Avon’s results point to need for bigger changes – analyst

With active seller number down, revenues down on account of the performance in the all-important Brazil market and consumers not warming to the current product portfolio, Theodore Delimaris, associate analyst at GlobalData, believes radical changes need to be made.

Avon has already gone through huge changes in recent years, with the split of its North American and global businesses leading to a leaner business operation. But big problems still exist with its direct selling model.

Big changes to the business model don’t go far enough​

Avon has made significant moves in recent years to adapt that direct sales business model to fast changing consumer patterns that have evolved massively with the huge spike in online sales, but Delimaris believes those changes are not enough.

“Avon is captive of its direct-selling business model, based on which it is inherently difficult to achieve significant results in a short period of time,”​ Delimaris said.

“Moreover, while Avon has acknowledged that the modernization of its business model and brand is the key for achieving growth, it appears that the company’s strategic plans miss that target.”​

Reduction in reps and focus on digital​

During the third quarter sales revenues totaled $1.42bn, which were pretty much flat with last year, but excluding a favorable tax return in Brazil, total revenues actually declined by 11%.

Crunching the numbers and analyzing the underlying trend, Delimaris also points out that although the company’s 5% reduction in sales representatives and continued focus on increasing digital revenues, unit sales were down by 6% in the third quarter.

Targeting all price tiers

The company has also chosen to target a range of price tiers in its product offerings, ranging from good, to better and best quality.

Brand identity and financial flexibility​

However, the analyst believes that, although this may have a short-term boost to the company’s business, this may actually serve to erode the Avon brand identity by confusing consumers over what the name actually represents.

Furthermore, while the direct sales model that Avon has been building of late has led to greater flexibility, Delimaris also believes that when it comes to implementing a turnaround plan, the current model actually represents a “curse”​ when it comes implementing a turnaround plan “as it takes more time and resources to communicate changes in a sales representative base”.​

Changes point in right direction, but not enough​

Recent changes to the business model such as reducing the brand portfolio and streamlining the supply chain are moving in the right direction, but the analyst wants to see more.

“Avon needs more radical changes to implement across its representative base, investing more, not only in training, but also in retaining of its representatives, as that can unlock the potential and edge of its business model, which is offering product and service specificity,”​ said Delimaris.