Avon Products, Inc. Business Information, Profile, and History

Company Perspectives:

It's a bond forged by everything from shared causes to biology, tracing back through more than a century of beauty and business opportunity. And as we stride past the threshold to the next hundred years, that natural affinity is strengthened by energetic new initiatives, a bolder vision, and a wider, more diverse community of customers. In a dynamic new world, Avon continues to connect, reaching women through a vibrant image and outstanding products, personal relationships, cutting-edge technology, exciting new channels, and unparalleled support for gender and family issues. When we say we're the Company for Women ... we mean it.

History of Avon Products, Inc.

The oldest beauty company in the United States, Avon Products, Inc. has grown from a modest line of perfumes sold door-to-door to one of the world's leading brand of cosmetics. It manufactures and sells cosmetics, fragrances, toiletries, accessories, apparel, and various decorative home furnishings. Avon employs a unique direct-selling method, which was greatly responsible for its incredible success in the 1950s and 1960s, when women were easily found in the home for sales purposes. After unsuccessful efforts at diversification into the health-care service industry left the company with massive debts in the late 1980s and early 1990s, Avon began to refocus on its roots: beauty products and direct selling. The company's products are sold through catalogs, mall kiosks, its prestigious day spa in Trump Tower in New York, the Internet, and in J.C. Penney stores. Its products are also sold directly to customers in nearly 143 countries by 3.5 million independent sales representatives, making Avon the number one direct sales company in the world.

Early Years as the California Perfume Company

The beginnings of Avon Products, Inc. can be traced to the mid-1880s, when a door-to-door book salesman named David H. McConnell attempted to bolster declining sales by offering small samples of perfume to housewives who would listen to his sales pitch. It soon became clear, however, that his customers were more interested in the perfume, and McConnell left the book-selling business to create an entire line of perfumes to be sold door-to-door. He brewed the perfume in a pantry-sized space in New York City, naming the product line the "Little Dot Perfume Set," which consisted of five scents: white rose, violet, lily of the valley, heliotrope, and hyacinth. His endeavor was named the California Perfume Company in an effort to invoke images of the beauty and excitement of that state.

McConnell's intent was to build a business around quickly used products sold directly to the consumer through use of the national network of sales agents he had organized during his years as a bookseller. The nation's first Avon Lady was Mrs. P.F.E. Albee of Winchester, New Hampshire, the wife of a U.S. senator. Within the first six months of operation, Albee had assembled a solid base of 100 salespeople and their customers; within 12 years, Albee had recruited and trained nearly 5,000 representatives.

In addition to new scents, other products were quickly added to the California Perfume Company's product line. Popular early items included spot remover, Witch Hazel Cream, machine oil, mending cement, Almond Cream Balm, food flavorings, Tooth Tablet, and carpet cleaner. In 1896, ten years after the company was conceived, McConnell hired Adolf Goetting, a noted perfumer who had been in the business for 25 years. The following year, a new laboratory was built in Suffern, New York, and the first illustrated catalog was produced. By the company's 20th year, its product line had expanded to include more than 100 items, and in 1914 the company's rapid expansion was marked by the opening of an office in Montreal, Canada.

The Early 1900s: Avon Is Born

The first products in the California Perfume Company's line of Avon Products--a toothbrush, cleanser, and vanity set--appeared in 1920. The Avon name was inspired by the area around the Suffern lab, which McConnell thought resembled the countryside of William Shakespeare's home, Stratford-on-Avon, England. Never wavering from its strategy of door-to-door sales and catalogs filled with low-cost home and beauty products, the company surpassed the $2 million sales mark in 1926, the year of its 40th anniversary.

By the end of the 1920s, the company was doing business in 48 of the United States and in Canada. During this time, thousands of female sales representatives, under Albee's supervision, were partaking in one of the first opportunities for American women to experience a degree of economic freedom without upsetting their culturally accepted role as homemakers. The company launched three-week sales campaigns and a "specials" strategy in 1932. Five years later, in 1937, McConnell died and was replaced by his son, David H. McConnell, Jr., who headed the company for the next seven years. Under his supervision, the company's growth remained steady. In 1939, the California Perfume Company was renamed Avon Products, due to that product line's immense popularity and success.

During World War II, cosmetic production slowed while nearly half of the staff in the Suffern lab devoted themselves to wartime production of such things as insect repellent, pharmaceuticals, and paratrooper kits. In 1944, W. Van Alan Clark replaced McConnell as the company's chairman. The new Avon then instituted several changes during the 1950s, the most notable of which was its entry into overseas markets and the rapid expansion of its sales force.

Postwar Expansion in the 1950s and Beyond

Following the war, many more housewives began seeking extra income and work that did not interfere with family life. In the early 1950s, the Avon sales force almost quadrupled in size. Sales representatives' territories were downsized by several hundred homes, a strategy that enabled more representatives to be added and sales to increase sixfold over the following 12 years. Avon advertisements appeared on television for the first time, including the famous slogan, "Ding Dong, Avon Calling," which was first televised in 1954. That same year, Avon opened offices in Venezuela and Puerto Rico, marking its first venture into what would become a very lucrative Latin American market. It also penetrated the European market in 1957 with the institution of Avon Cosmetics, Ltd. in the United Kingdom.

Under the leadership of W. Van Alan Clark, Avon also saw changes such as the rapid expansion of foreign sales and Avon's listing on the New York Stock Exchange in 1964. Clark was replaced by J.A. Ewald in 1966, who was followed by W. Hicklin a year later. Under Hicklin, the traditional three-week sales cycle was changed to two weeks to improve sales. The three-week campaign was still used overseas, particularly in Asia, a market which was entered by Avon in 1969 through the opening of operations in Japan. Japan remained one of Avon's key foreign markets, along with Brazil, Mexico, and the United Kingdom.

The 1970s presented Avon with its greatest challenges in the company's history. Though sales topped $1 billion in 1972, and its profitable costume-jewelry line--begun in 1971--had made Avon the world's biggest jewelry manufacturer in just five years, Avon's growth stalled in 1973. The company was hit hard by a recession and the mass entry of women into the workforce. The direct-selling system, Avon's innovation and strength, was nearly toppled by social changes that management had not anticipated. The status of the U.S. dollar reduced the company's international profits; recession and inflation crippled its high-sales decanter products line; in 1975, about 25,000 Avon Ladies quit; and Avon products were outpaced by retail cosmetic firms offering jazzier products to women with new attitudes. All of these factors converged and led to troubled times--and Avon's eventual restructuring.

In response to these hardships, the most visible change Avon made was to become more sensitive to its market. Sales representatives began to follow women into the workplace, where about 25 percent of Avon's sales are made today, and new businesses such as direct-mail women's apparel were tested. Changes were also made to the cosmetics product line and its overall pricing as a result of market studies. Fred Fusee, who had advanced through the manufacturing side of Avon to become its chairman in 1972, was replaced in 1975 by David W. Mitchell, whose years with Avon had been spent in marketing. Mitchell worked to solidify Avon's presence in the beauty business via consumer and product research, product development, and promotion. Avon's image was overhauled to give it a more contemporary appeal, advertising time was more than tripled, and sales were revamped.

In 1979, Avon made another strategic move to update its product offerings through the purchase of Tiffany & Company, the upmarket jeweler, for $104 million. The Tiffany purchase set the tone for the next decade: diversification through acquisition. This included an ill-fated billion-dollar plunge into the health-care industry and a later entry into the prestige-fragrance market.

The 1980s: Diversification Through Acquisition

In 1983, Hicks Waldron, who had previously helped turn around General Electric, left his post at R.J. Reynolds to become Avon's chairman. Shortly before Waldron's appointment, Avon had purchased Mallinckrodt, a chemical and hospital supply company. Waldron followed this purchase with the acquisition of Foster Medical Corporation in 1984. Initially thriving in the home and health-care equipment field, Foster became the fastest-growing division of Avon. Just as the company began to celebrate its success, however, Foster was devastated by Medicare cost-containment efforts. At the same time, Tiffany's profits were steadily declining--in part because customers had become alienated by the introduction oflower-priced merchandise--and the Tiffany subsidiary was sold in 1984.

Avon then tried to focus on health care for the elderly with the 1985 acquisitions of the Retirement Inns of America and The Mediplex Group, both of which were nursing home operations. Unfortunately, only 15 percent of Avon's sales came from its health-care holdings that year. This failure, combined with the fact that annual profits overall were about half of what they were in 1979, caused Waldron to rethink his strategy and abandon the diversification plan. Mallinckrodt was sold in early 1986 and Foster in 1988, both at a great loss to Avon, and plans to sell the remaining health-care divisions were announced. The company sold Retirement Inns of America in 1989 and The Mediplex Group in 1990. Avon's brief health-care industry foray left it $1.1 billion in debt.

Diversification into prestige fragrances later proved to be a more stable endeavor. First came a joint venture with Liz Claiborne in 1985, followed by the acquisitions of Parfums Stern and Giorgio, Inc. in 1987. Parfums Stern, which produced Oscar de la Renta, Perry Ellis, and other designer perfumes, was a chief competitor of Liz Claiborne, and before long Claiborne dissolved its agreement with Avon. Strapped for cash, Avon then sold Parfums Stern in early 1990. Giorgio remained a top-selling national brand well into the 1990s, however, and under the parentage of Avon introduced several new products in the Giorgio line.

Gaining Financial Stability: Early to Mid-1990s

Waldron retired in 1989, and his successor, James E. Preston, immediately faced several takeover attempts. Avon fought off a bid by Amway Corporation in partnership with Irwin L. Jacobs, a Minneapolis, Minnesota-based raider who then launched a takeover attempt himself. While these efforts receded in the early 1990s, a new suitor appeared in the form of the Chartwell Association, an investment group that included the chief financial officer of Mary Kay Cosmetics. Interestingly, the Avon sales force proved to be the greatest deterrent to these takeover bids; in massive letter-writing campaigns, the sales representatives told aggressors that they will be unwilling to work for them.

In 1990, Avon continued to focus on rejuvenating its domestic sales figures, while selling approximately 40 percent of Avon Japan to the Japanese public for $218 million in revenues. Meanwhile, the company entered further into the business of selling items in the United States through direct-mail means, using full-color catalogs to promote its products. These measures helped the company increase 1990 sales to $3.45 billion, marking an increase of over $150 million from the previous year.

As Avon began to stand on firmer ground financially, it was able to focus once again on expanding its scope worldwide. The early 1990s were spent establishing sales headquarters and networks in other countries, while also continuing to boost sales in the United States. Avon entered the sales market in Poland in 1992 through the recruitment and training of more representatives to work in direct sales capacities there. The company also entered the Russian market in 1993. Annual sales broke the $4 billion mark that year, and the per-share price of Avon's stock rose to over $32. The company also began selling its product on the Internet, taking advantage of the increasing popularity of the information superhighway.

In 1994, Avon sold off its Giorgio product line, which was becoming a less important asset as time went on. The company instead focused on promoting products carrying its own name. It further strengthened its standing in the foreign market in 1995 with the addition of a sales office in India, and the acquisition of Justin (Pty) Ltd. in South Africa, the country's second largest direct-selling cosmetics company. 1995 sales topped off at almost $4.5 billion.

Expansion continued as Avon also began selling sportswear and apparel for women in its direct-mail catalogs after finalizing a joint venture with fashion designer Diane Von Furstenberg to introduce a line of moderately-priced casual wear. Avon tied the addition in with the company's corporate sponsorship of the 1996 Summer Olympics in Atlanta, Georgia, and a multi-million dollar advertising campaign that named sports figures such as Jackie Joyner-Kersee as "Just Another Avon Lady." Also in 1996, Avon introduced "Lifedesigns," a corporation developed to offer goal-setting and management seminars to women. Early the following year, Avon also purchased Discovery Toys, Inc., a direct-sales marketer of educational toy products for children. Discovery Toys continued operations separate from those of Avon, with the hope that Avon's immense global sales network would help the small company attain higher sales and thus contribute to its new parent's yearly revenues. The sales from this unit did not reach expected levels, however, and Discovery was sold in 1999.

Rebuilding the Avon Brand: Late 1990s and Beyond

Avon entered the late 1990s trimmed of its unwieldy diversification into the health-care industry. The company continued to hire sales representatives throughout the world to sell products directly to consumers, while also working to expand various other sales outlets. The majority of its efforts during the last years of the decade, however, were spent fine-tuning its brand as it faced fierce competition and slowing American sales. By this time, Avon products had developed a somewhat stodgy image and held little appeal to young women. In 1998, revenue grew by just three percent--far from the company's goal of reaching levels of eight-to-ten percent annual growth by 2000.

As a result, the firm began to devote millions to various advertising campaigns. In an attempt to launch the Avon brand with more of a trendy, upscale appeal, the firm opened a day spa, The Avon Centre, in Trump Tower in New York City. Avon's president at the time, Andrea Jung, commented on the company's objective in a 1999 Fortune article, stating that the firm wanted to position Avon as a "world-class beauty brand" and that it needed to "change people's minds about Avon." Jung--who joined Avon in 1994--was named CEO in 1999, becoming the company's first female CEO.

Under her leadership, Avon began its brand turnaround and also focused on bolstering U.S. revenues, which accounted for nearly 30 percent of company sales in 2000. The company started to make sweeping changes to its advertising, manufacturing, packaging, and selling strategies. Adopting the tagline, "The Company for Women," Avon set out to increase market share, break into new selling channels, and prove that the faltering Avon Lady and her products could enter the new millennium with a fresh, innovative appeal.

During 2000, Avon increased its advertising budget to $90 million--nearly doubling what it spent in 1999--and also invested in revamping its Web site. It signed celebrity tennis stars Serena and Venus Williams to its "Let's Talk" ad campaign. The firm also spent heavily in research and development, increasing its budget in 2000 by 46 percent over the previous year, and pushed to reduce the time it took to launch new products on the market. During that year, the firm introduced Anew Retroactive, an age reversal cream. Avon Wellness, a line of nutritional, aroma therapy, fitness, and relaxation products, hit the market in 2001. The company also began its foray into store branding by teaming up with J.C. Penney to position its retail brand beComing in a department store setting. Jung also tapped Avon's newly elected president Susan Kropf to overhaul the company's manufacturing and distribution operations. Kropf cut the number of Avon suppliers from 300 to 75 and completely automated the ordering processing. Her efforts saved the company $400 million and reduced errors in shipments and customer orders.

While Jung--named chairman in 2001--pressed for further growth for 2002 and beyond, she faced several challenges. While company stock had increased by 70 percent since her election to CEO in 1999, it began to fall after the September 11th terrorists attacks on the U.S. Consumer spending slowed, and foreign markets such as Argentina faltered due to economic crises. During 2001, the company posted revenues of $5.9 billion, a small 4.9 percent increase over the previous year. Jung, while optimistic, prepared for the challenging future. "The next couple of years are going to be no walk in the park," she commented in an October 2001 Fortune article. "This turnaround is far from complete. I'm probably thinking that we need to be even bolder and faster."

Principal Subsidiaries: Cosmeticos Avon S.A.C.I. (Argentina); Avon Cosmetics Australia Proprietary Limited (Australia); Avon Products Pty. Limited (Australia); Avon Cosmetics Vertriebsgesellschaft m.b.h. (Austria); Arlington Limited (Bermuda); Stratford Insurance Co., Ltd. (Bermuda); Avon Holdings, Ltd. (Bermuda); Productos Avon Bolivia Ltda. (Bolivia); Avon Cosmeticos, Ltda. (Brazil); Avon Industrial Ltda. (Brazil); Avon Canada, Inc. (Canada); Avon Fashions, Inc. (Canada); Avon Mode Inc. (Canada); Cosmeticos Avon S.A. (Chile); Avon Products (Guangzhau) Ltd. (China) (73.85%); Avon Products (China) Co. Ltd. (73.85%); Avon Cosmetics, Spolecnosti S. Rucenlm Omezenym (Czech Republic); Avon Capital Corp.; Avon International Operations, Inc.; Avon-Lomalinda, Inc.; Productos Avon S.A. (Dominican Republic); Productos Avon Ecuador S.A. (Ecuador); Productos Avon, S.A. (El Salvador); Avon S.A. (France); Avon Cosmetics GmbH (Germany); Productos Avon de Guatemala, S.A. (Guatemala); Productos Avon, S.A. (Honduras); Avon Cosmetics (FEBO) Limited (Hong Kong); Avon Cosmetics Hungary KFT (Hungary); Avon Service Center, Inc.; Avon Beauty Productos India Private Limited (India); P.T. Avon Indonesia (Indonesia; 92%); Albee Dublin Finance Company (Ireland); Avon Limited (Ireland); Avon Cosmetics S.p.A. (Italy); Avon Products Company Limited (Japan; 66%); Live & Life Company Limited (Japan; 68%); Avon Cosmetics SIA (Latvia); UAB Avon Cosmetics (Lithuania); Avon Cosmetics (Malaysia) Sendirian Berhad (Malaysia; 70%); Avon Cosmetics, S.A. de C.V. (Mexico); Avonova, S.A. de C.V. (Mexico) (49%); M.I. Holdings Inc.; Avon Americas, Ltd.; Avon Overseas Capital Corp.; Avon Cosmetics Limited (New Zealand); Productos Avon de Nicaragua, S.A. (Nicaragua); Avon Cosmetics A/S (Norway); Productos Avon S.A. (Peru); Productos Avon S.A. (Panama); Avon Cosmetics, Inc. (Philippines); Avon Products Mfg., Inc. (Philippines); Beautifont Products, Inc. (Phillipines); Avon Cosmetics Polska Sp. z o.o (Poland); Avon Cosmeticos, Lda. (Portugal); Avon Cosmetics Spal s r.o (Slovak Republic); Avon Beauty Products Company (Russia); Justine/Avon (Pty) Ltd. (South Africa); Avon Cosmetics, S.A. (Spain; 75%); Avon Cosmetics (Taiwan) Ltd. (Taiwan); Avon Products Limited (Taiwan); Avon Cosmetics (Thailand) Ltd. (Thailand); California Manufacturing Co. Ltd. (Thailand); Eczacibasi Avon Kosmetik Urunleri Sanayi ve Ticaret A.S. (Turkey) (50%); Avon Cosmetics (Ukraine); Avon Cosmetics Limited (United Kingdom); Avon European Holdings Ltd. (U.K.); Cosmeticos Avon De Uruguay S.A.; Avon Cosmetics de Venezuela, C.A.

Principal Competitors: L'Oreal SA; Mary Kay Inc.; Revlon Inc.

Chronology

• Key Dates:
• 1886: David H. McConnell establishes the California Perfume Company.
• 1897: A new laboratory is built in Suffern, New York, and the company's first illustrated catalog is produced.
• 1914: The company opens an office in Montreal, Canada.
• 1920: The Avon Products line is launched.
• 1939: The company is renamed Avon Products Inc.
• 1957: Avon enters the European market and forms subsidiary Avon Cosmetics Ltd. in the United Kingdom.
• 1964: The company goes public.
• 1995: Justin Pty Ltd. is acquired; sales reach $4.5 billion.
• 1999: Andrea Jung becomes the first female CEO of Avon.
• 2001: Retail brand beComing is launched in J.C. Penney retail outlets.