A Brief History
Founded by David McConnell in 1886 originally called the California Perfume Company. McConnell was a a former door to door salesman selling books. He would offer the women he called on perfume when they purchased books. He found that his customers were purchasing from him just to get the fragrances he gave and Avon was born. The first Avon Representative was Persis Foster Eames Albee. Mrs. Albee sold fragrances door to door by horse and buggy and Avon gave women a way to earn money and support their families 60 years before they had the right to vote. And so Avon’s legacy began
During it’s heyday, Avon was friendship as your Avon lady would visit every two weeks with brochures, samples, and conversation. Everyone knew the jingle “Ding Dong… Avon Calling” and listened for the doorbell to ring. Avon invested in Research and Development and impacted the industry.
1962 - Avon introduces Skin So Soft
1986 - Avon becomes the first company to use stabilized Retinol in skincare with their Biovance line.
1989 - Avon stops testing products on animals
1992 - Avon brings Alpha Hydroxy Acids to the skincare market with their ANEW line.
By 2010 Avon was in over 100 countries around the globe with over 6.5 million Representatives. They were changing lives everywhere… and then they began to fall.
As life began to center around the devices in our hands, Avon neglected to keep up with technology. Their door to door policy was ineffective in a society becoming submerged in technology. The steady rise in violent crimes, affecting an average of 4.5 million Americans each year (2000 - 2015 according to disastercenter.com) coupled with the fact that as a whole Americans no longer want to interact or know their neighbors made the Door to Door business model Avon continued to embrace a key element in the company’s impending demise. It became apparent to Representatives as well as Field Employees that this was no longer a viable way to do business but also put them in potentially dangerous situations. Representatives have reported being robbed at gun and knife point. Managers have reported walking into a home that appeared safe only to have several men with large knives suddenly appear. Representatives left feeling that the rewards were not worth potential death. Managers resigned when they felt the company had stopped caring about their well being. Yet Avon continued to embrace a strategy of days gone by.
As previously mentioned, Avon’s failure to embrace technology added another nail in the coffin. As other Direct Sales companies began embracing the online marketplace, Avon continued to drag its heels. Previously direct sales was a small group of companies. Avon was a power player, along with Tupperware, Mary Kay and Amway. Other companies began watching and the Direct Sales industry exploded. While other companies embraced technological changes, Avon was slow to the cyber marketplace. When they did finally enter the arena they used technology that was out dated and not user friendly. Forcing customers to “work” at shopping was not conducive to growing online customers. Billing Representatives on a bi-weekly basis for a website that did not grow business caused Representatives to not open web stores. Even when Avon waived the fees, Representatives did not see a reason to market their business through those channels. Avon gave less commission on web sales, yet the Representatives felt that the work required to get these sales was the same. Additionally, when sales would count towards earned commissions during the campaign cycle was very confusing. Web sales had a separate closing day from the rest of the campaign. By making the web experience non-user-friendly Avon lost the market share.
In 2006, Avon was one of the first companies to obtain a license to sell directly to Chinese consumers. The then CEO, Andrea Jung, believed that China could be a billion dollar business unit. In 2014 after a six year probe, Avon was ordered to pay $68 million to settle a Department of Justice criminal investigation and $67 million to settle a Securities and Exchange Commission civil probe. It entered into a three-year deferred prosecution agreement, and the Chinese unit plead guilty to violating the Foreign Corrupt Practices Act (FCPA). The entire company also worked under the watch of a compliance monitor for an extended period of time. Andrea Jung was fired and the Company hired Sheri McCoy as the new CEO. Ms. McCoy came to Avon from Johnson and Johnson breaking a model of growing and promoting from within. Having a leader who was unfamiliar with Avon culture proved to be yet another mistake.
2012 brought Avon to the streets. In a desperate attempt to increase sales and Representative counts, the company invested hundreds of thousands of dollars in Say Yes To Avon. Managers were sent a tent for tent events that weighed approximately 100 pounds and instructed managers who drove company issued Chevy Malibus to hold street events in parking lost and on street corners with this tent. They again had no connection to the field when this strategy was created. The tents caused an increase in workman’s comp claims against the company as well as once again putting Employees, Representatives and Customers at risk as these tents were known to suddenly collapse.
Management instructed Managers to “do what it takes to get numbers up”. The field was expected to get 10-15 contracts (New Representatives) a day. This was the start of a massive trend of unethical behavior. While Avon mandated that the Field Managers complete Global Ethics Certifications, their message to the field was in drastic contradiction. While numbers increased activity decreased. Leadership soon figured out that they could create accounts for new Representatives who did not exist. More on that in just a bit.
Ever hear the old adage “Hurt me once shame on you hurt me twice shame on me”? Avon would allow Representatives to go Bad Debt, leave a balance, and wait 6 months to come back and repeat the whole process over and over again. Representatives we successfully getting thousands of dollars in product with out paying year after year. The company did make an attempt to reduce this theft by using Lexis Nexis to screen Representatives but that is only if they used the same social security number. There are documented cases of the same person creating fake names but keeping the same e-mail, phone and shipping address. In one instance the Representative ordered over $600.00 worth of product, called the company saying it was not delivered and the company immediately reshipped the full order. This was done by a Representative who had been discovered and reported to Avon by a manager who then had to take out a restraining order to protect herself and her family from the Representative.
Avon began a rewards program for Representatives who wanted to build a team. Sadly after the do whatever it takes mantra became the norm, Representatives learned to work the system to achieve rewards. One ongoing scam that a team of leaders practiced regularly was parking outside of the local sales center. The personnel in the center would send Representatives who had their accounts closed out to talk to “the people at the Avon Bus”. These Representatives who in most cases belonged on other Representatives teams were then given a contract to fill out that was entered with a fictitious social security number and sent back in with a new account number to make their purchases. Not only is this Social Security fraud but also out and out theft.
In another instance a Representative opened accounts for 18 different people some with addresses that never existed. They shipped to 3 addresses, the Representative, her neighbor and her sister-in-law. Avon did a full investigation, but failed to remove anyone and allowed the Representatives to keep all rewards earned through this fraud. Below are the results of an investigation done on just one business unit of a highly publicized team in the South. This was sadly not the only occurrence of fraud within that team. It went all the way to the top Leaders.
- Approximately 27 downline members do not seem to exist.
- Some of these non-existent downline members have downlines of their own.
- Approximately 36 downline members make all of their purchases at the Miami Sales Center
- 12 phone numbers were invalid. 3 accounts had no telephone number listed.
- Approximately 19 downline members have the same mailing and/or shipping addresses
- 18 downline members do not have an email address listed
- 62 downline members have no SSN on file
- When it comes to Credit Card payments, 6 downline members have payments made by uplines credit card:
- Additionally, other downline members have accounts paid for with the same credit card number.
- 4635 was used to make payments on 6 accounts
- 3880 was used to make payments on accounts
- 4684 was also used to make payments on 3 accounts
- 9849 was used to make all of the payments on 6 accounts
- 3513 was used to make all of the payments on 4 accounts
- 4627 was used to make payments on 6 accounts
Additionally, I also discovered that 36 of the mailing addresses do not exist. Those Representatives whose mailing addresses do not exist are those of the downline members who only purchase orders at the Miami Sales Center.
Corporate did a full investigation and allowed the Representative in question to remain as a leader with all the rewards she had created accounts to achieve. The accounts were closed that were deemed fraud, but no further actions were taken and the team and leaders continued to be glorified in the Avon Leadership community. Allowing these activities to take place lead directly to Avon’s demise.
Marketing and Public Relations
The last product that Avon marketed was the Anew Clinical Pro Line Eraser Treatment in the fall of 2011. Stopping advertising on television allowed people to believe that the company no longer existed. This directly impacted not only sales but also recruitment as people will often “join” direct sales companies to get the products at a discount. Allowing the public awareness to wain caused a severe and negative impact on the company’s health. Representatives who could sell 250 units of an advertised product in a campaign cycle struggled to sell 25 of similar products in campaigns without advertising.
In 2013 Avon began closing regional distribution centers across the country and misses an opportunity for a Public Relations miracle. We live in a time where calls to most companies result in speaking with agents overseas, Avon is no different. Avon was poised to open a central distribution center in Ohio. They had 4 regional offices that housed product as well as call center staff. Avon missed an incredible opportunity to reclaim market share had they simply moved customer service back to the US. The potential good press from creating jobs in the US and from having call centers in the US would have outweighed any variance in cost. Americans support companies who provide jobs for Americans. The positive media super storm that would have been created from this action would have boosted sales, recruitment and retention. Avon closed the facilities and forwarded all calls including Manager Support to foreign countries.
With Avon as with many other companies who have struggled, it is not any one thing that caused the down turn, rather a series of missed opportunities and bad business choices that prevented an upward turn.
After several years of Avon Products functioning in desperation mode struggling with the drain of the North American business unit, the successfully negotiated a deal to remove that burden. In 2016 Cerberus Asset Management purchased the foundering business unit from Avon Products, Inc., and Avon NA became New Avon, LLC. The hot points of this partnership were:
- Cerberus will make a $435 million investment in Avon Products. This investment will be in the form of convertible perpetual preferred stock with a conversion price of $5.00 per share and a dividend that accrues, or is payable at Avon’s option under certain circumstances in common shares or cash, at a rate of 5% per annum. The conversion price represents a 46% premium to the 30-day volume-weighted average price (VWAP). Assuming the conversion of the preferred stock to common stock, this equates to an ownership interest of approximately 16.6% as of December 16, 2015.
- Avon North America will be separated from Avon Products into a privately-held company majority-owned and managed by Cerberus. Cerberus will purchase an 80.1% interest in Avon North America in exchange for a $170 million equity investment. Avon North America will also assume approximately $230 million of long-term liabilities from Avon Products, which will be partially offset by a $100 million cash contribution from Avon.
With this purchase, management changes were made and steps were taken to reduce the Field Managers. This change will result in even less support of their Representatives who are already feeling like they do not matter to the company, another factor effecting sales and Representative decline.
The liabilities are now coming due and the sales are not where they were expected to be. Avon Products stock is currently hovering around $3.50 per share, more than a $130M loss for Cerberus and their investors.
2016 also saw a drastic rise in prices with nothing done to increase the perceived value of the brand. While the price increase does does not meet the premium brand price points, after years of abuse, the brand is equated with dollar store quality. The brand’s customer base is lower income people who can not afford more, thusly sales continue to drop, the Representatives are not earning enough to survive, and are leaving at a rate of two Representatives for every one who joins.
Can New Avon, LLC be saved? The brand, yes. While recently the quality has dropped somewhat, they still have the products that people want. They do not want to wait up to three weeks for delivery however. To save the brand they will need to go on the shelves of retailers like Target and Wal-Mart. Customers know the value of products like Skin So Soft and will add it to their carts while shopping, but they will not go out of their way to find an Avon Representative. The company has a private label business unit already in place. They need to focus on that letting the other companies continue doing the advertising under their brands. Avon should continue with the R & D and increase the products that they private label. They can also continue to provide the same to Avon Products, Inc. (now headquartered in the UK). But as far as a Direct Seller, they are still too far behind the market place to survive. They allowed perceptions of the brand to deteriorate so badly that they cannot compete with the other Direct Sales companies. That coupled with not being up to speed on social selling makes this a portion of the business model they need to close and use those resources to strengthen other aspects of the business that work. With this strategy in place they should be able to recoup their losses thus far and have a viable company to sell at a profit as per their business model.