating profit however did not follow this, diminishing by 2%. The situation in company’s debts was much worse, going from $2.1 billion to $3.3 billion, representing a 57% increase in four years.
Besides worsening results, in 2008 the infamous China bribery issue emerged. The investigation took years, costing the company hundreds of millions of Dollars.
As a result of all, Avon’s stock value dropped by 45% during Jung’s last year. And Jung’s leave was met with cheers, lifting the stock value by more than 5% only in one day.
Sherry McCoy (2012-2018)
Sheri McCoy took over the job in early 2012. A few weeks after this, Coty’s bid to acquire Avon was not accepted by the Board and finally, was withdrawn. The offer that was also backed by Warren Buffet’s Berkshire Hathaway was worth $10.7 billion. This meant Coty was ready to pay $24.75 for one Avon share that is valued less than $3.00 these days.
Sheri McCoy was coming from the famous consumer healthcare care products company Johnson & Johnson, after working for 30 years there.
One Reuters article was welcoming McCoy, saying, “After years of earnings misses and restructurings and pouring tens of millions of dollars into a foreign bribery probe, Avon will be handing its new CEO a long to-do list that will need to be completed to restore investor confidence.”
In 2012, Avon’s global sales declined for the first time following a long period of increases. It was down 5%. The situation with company’s profitability was much worse. The annual decline in operating profits was more than 50% (from $1.1 b in 2011 to $525 m in 2012). And again, for the first time in many years, Avon posted a net loss instead of a net profit.
2012 was an important year for Avon from one other aspect, too. That year, the crown changed hands and Amway became the largest direct selling company, overthrowing Avon.
In February 2013, Avon’s top management gave a presentation at Consumer Analyst Group of New York Conference (CAGNY). There, CEO Sheri McCoy summarized Avon’s situation as:
* Underperforming for years
* Eroded financial health
* Disappointed stakeholders
We don’t exactly know if Sheri McCoy knew how troubled Avon had been when she took over the CEO position in 2012. Probably not. One year after her appointment, she said, “We still face considerable challenges. In some cases, driving improvement has been more challenging and has taken longer than I had anticipated,” during an earnings call with the investors.
In December 2015, Avon announced it would sell its North America business unit to Cerberus Capital. North America had been an ongoing problem area for Avon both in terms of sales and profitability. As a part of the deal, Cerberus would also make an investment in Avon that would strengthen the company’s finances. This decision was followed by moving Avon’s global headquarters from New York to London, UK.
After all what was said and done during Sheri McCoy’s time, an Avon share that was valued around $22-23 on the New York Stock Exchange in 2012 went down to an all-time low of $1.85 in November 2017.
Avon said in August 2017 that Sheri McCoy would be stepping down in March 2018 to retire.
Jan Zijderveld (2018- )
In February this year, Avon announced its third CEO to lead the company in the 21st century. Zijderveld, just like Sheri McCoy, came from outside of the direct selling industry. This time, Avon chose its leader from Unilever. Zijderveld had a 30-year career at this company similar to McCoy’s career at J&J. His last post was President of Unilever’s European business unit.
At this time, Jan Zijderveld is an unknown to the global direct sales industry. He will naturally be judged by what he will do to take the company from its not-so-good situation. Currently, Avon is valued around $1.2 billion, way down from $10.7 billion that Coty was ready to pay for in 2012.
In an unrelated context, Tupperware’s Executive Chairman Rick Goings who has many years of experience in the industry said, “Just to remind some of you background-wise, having leadership in a direct selling company that understands the business is critical.” This will most definitely be critical for Avon, too.
Hakki Ozmorali is the Principal of WDS Consultancy, a management consulting firm in Canada specialized in providing services to direct selling firms. WDS Consultancy is a proud Supplier Member of the Canadian DSA . It is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.