Avon Products Inc. will charge into the next phase of its multiyear turnaround program by restructuring its U.S. distribution network.
Avon plans to build a state-of-the-art distribution center in the Midwest, slated to open in 2009, and close its current branches in Newark, Del., and Glenview, Ill., by mid-2009 and mid-2010, respectively.
The beauty firm said the new facility, when fully operational, would employ about 500 people, and would have the capacity to ship 50 percent of the company’s U.S. sales volume. Closing the two existing facilities will result in the loss of about 620 jobs.
The move follows Avon’s earlier efforts to trim costs, including “delayering” its top management ranks, which was largely completed last year, and reducing stockkeeping units through its Product Line Simplification program, introduced last fall.
“It’s clearly a step in the right direction,” said an equities analyst who declined to be identified, adding that the move would improve efficiencies, productivity and customer service. The analyst noted that the distribution improvements fit into Avon’s previous announced restructuring. Avon continues to project the overall effort will cost approximately $500 million to implement, but will produce annual savings of more than $300 million when completed.
Avon is scouting locations for the Midwest distribution center, and said the facility would rely on advanced picking technology to improve productivity and order accuracy, and automated systems to streamline work flow.
The direct seller plans to invest about $150 million in capital expenditures for the new center and upgrade technology and equipment at other branches. Avon plans to modernize its Atlanta distribution center and said it was considering investing in a new warehouse management system at the Pasadena, Fla., site.
The company expects to record approximately $20 million of charges in the fourth quarter relating to the distribution restructuring for employee-related costs, and incur additional expenses of about $65 million over the next several years. Avon expects to reap $25 million from the sale of the Newark, Del., and Glenview, Ill., facilities at the end of the project.