Avon Updates Portfolio, Equips Sales Reps Under "Bold New Growth Agenda"

Avon is looking to eliminate unpopular items and get cutting-edge new products in the hands of its representatives while streamlining its direct sales operation via an enhanced Internet platform.

The firm's "bold new growth agenda" for fiscal 2010 has two key components, according to Vice Chairman and CFO Charles Cramb.

"The first is to innovate the portfolio. The second is to innovate the channel," he said during a Feb. 19 presentation at the Consumer Analyst Group of New York conference.

In terms of product mix, Avon is "going to move the pendulum to a stronger and more profitable portfolio," jettisoning products in low-growth categories or those that "really don't have any competitive advantage for Avon in terms of our image or our brand equity," Cramb said.

He indicated that the firm likely will "de-emphasize" areas of its home-care segment, which includes cleaning products, appliances, and entertainment and leisure goods.

At the same time, it will look to leverage its beauty business. Beauty products generated $7.4 billion in sales for the company in fiscal 2009, while other categories accounted for $2.9 billion.

"We ignited beauty unit growth across every price tier, which was a goal for our organization; but when I look back, I think [it] was one of our biggest accomplishments," Chairman and CEO Andrea Jung told analysts during a Feb. 4 earnings call.

Avon will look to capitalize on beauty momentum by weaving together "a more compelling, more profitable market basket of goods," according to Cramb.

Areas where it does not already have a "major presence" include hair care, which makes up just 18 percent of Avon's business versus 38 percent of the overall beauty market, Cramb said.

Avon introduced Advance Techniques hair coloring in Latin America in the third quarter - a "great success," selling nine million units since the launch, he noted.

Also as part of its growth strategy, the firm will likely extend its Anew skin-care line in 2010 into "selective color and personal-care offerings that align with the Anew anti-aging promise," Cramb said.

The exec said the company is exploring opportunities for men's products, sun care and health and nutrition items as well.

Direct Sales Program Gets Technology Boost

In addition to revamping its product mix, Avon plans to reinvigorate its direct marketing through a new Internet platform, which will be "the key enabler to the success of our representative," he said.

The system will make it easier for representatives to verify product pricing and availability, track their performance and access training modules to develop their skill sets - all helping them to be more productive.

Avon plans to implement an "intelligent ordering" system in its top 15 markets in 2010, which will provide cross-selling and up-selling opportunities for representatives.

For instance, when a rep has placed an order, they will see additional products that can be purchased to help them reach a goal.

"It's an incentive to really build her business even further to generate an earnings opportunity," Cramb said. "It also helps her understand better how the promotions work, how the incentive programs work and how she is measuring up against them to make sure she doesn't miss one of those thresholds."

Calling Avon "the original social network," Cramb suggested that online social networking, or Web 2.0 applications, will be vital to the success of the company and its representatives going forward.

Web sites like Facebook and Twitter offer opportunities for Avon to recruit new salespeople, and for its salespeople to acquire and retain customers. "Literally overnight [an Avon rep] could create hundreds of thousands of online points of presence to build her business," Cramb observed.

"We can make that triangle or that web work for all of us," he went on, touting the "stickiness" factor, which is "the ability - even when a representative leaves - to keep the [customer] relationship going."

Value Is "New Normal"

Avon is in a solid position to exercise its growth strategy in 2010 because of its successful planning for 2009, Cramb said.

Avon updated its "playbook" in the first quarter of 2009 by introducing a bevy of beauty products below the $5 mark, which the firm characterizes as "Smart Value."

"We saw substantial consumer contraction as discretionary income was dropping with unemployment," Cramb said. In turn, "Smart Value is the introduction of an idea to push more units through, to have more focus and flow on the lower-priced units to stimulate the consumer as well as the representative in developing and building her business."

Smart Value items are "door-openers," or products that help Avon's representatives gain consumer confidence - particularly with consumers that have little disposable income, the CFO noted.

Products in the category helped to drive beauty sales for 2009, which were up 7 percent on the year, excluding the impact of foreign currency.

CEO Jung believes that even as global economies begin to recover, there is now a "new normal" in consumer spending.

"We want to keep offering value products ... particularly in our innovative categories," she said.

- Lauren Nardella ( ¹ [email protected] )