Avon Looks To Hispanic Market, Price Increases To Restore Profitability

CEO Sheri McCoy and her management team outlined their plan for Avon to regain profitability in North America by 2015 during the recent CAGNY Conference in Boca Raton, Fla.

[Avon Products Inc.] intends to return to profitability in North America by 2015 by marketing to Hispanic consumers, culling its product offerings and raising product prices, executives said Feb. 20 at the Consumer Analyst Group of New York conference in Boca Raton, Fla.

According to CEO Sheri McCoy, those measures will help restore the New York-based direct seller to its “rightful position” near the top of the market.

Avon has struggled mightily over the past few years, especially in its home market. The firm has seen declining sales and a large drop in representatives in North America while facing a federal probe into allegations of misconduct in China that could cost the company $132 million in fines (Also see "Avon Settlement With Feds Over Bribery Charges Could Reach $132 Mil." - HBW Insight, 17 Feb, 2014.).

The firm’s No. 1 priority is improving its U.S. business. “We have a lot of work ahead of us but I’m confident we’re going to get it done,” McCoy said.

Pablo Munoz, Avon’s senior vice president and president of North American operations, said the firm’s turnaround plan includes targeted investments in areas of the country with the most promising profiles.

Among the firm’s 850 sales districts in the U.S., the top 10 are mostly Hispanic, he explained.

Avon’s Hispanic representatives place orders 10% higher than average, and “they tend to do better [product] demonstrations, they tend to be incredibly committed to our business model, to direct sales, to the brand,” according to the exec.

The firm plans to build on that success with a strategy geared toward areas with large Hispanic populations, adding more leaders in those regions and launching Hispanic-specific marketing campaigns.

Munoz said the Hispanic focus makes sense for the firm, as Hispanic women will drive most of the country’s population growth in the coming 30 to 50 years.

“This is a changing landscape, we did not recognize this soon enough,” he said. “Had we recognized it, we’d be in better shape.”

SKUs Down, Prices Up

Over the past few years, Avon has ramped up its introduction of new products in an effort to drive sales. However, the strategy backfired and the firm ended up with too many products in its portfolio and its pipeline, according to Munoz.

Going forward, the direct seller plans to concentrate on fewer items with higher price points.

Munoz said the firm will reduce its SKUs by 15% by 2015 as it limits new introductions to the biggest innovations and simplifies its product assortment.

Skin care in particular will be an important area, as it offers the highest margins for Avon. The exec said that the Anew brand will be reduced from 45 products to 31 products, which should translate to less consumer confusion and increased sales.

Pricing will rise for many of Avon’s products, as many “have the same prices they had five years ago,” according to Munoz.

The exec acknowledged that a price increase is a “balancing act” that, along with other planned moves to update the firm’s offering, may lead to a sales decline initially.

“There is a short-term risk to sales. We acknowledge that because we are taking a look at reducing the size of the line, making changes in our brochure, trying to move our pricing upwards, taking down our cost structure – but there are long-term benefits,” he said. “We think this is the right prescriptive solution for this business.”

McCoy emphasized the importance of finding the right price points, admitting: “Certainly we are not there.”

“We need to be able to take strategic pricing at all levels, both as we look at it from a value perspective, a mass perspective and an upper-mass perspective so that we are driving units, but also looking at how we are improving the equity in terms of how we manage our pricing.”

Higher pricing is one of the ways that Avon aims to increase earnings potential for its representatives.

In addition, the firm will focus on recruiting, training and motivating its sales force and stemming the current exodus of representatives. Avon lost 17% of its active reps in the fourth quarter of 2013.

“This business is really dependent on the number of representatives that we’re able to attract,” Munoz said. “If we grow the size of the army, we will have more orders and we’ll have more sales.”

Avon will look to retain representatives by giving them the tools to succeed, including a box of product samples upon their recruitment.

Representatives “will get engaged when they see the products,” the exec said, suggesting that the ability to trial the products on their own will inspire greater involvement among reps and ultimately lead to higher sales.