Will Avon’s Turnaround Be Real This Time?
Andrea Jung had been promoted to CEO role at the age of 41 in 1999 and remained there for 12 years. After all those years, the company she handed over to Sheri McCoy was not in a bright situation at all. In her last four years, Avon’s debts went from $2.1 billion to $3.3 billion, representing nearly 60% increase. 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 pay dividends to shareholders. In an industry where mass media spending has always been largely questioned, Avon’s advertising budget increased to $400 million in 2010 (it was $63 million in 1999).
Besides worsening results, the infamous China bribery issue emerged in the same period. 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 replacement with McCoy was met with cheers.
Sheri McCoy was an outsider to the direct sales industry. She had come from the famous consumer healthcare care products company Johnson & Johnson, after working there for 30 years.
McCoy’s first year was marked as an important year for Avon from an additional aspect: That year, the crown changed hands and Amway became the largest direct selling company, overthrowing Avon. Amway has stayed at that position since then.
Things did not go well under McCoy’s management, too. After all what had been 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 (The current all-time-low is $1.40 that happened in July 2018).
Avon announced in 2017 that Sheri McCoy would be stepping down in March 2018 to retire after six years at the CEO office.
Early this year, Jan Zijderveld was appointed as Avon’s new CEO. Just like his predecessor, Jan Zijderveld was also coming from outside the direct selling industry. This time, Avon had chosen its leader from Unilever where he was the President of European business unit.
Following the unsatisfactory results in the first quarter, Zijderveld summarized what they should do as: “To win in this market, we must significantly step up our competitiveness. It is important to be agile and quickly identify, understand emerging trends and capture those opportunities faster. This means Avon must start driving bigger on-trend innovations and platforms, and bring them to market much faster with greater scale and impact. For this, we need to become more glo-cal, this means global and local. A few big global innovations with scale and impact, while at the same time capturing opportunities through locally relevant innovations with speed and agility.”
In a short while, he made several important management changes: Benedetto Conversano was appointed to the newly-created SVP, Chief Digital & Information Technology Officer; Anna Chokina was appointed to VP, Global Brand Marketing, Skincare and Personal Care; Elena Degtyareva to VP, Global Fashion and Home; Amy Greene to VP, Investor Relations, Bill Rahn to VP, APAC region; Dronacharya Chakraborty to GM for India; and José Vicente Marino to GM for Brazil.
Second quarter was not a success, too, with global revenue being down 3% from last year’s same quarter. Avon shares were being valued at around $1.80 after this result.
However, September saw two interesting happenings:
A few days after this, Avon held an investor day to give an update on company’s overall situation and announce its new long-term strategy “Open Up Avon”. The information shared was taken so positively that the share price moved further up to $2.50.
Management said they expected a low-single digit revenue growth, low double-digit margins, and $400 million in cost savings by 2021. The 2021 operating margin target of at least 10% would mean a significant improvement as compared to 2018’s 6.4%.
Additionally, Avon announced plans to invest around $300 million in IT, in new product categories and in various marketing, training, and digital tools.
An analyst commented after this investor day, “We were impressed with the sense of urgency displayed by new CEO Jan Zijderveld at his first analyst meeting on Sept. 21. Unlike the previous CEO, he is engaged in operations, is committed to establishing a culture of accountability and has moved quickly to bring in executives with direct selling experience.” She also said she had upgraded Avon shares from “Neutral” to “Buy” and doubled her price target from $1.75 to $3.50!
Obviously, what we see now are only plans and changes without any strong results yet. The third quarter which actually is over by now will give us some signs when we have the reports in a couple of weeks. Then, we will have a better sense of whether the turnaround is going to be real this time. By the way, Avon shares closed last week at $1.93!
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 Canada 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.