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Beauty Beat: Avon Retools to Grow

After a tough 2005, Avon Products plans to reignite growth with a multiyear restructuring effort.

NEW YORK — After a tough 2005, Avon Products plans to reignite growth with a multiyear restructuring effort.

Avon’s chairman and chief executive officer, Andrea Jung, detailed the company’s turnaround initiatives Tuesday during Avon’s annual meeting with investors.

Avon’s four-pronged approach will include thinning out the company’s top management, realigning global manufacturing facilities, pursuing supply chain efficiencies in procurement and distribution, and streamlining administrative functions such as human resources and call centers.

“There are too many levels between the decision makers and the consumer,” said Jung, referring to upcoming changes to Avon’s management team. While she would not divulge specifics, Jung said the company would increase its investment in people and training as part of its turnaround efforts.

Avon’s restructuring costs are expected to total $300 million to $500 million before taxes over the next several years, and will have the largest impact in 2006. In light of the changes, Jung dubbed 2006 “a transition year” and said she expects recovery to take root in 2007. The moves are expected to help fund a significant increase in product innovation and marketing, as the company looks to bolster sales.

The company projects that revenue will be flat to up slightly in 2006 in local currencies, and that, beginning in 2007, revenue growth in local currencies will average midsingle digits.

“After five years of strong market performance, Avon is operating under a new set of macrorealities,” said Jung, naming a soft consumer environment, several competitors’ newfound focus on the direct-selling channel and heightened competition from mass market companies, particularly in Avon’s strongest category, facial skin care.

Product launches in the U.S. facial skin care market surged 220 percent in the first half of this year, according to the company. To compound matters, the top three market leaders in that segment increased their advertising spending by 45 percent during the same period.

Jung acknowledged that Avon “underinvested in media spend” this year due to a weak product pipeline in the first half of the year that was heavily reliant on restaged products. The company did increase its media spending outside the U.S. market by 40 percent, but decreased its U.S. support by 50 percent.

However, the company plans to more than double its advertising spending by 2008, and increase support for its midtier brands.

Avon also aims to win back share lost to mass market players with a new, moderately priced antiaging skin care collection, called Ageless Results. Items will range from $12 to $15, distinguishing Ageless from Avon’s premium skin care brand, Anew.

“This is a big opportunity that we did not capture in 2005,” noted Jung,

The company also announced plans to increase innovation in color cosmetics and introduce new items, such as instant press-on nail color, Superfull Mascara and a “top-secret lipstick” that Jung hinted will “crack the code on customization.”

“In the future, we’ll go with fewer, but more impactful, products.”