A scant three months into its three-year restructuring plan, Avon is operating under a "constant turnaround mentality," chairman and chief executive officer Andrea Jung told analysts Friday at the Consumer Analyst Group of New York conference held in Scottsdale, Ariz.
Jung said the cost to implement Avon's multipronged plan will be at the high end of its previously announced range of $300 million to $500 million.
The $8 billion direct seller expects that when it is completed, the restructuring effort will reap annual savings of $300 million, which will be funneled into aggressive advertising spending, increased channel support and research and development.
Avon's first steps to cut costs include consolidating management, from the top down.
"Our growth outpaced our capabilities," said Jung, referring to the company's operating structure. "To compensate we added people and layers to get the work done."
In December, the firm compressed its management team from 15 layers to seven or eight, as part of its effort to eliminate 20 to 30 percent of senior and middle management by year's end.
The layoffs are expected to reap $150 million in annual savings.
She added the reorganization allows Avon "to put the best people against the right jobs," naming former Estée Lauder executive Claudia Poccia as an example. Poccia, former senior vice president and general manager of Lauder's Stila Cosmetics, joined the direct seller in November as president of Mark, Avon's flirty beauty brand for young women. Friday, Jung said Poccia's role has widened to include creative and marketing oversight of Avon's U.S. beauty categories, including color cosmetics, skin care, fragrance and personal care.
Mark's sales surged 40 percent last year -from 2004's $47 million to $65.8 million in 2005.
To increase brand competitiveness, Avon will focus on building a strong product pipeline backed by amplified ad support, as opposed to restaging brands as it did in 2005. Jung named several 2006 launches - Anew Alternative Intensive Age Treatment SPF 25 Day, Anew Clinical Eye Lift, and Instant Manicure, billed as the first dry nail enamel - as initial evidence of that plan."Competitors did raise the bar dramatically," said Jung, referring to the flood of antiaging skin care in 2005. "We didn't keep pace," said Jung, who noted Avon pulled back its U.S. advertising spending by 50 percent in 2005. "The competitive reality said we needed to up our media spend."
This year, the firm plans to raise advertising 50 percent, and to more than double last year's level by 2008.
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