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Avon Sales Dip on Brazil Troubles, Turnaround Efforts Continue

The company is planning a massive stockkeeping unit reduction over the next several months.

Avon Products Inc. is still working to turn around.

The business posted a 2 percent decline in net sales for the third quarter, which was driven mostly by continued challenges in Brazil, Avon’s largest market, following the truckers strike earlier in the year. Troubles in Brazil also drove the company’s 5 percent decline in active representatives, chief executive officer Jan Zijderveld, who joined the business in February, told WWD in an interview.

Avon Sales Dip on Brazil Troubles,
Jan Zijderveld, Avon ceo. Courtesy

“What happened in Brazil? It’s still partly a hangover from the quarter-two truck strike,” Zijderveld said. “We lost quite a lot of representatives.”

Since then, Avon has put money and extra services toward getting its top representatives re-engaged in the business, Zijderveld said — and it has worked. But the business has not yet been able to get lower-level representatives back, he noted, and that continues to take a toll on the business.

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For the third quarter, Avon’s net sales were down 2 percent, to $1.35 billion, from $1.38 billion in the prior-year period. Net income was up to $112 million, from $11.9 million in the prior-year period. Earnings per diluted share were 21 cents. Avon’s stock ticked downward Thursday, to $1.87 in midday trading.

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Since his start at the business, Zijderveld has focused largely on driving digital initiatives, like the company’s e-brochure, as well as building up the team with a stream of new hires. In the interview, Zijderveld shed light on the company’s turnaround status, representative recruiting plans, as well as his outlook on China, a unit Avon had once considered selling, and thoughts on stockkeeping unit rationalization.

WWD: Avon experienced an outsized decline in representatives this quarter. How are you looking to grow its representative base?

Jan Zijderveld: We’re refocusing on Asia. I worked in Asia and know that region very well, and that’s where the majority of the population live in the world. There’s economic growth, there’s population growth, middle-class growth — it’s a huge market for beauty and a huge market for direct selling. We’re going to refocus on growth in Asia, specifically China and India. Our brand awareness in both of those countries is really high.

We’ve got 60 percent brand awareness in India and we’ve been there for 30 years, but the business hasn’t really done a lot. We set up this new thing — scaled recruitment meetings. We started doing them in India and Malaysia and the Philippines and [the potential representatives] are really getting a narrative — why become an Avon representative? Because you can earn money, you have flexibility, we have a huge range of beauty products, you can be part of a movement. Those are what we call Opportunity Meetings.

In India, we pulled hundreds and hundreds of people at the same time and they became representatives. We appointed more representatives in one month than we did in 25 years. We’re setting up training and we’re going to grow India 25 percent in the second half, and China almost 50 percent in the second half.

Because of that, we’re learning and we’re now adopting those big scaled recruitment meetings in other countries.

WWD: What’s the plan for China?

J.Z.: We haven’t been doing the direct-selling model in China for some time. We have our own Avon stores, well over 1,000 of them, and we’re going to upgrade those to make those stores feel better and create them as experience centers. Two, we are going to expand our retail footprint — think about your pharmacy stores and your personal care beauty stores — we’re increasing distribution and access to our brand in retail. The most important is e-commerce…we are really doubling down on building our e-commerce business in China.

We have a fragrance called Little Black Dress — we started activating that in e-commerce and … year to date in e-commerce, it’s number one in unit sales in China in the fragrance market.

WWD: What’s your real-estate strategy in China? 

J.Z.: Our boutiques were set up historically as a way of getting a direct-selling license — our representatives were allowed or encouraged to set up those boutiques. They are all over China. Our strength, if anything, is in the tier two, three and four cities.

WWD: You’ve focused a lot on digitizing Avon — how are those initiatives being received? 

J.Z.: The e-brochure was a quick way of getting into the digital business and that has been rolled out now to 50 countries. We’re experimenting with lots of different e-brochures, it’s not just a brochure in a digital version, we’re doing dedicated ones, we’re doing targeted ones, we’re making it interactive and putting video in it, etc. The trick now is really to create adoption, which goes back to training.

The second e-commerce initiative is My E-Commerce Store, which is basically a shopfront [with] the representative as the shopkeeper. That’s now rolled out in 20 countries.

WWD: How is the adoption of these tools so far?

J.Z.: The adoption rate is related to the level of commitment and training we put behind it. What we have now…is 2.6 million views from an e-brochure. To give it context, that’s about 10 percent of our physical brochure. The conversion of people who look and then buy is between 2 and 7 percent. In Brazil, where we taught the representatives, we saw a 50 percent increase in sales.

WWD: You’ve hired many new people — how is this affecting the business?

J.Z.: We needed an injection of new talent, but also new capabilities. It’s a little bit, “the team that got us here won’t get us there.” If you have a sports team that hasn’t been winning games for a long time, you need a bunch of new players on the field. We also need to build some new capabilities, especially in e-commerce and digital. [With our chief brand and beauty officer] we needed to refresh and modernize our brand, and see how to create more value in our brand. We’re injecting new talent but we’re blending it with existing talent…and creating a culture that is much more external, much more focused on the marketplace.

WWD: Product-wise, how is the new innovation resonating?

J.Z.: I always go out and talk to the representatives wherever I am. They have said, “we like bigger innovation” because it’s much easier for her to sell cool, new stuff — stuff that’s on trend, where she has a story to tell. The [lip tattoo product] was done with a third party in 20 or 22 weeks…the sales have come in in Q3 as the third most successful lip launch ever.

When you execute with scale and a little bit of bravery it really works and the representatives like it and drive it. That’s a repeatable model. We’re talking a lot inside the company about repeatable models — the things that work, and how do we replicate those.

WWD: How are you going to replicate Lip Tattoo?

J.Z.: We’re internally calling them moon shots — what are the bigger projects that create new news around an innovation or newness that creates excitement? That’s why we’ve got new heads of marketing…to really go away from what we used to be doing. Let’s do bigger stuff that really moves the needle, that’s exciting, that’s a bit more daring, and that the representatives feel [that it gives] them a story to tell.

WWD: Can you give an update as to where Avon is in the turnaround process? 

J.Z.: We’re early in the process. Avon is on the operating table. Then, there’s reinventing our direct-selling model and really re-teaching our organization about the importance of looking after [the representative] and driving her earnings and training her. It’s about refreshing the brand and adding more value to the brand to create demand. It’s about dramatically simplifying our business. We’ve got too many unproductive products, we’ve got too many assets and infrastructure that we’re not using.

We’re starting to see some green shoots. Take Mexico — we’re landing lots of our ideas in terms of rebooting our direct-selling model and Mexico is growing, this quarter, about 7 percent. What we’re doing there is doubling down…on how we reboot the direct-selling model, improv[ing] the quality of the recruiting so we get better people…and identifying are you going to be a consultant that wants to take this business seriously or are you just a beauty fan and want to buy Avon product. If you’re going to be a consultant, we’re going to invest in you — we’re going to train you and in the first 90 days, we’re going to get you up to a certain level of earnings.

WWD: What about sku rationalization, what’s going on there?

J.Z.: We’ve got way too many sku’s and we have a hugely long tail. We have way too many slow-moving products that are selling thousands of bottles worth. It’s a really basic thing that won’t affect sales, but focus will improve, service will improve, forecasting will improve — it’s really the business 101 thing that we should be doing. In Brazil, before the end of the year, one-third of the skus will be out.