Avon may be reunited, if an acquisition attempt by Natura Cosméticos SA goes through — but industry sources cautioned against the move.
Natura issued a public filing on Friday, saying it has “engaged in discussions with Avon Products Inc. concerning a potential transaction involving both companies” and did not intend to comment further. The statement follows a report first issued by the Wall Street Journal. Avon also issued a statement confirming the preliminary talks.
Avon has been struggling for years.
The business sold 80 percent of its North America operations to private equity firm Cerberus Capital Management in 2016, but industry sources have said business has only continued to decline since the transaction. The segment is said to have posted about $625 million in sales for 2018, according to a source with knowledge of the company, down from $725 million in the prior year.
Broadly, that division is thought to be much more challenged than Avon Products, though both have struggled with sales and representative declines in recent years.
The international business, Avon Products, posted about $3.75 billion in net sales for calendar 2018, down nearly 10 percent from the prior-year period. The business has spent about a year under chief executive officer Jan Zijderveld, who joined from Unilever in 2017 and has been implementing sweeping changes, including appointing a mostly new executive team and sparking digital initiatives, like e-brochures, for the first time.
“We consider [Avon’s] international business to be an attractive asset with real turnaround potential, backed by strength of the channel and the beauty category,” wrote Citi analyst Wendy Nicholson in a research note. She also voiced faith in the leadership team, under Zijderveld, down to new country-level managers and category leaders.
“An acquisition of the U.S. business would surprise us more, as it has been challenged for a long time,” Nicholson continued.
One industry source said simply that a deal “would not be good for the company” and cautioned against Natura executing an acquisition of this scale — which would likely be more than $2 billion — before it has successfully turned around The Body Shop, which it bought from L’Oréal in 2017. The draw, the source said, would be a deeper push into the U.S. market.
Natura does business in the U.S. through The Body Shop and flagship naturals line Natura, as well as Aesop, but Avon could potentially build out more scale in the U.S., the source said.
The company has been working to turn around The Body Shop since the acquisition, and closed 62 underperforming stores in the past year.
A different industry source was even more skeptical, particularly because of Avon’s “antiquated distribution model.”
“Digital, social, has completely changed the landscape,” the source said. “Multilevel marketing will not exist 10 years from now.” The source also noted that Avon has been “late on helping associates be influencers.”
That has been key for other, more successful, direct sellers, like Rodan & Fields and Beautycounter. The representatives for both companies not only have fewer inventory requirements than in traditional multilevel marketing companies, but more support in terms of social posting and digital tools.
Industry sources might not have been exciting by the talk of a transaction — but Wall Street was. Avon Products’ stock was up 10 percent after the news came out Friday, to $3.06.