Makeover of Avon: Sheri McCoy's Challenges
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Case Code: BSTR453 Case Length: 17 Pages Period: - Pub Date: 2014 Teaching Note: Not Available |
Price: Rs.500 Organization: Avon Industry: Cosmetics Countries: USA, Global Themes: Direct Selling, Restructuring Initiatives, Turnaround |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
Avon Products Inc. (Avon), the world's largest direct seller of beauty products, reported total revenues of US$ 2.26 billion and a net loss of US$ 5.5 million for the third quarter ending September 2013. The revenues were 7% lower than the revenues of the third quarter of 2012. The sales of beauty products declined by 9% while that of fashion & home dropped by 7%. During the quarter, the number of sales representatives declined by 3% and volume sales fell by 7%. Apart from the USA, sales in countries like Mexico and Russia also showed a decline. The results brought to the fore doubts about the plans of the CEO Sherilyn S. McCoy (McCoy) to turn the company around.
The company, with a history of more than 125 years, was a pioneer in direct selling. The Avon concept was based on the traditional marketing model of door to door selling. In 1999, Andrea Jung (Jung) became the CEO of Avon, after which the company showed healthy growth for a few years. The business started to decline after 2005, mainly due to problems in the direct selling model in Avon's home market, the US. Analysts said some of Jung's decisions such as reducing the layers of management, simplifying the product lineup, etc., had backfired and obstructed the company's growth.
Jung came up with some turnaround plans, but they did not work. Moreover, during the last quarter of 2011, the sales were nearly flat. Trends like online shopping on the internet platform, specialty retailers, etc., gained ground at the cost of traditional door-to-door selling and Avon became a target of an unsolicited acquisition bid by Germany-based Coty.
In April 2012, Jung was replaced by McCoy. McCoy was expected to sort out the problems the company was facing such as a demotivated sales force, falling sales and profits, and the legal battle it was embroiled in with regard to the alleged bribing of Chinese officials.
McCoy came out with initiatives like cost cutting, focusing on people, representatives, and consumers, investing in advertising and marketing activities, shifting the supply chain reporting structure, and embracing fresh technology. Among the major changes that McCoy brought in was
terminating its operations in unprofitable markets like South Korea and Vietnam. She made many operational and financial changes in the system so as to enhance Avon's competitive strength...
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