Avon Products Inc.

- 2009
Case Notes Prepared by: Dr. Mernoush Banton Case Authors: Roche e R. Brunson and Mar ene M. Reed

A.

Case Abstract

Avon Products Inc. !""".avonco#pany.co#$ %s a co#prehens%ve strate&%c #ana&e#ent case that %nc udes the co#pany's ca endar Dece#ber ()* 200+ ,%nanc%a state#ents* co#pet%tor %n,or#at%on and #ore. -he case t%#e sett%n& %s the year 2009. .u,,%c%ent %nterna and e/terna data are prov%ded to enab e students to eva uate current strate&%es and reco##end a three-year strate&%c p an ,or the co#pany. 0ead1uartered %n Ne" 2or3* Ne" 2or3* Avon Products Inc. %s traded on the Ne" 2or3 .toc3 4/chan&e under t%c3er sy#bo A5P.

B.

Vision Statement !Actua $

-o be the co#pany that best understands and sat%s,%es the product* serv%ce and se ,-,u ,% #ent needs o, "o#en-& oba y. Vision Statement !Proposed$ -o be the ,%rst cho%ce to our custo#ers "ho "ant u t%#ate beauty* hea th and se , con,%dence.

C.

Mission Statement !Actua $ The Global Beauty Leader6e "% bu% d a un%1ue port,o %o o, Beauty and re ated brands* str%v%n& to surpass our co#pet%tors %n 1ua %ty* %nnovat%on and va ue* and e evat%n& our %#a&e to beco#e the Beauty co#pany #ost "o#en turn to "or d"%de. !)* 2$ The Womens Choice for Buyin 6e "% beco#e the dest%nat%on store ,or "o#en* o,,er%n& the conven%ence o, #u t%p e brands and channe s* and prov%d%n& a persona h%&h touch shopp%n& e/per%ence that he ps create %,e on& custo#er re at%onsh%ps. The !remier "irect Seller 6e "% e/pand our presence %n d%rect se %n& and ead the re%nvent%on o, the channe * o,,er%n& an entrepreneur%a opportun%ty that de %vers super%or earn%n&s* reco&n%t%on* serv%ce and support* #a3%n& %t easy and re"ard%n& to be a,,% %ated "%th Avon and e evat%n& the %#a&e o, our %ndustry. !($ The Best !lace to Wor#6e "% be 3no"n ,or our eadersh%p ed&e* throu&h our pass%on ,or h%&h standards* our respect ,or d%vers%ty and our co##%t#ent to create e/cept%ona opportun%t%es ,or pro,ess%ona &ro"th so that assoc%ates can ,u ,% the%r h%&hest potent%a . !9$
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The Lar est Womens $oundation6e "% be a co##%tted & oba cha#p%on ,or the hea th and "e -be%n& o, "o#en throu&h ph% anthrop%c e,,orts that e %#%nate breast cancer ,ro# the ,ace o, the earth* and that e#po"er "o#en to ach%eve econo#%c %ndependence. The Most Admired Com%any6e "% de %ver super%or returns to our shareho ders by t%re ess y pursu%n& ne" &ro"th opportun%t%es "h% e cont%nua y %#prov%n& our pro,%tab% %ty* a soc%a y respons%b e* eth%ca co#pany that %s "atched and e#u ated as a #ode o, success. !8* 9$ -he ,%ve va ues o, Avon are: -rust* respect* be %e,* hu#% %ty* and %nte&r%ty. !:* +$ Mission Statement !Proposed ; to be added$ The Most Technolo ically Ad&anced eCommerce6e o,,er a "%de se ect%on o, products throu&h ded%cated and 3no" ed&eab e %nter#ed%ar%es and throu&h a secure* %nnovat%ve and user ,r%end y "eb s%te. !<$ Custo#er Products or serv%ces Mar3ets -echno o&y Concern ,or surv%va * pro,%tab% %ty* &ro"th Ph% osophy .e ,-concept Concern ,or pub %c %#a&e Concern ,or e#p oyees

). 2. (. <. 8. :. 9. +. 9.

".

'(ternal Audit

C!M ) Com%etiti&e !rofile Matri(

A&on
Critical Success $actors Wei h t *atin Wei hte d Score

*e&lon
*atin Wei hte d Score

Mary +ay
*atin Wei hted Score

Pr%ce co#pet%t%veness = oba 4/pans%on >r&an%?at%ona .tructure 4#p oyee Mora e -echno o&y Product .a,ety Custo#er @oya ty Mar3et .hare Advert%s%n& Product Aua %ty

0.)0 0.09 0.0< 0.09 0.)0 0.)0 0.)0 0.09 0.)0 0.)0

( ( 2 2 < < 2 2 2 2

0.(0 0.29 0.0+ 0.)< 0.<0 0.<0 0.20 0.)< 0.20 0.20

< < < < 2 ( < < < (

0.<0 0.(: 0.): 0.2+ 0.20 0.(0 0.<0 0.2+ 0.<0 0.(0

2 2 ( ) ( 2 ( ( ) )

0.20 0.)+ 0.)2 0.09 0.(0 0.20 0.(0 0.2) 0.)0 0.)0

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Product I#a&e B%nanc%a Pos%t%on Total

0.08 0.0+ ,.--

( <

0.)8 0.(2 ../-

< (

0.20 0.2< 0.1.

2 2

0.)0 0.): ..-2

3%%ortunities ). -he cos#et%cs %ndustry tend to be countercyc %ca 2. De#and ,or such products nor#a y re#a%ns constant and una,,ected by econo#%c d%stress (. -he co#pound annua &ro"th rate ,or eye #a3eup "% be ).() percent co#pared to -0.2: percent ,or overa co or cos#et%cs ,or the per%od 2009 to 2))( <. A &ro"%n& trend %n the cos#et%cs %ndustry %s the %ntroduct%on o, C&reenD products 8. Aveda Cos#et%cs ,ound that :+ percent o, consu#ers "% re#a%n oya to a co#pany that has a soc%a and env%ron#enta co##%t#ent :. Many consu#ers are no" Cvot%n& "%th do arsD ,or or&an%c products and support%n& brands that support va ues s%#% ar to the%r o"n 9. -he baby boo#ers are a&%n& and they are #ore consc%ous on ho" they oo3 and %#prov%n& the%r oo3s Threats ). In ter#s o, co or cos#et%cs* 4uro#on%tor Internat%ona * Inc. pred%cts that #any o, these #ar3ets "% see a s o"do"n %n vo u#e de#and 2. -he & oba econo#%c c %#ate "% st%, e ne" product deve op#ent* %nnovat%on* and susta%nab% %ty pro&ra#s %n 2009 (. An econo#%c s o"do"n usua y curbs co#pan%es ,ro# %nvest%n& %n research and deve op#ent* and %t %s that research that has brou&ht ,orth a "ea th o, &reen cos#et%cs <. A#arE%t .ahota o, Organic Monitor ,orecasts that consu#ers are un %3e y to &%ve up the%r co##%t#ents to or&an%c products Eust to save a ,e" penn%es 8. -he %ndustry %s h%&h y co#pet%t%ve a#on& "e 3no"n brand and spec%a s o,,er throu&h depart#ent stores '(ternal $actor '&aluation 4'$'5 Matri( +ey '(ternal $actors 3%%ortunities ). -he cos#et%cs %ndustry tend to be countercyc %ca Wei ht *atin Wei hted Score 0.<

0.)

<

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2. De#and ,or such products nor#a y re#a%ns constant and una,,ected by econo#%c d%stress (. -he co#pound annua &ro"th rate ,or eye #a3eup "% be ).() percent co#pared to -0.2: percent ,or overa co or cos#et%cs ,or the per%od 2009 to 2))( <. A &ro"%n& trend %n the cos#et%cs %ndustry %s the %ntroduct%on o, F&reenF products 8. Aveda Cos#et%cs ,ound that :+ percent o, consu#ers "% re#a%n oya to a co#pany that has a soc%a and env%ron#enta co##%t#ent :. Many consu#ers are no" Fvot%n& "%th do arsF ,or or&an%c products and support%n& brands that support va ues s%#% ar to the%r o"n 9. -he baby boo#ers are a&%n& and they are #ore consc%ous on ho" they oo3 and %#prov%n& the%r oo3s Threats ). In ter#s o, co or cos#et%cs* 4uro#on%tor Internat%ona * Inc. pred%cts that #any o, these #ar3ets "% see a s o"do"n %n vo u#e de#and 2. -he & oba econo#%c c %#ate "% st%, e ne" product deve op#ent* %nnovat%on* and susta%nab% %ty pro&ra#s %n 2009 (. An econo#%c s o"do"n usua y curbs co#pan%es ,ro# %nvest%n& %n research and deve op#ent* and %t %s that research that has brou&ht ,orth a "ea th o, &reen cos#et%cs <. A#arE%t .ahota o, >r&an%c Mon%tor ,orecasts that consu#ers are un %3e y to &%ve up the%r co##%t#ents to or&an%c products Eust to save a ,e" penn%es 8. -he %ndustry %s h%&h y co#pet%t%ve a#on& "e 3no"n brand and spec%a s o,,er throu&h depart#ent stores Total

0.) 0.09

< (

0.< 0.29

0.0+ 0.09

< (

0.(2 0.2)

0.09

<

0.(:

0.0+

<

0.(2

0.)

0.2

0.09 0.0:

2 (

0.)+ 0.)+

0.09

0.)<

0.09 ,.--

0.)< 0.,.

!ositionin Ma%

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Pr%ce !0%&h$

Rev on Mary Hay Avon

Aua %ty !@o"$

Aua %ty !0%&h$

Pr%ce !@o"$

'.

6nternal Audit
Stren ths ). -he co#pany %s the "or d's ar&est d%rect se er "%th 8.< #% %on Avon representat%ves %n over )00 countr%es 2. -here are #%n%#a startup costs ,or an Avon bus%ness representat%ve (. -he brand has been ,ound to have 90 percent reco&n%t%on "or d"%de and %s %sted as one o, the "or d's top & oba brands <. In 2009* the co#pany %ncreased %ts %nvest#ent %n representat%ves by over G)20 #% %on ; ,or %n%t%at%ves %nc ud%n& the ro out o, a ne" sa es eadersh%p opportun%ty* %#proved tra%n%n&* and chan&es %n the co##%ss%on structure 8. -he co#pany ,unded ne" 6eb-based and #ob% e techno o&y too s :. -he Beauty d%v%s%on had a 9.: percent %ncrease %n revenues 9. @at%n A#er%ca contr%butes #ore revenue and pro,%t ,or Avon than any other area +. Avon announced a ce ebr%ty dea "%th Courteney Co/ to be the ,ace o, the brand's ne" "o#en's ,ra&rance* .pot %&ht* "h%ch "as set to aunch %n Apr% 2009 9. Many ocat%ons o, the co#pany %s I.>)<00) cert%,%ed Wea#nesses
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). Avon's bus%ness #ode prov%des ,or the co#pany to se products to %ts representat%ves on cred%tI so that ,or the #ost part* the representat%ves do not pay the co#pany unt% they &et pa%d by the%r custo#ers. -h%s re1u%res out ay o, %nventory t% the %nventory %s so d 2. Avon's 0o#e se&#ent had a (.2 percent dec %ne %n revenues %n 200+ (. -he co#pany's ad spend%n& "ent ,ro# G)(: #% %on %n 2008 to G2<9 #% %on %n 200: and G(:+ #% %on %n 2009. Avon's ad bud&et ,or 200+ "as )< percent h%&her than the year be,ore <. Avon reported ,%rst 1uarter 2009 tota revenue o, G2.2 b% %on "h%ch "as )( percent o"er than that o, 200+'s ,%rst 1uarter 8. Beauty sa es %n the ,%rst 1uarter 2009 "ere )2 percent o"er versus the pr%or year per%od :. Avon %s %#p e#ent%n& a 2009 restructur%n& pro&ra# that %nc udes c osure o, t"o #anu,actur%n& ,ac% %t%es $inancial *atio Analysis !Dece#ber 2009$
Gro7th *ates 8 A&on 6ndustry S9! 1--

.a es !Atr vs year a&o 1tr$ Net Inco#e !2-D vs 2-D$ Net Inco#e !Atr vs year a&o 1tr$ .a es !8-2ear Annua Av&.$ Net Inco#e !8-2ear Annua Av&.$ D%v%dends !8-2ear Annua Av&.$
!rice *atios

-(.80 -<<.90 -29.90 9.(( 8.:: )(.98

A&on

-(.00 9.+0 )0.<0 +.(< 9.0: )).:2

6ndustry

-<.+0 -:.00 2:.+0 )2.99 )2.:9 )).+(

S9! 1--

Current PJ4 Rat%o PJ4 Rat%o 8-2ear 0%&h PJ4 Rat%o 8-2ear @o" Pr%ceJ.a es Rat%o Pr%ceJBoo3 5a ue Pr%ceJCash B o" Rat%o
!rofit Mar ins 8

2(.0 NA NA ).(< )2.99 )+.(0

A&on

)9.9 0.: 0.) 2.)< 8.22 )(.80

6ndustry

2:.9 ):.: 2.: 2.28 (.<+ )(.90

S9! 1--

=ross Mar&%n Pre--a/ Mar&%n Net Pro,%t Mar&%n 82r =ross Mar&%n !8-2ear Av&.$ 82r Pre-a/ Mar&%n !8-2ear Av&.$ 82r Net Pro,%t Mar&%n !8-2ear Av&.$

:2.) +.9 8.9 :).( )).) 9.9

80.+ )9.< )2.: 82.< ):.9 )).+

(+.9 )0.( 9.) (+.: ):.: )).8

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$inancial Condition

A&on

6ndustry

S9! 1--

DebtJ41u%ty Rat%o Current Rat%o Au%c3 Rat%o Interest Covera&e @evera&e Rat%o Boo3 5a ueJ.hare
Adapted ,ro# """.#oneycentra .#sn.co#

2.:2 ).+ ).( )2.: :.< 2.<9

0.9+ ).2 0.+ ):.( 2.9 )9.29

).09 ).8 ).( 2(.9 (.< 2).:(

;et !rofit Mar in 485

A& !:'

!rice: Sales

!rice: Boo#

)2J0+ )2J09 )2J0: )2J08 )2J0< )2J0( )2J02 )2J0) )2J00 )2J0+

)9.80 ().00 2+.90 )9.:0 22.90 2).90 22.90 2<.00 )+.90 )9.80
"ebt: '<uity

0.99 ).9< ).:9 ).:< 2.(9 2.(+ 2.)( ).9) 2.0( 0.99
*eturn on '<uity 485

)8.)+ 2(.9: )+.<8 ):.2( )9.20 <2.99 -99.2< -)<:.88 -82.+< )8.)+
*eturn on Assets 485

+.2 8.( 8.< )0.< )0.9 9.9 +.: 9.< +.8 +.2
6nterest Co&era e

Boo# Value: Share

)2J0+ )2J09 )2J0: )2J08 )2J0< )2J0( )2J02 )2J0) )2J00 )2J0+

G).8+ G).:: G).99 G).9: G2.02 G.99 -G.29 -G.): -G.<8 G).8+

(.:9 2.98 2.2: 2.0+ 0.99 (.02 -)0.98 -)9.:< -8.:2 (.:9

)29.9 9<.: :0.< )0:.9 +9.0 )99.0 -<)+.: -892.< -228.) )29.9

)<.< 9.( 9.) )9.+ 20.< )+.: ):.) )<.0 )9.2 )<.<

)(.( 9.+ 9.: 2).2 (:.< ().( ):.: )0.9 9.( )(.(

Adapted ,ro# """.#oneycentra .#sn.co#

6nternal $actor '&aluation 46$'5 Matri(

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+ey 6nternal $actors Stren ths ). -he co#pany %s the "or dKs ar&est d%rect se er "%th 8.< #% %on Avon representat%ves %n over )00 countr%es 2. -here are #%n%#a startup costs ,or an Avon bus%ness representat%ve (. -he brand has been ,ound to have 90 percent reco&n%t%on "or d"%de and %s %sted as one o, the "or dKs top & oba brands <. In 2009* the co#pany %ncreased %ts %nvest#ent %n representat%ves by over G)20 #% %on - ,or %n%t%at%ves %nc ud%n& the ro out o, a ne" sa es eadersh%p opportun%ty* %#proved tra%n%n&* and chan&es %n the co##%ss%on structure 8. -he co#pany ,unded ne" 6eb-based and #ob% e techno o&y too s :. -he Beauty d%v%s%on had a 9.: percent %ncrease %n revenues 9. @at%n A#er%ca contr%butes #ore revenue and pro,%t ,or Avon than any other area +. Avon announced a ce ebr%ty dea "%th Courteney Co/ to be the ,ace o, the brandKs ne" "o#enKs ,ra&rance* .pot %&ht* "h%ch "as set to aunch %n Apr% 2009 9. Many ocat%ons o, the co#pany %s I.>)<00) cert%,%ed Wea#nesses ). AvonKs bus%ness #ode prov%des ,or the co#pany to se products to %ts representat%ves on cred%tI so that ,or the #ost part* the representat%ves do not pay the co#pany unt% they &et pa%d by the%r custo#ers. -h%s re1u%res out ay o, %nventory t% the %nventory %s so d 2. AvonKs 0o#e se&#ent had a (.2 percent dec %ne %n revenues %n 200+ (. -he co#panyKs ad spend%n& "ent ,ro# G)(: #% %on %n 2008 to G2<9 #% %on %n

Wei ht

*atin

Wei hted Score 0.(2 0.(: 0.2+

0.0+ 0.09 0.09

< < <

0.08

0.)8

0.09 0.09 0.0: 0.0:

< ( < (

0.(: 0.2) 0.2< 0.)+

0.08

0.)8

0.09

0.)<

0.0+ 0.0:

) 2

0.0+ 0.)2

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200: and G(:+ #% %on %n 2009. AvonKs ad bud&et ,or 200+ "as )< percent h%&her than the year be,ore <. Avon reported ,%rst 1uarter 2009 tota revenue o, G2.2 b% %on "h%ch "as )( percent o"er than that o, 200+Ks ,%rst 1uarter 8. Beauty sa es %n the ,%rst 1uarter 2009 "ere )2 percent o"er versus the pr%or year per%od :. Avon %s %#p e#ent%n& a 2009 restructur%n& pro&ra# that %nc udes c osure o, t"o #anu,actur%n& ,ac% %t%es Total

0.09

0.09

0.0< 0.0: ,.--

) 2

0.0< 0.)2 ../.

$.

SW3T Strate ies

Stren ths Wea#nesses

). -he co#pany %s the ). Avon's bus%ness #ode "or d's ar&est d%rect prov%des ,or the se er "%th 8.< #% %on co#pany to se Avon representat%ves %n products to %ts over )00 countr%es representat%ves on 2. -here are #%n%#a cred%tI so that ,or the startup costs ,or an #ost part* the Avon bus%ness representat%ves do not representat%ve pay the co#pany unt% (. -he brand has been they &et pa%d by the%r ,ound to have 90 custo#ers. -h%s percent reco&n%t%on re1u%res out ay o, "or d"%de and %s %sted %nventory t% the as one o, the "or d's top %nventory %s so d & oba brands 2. Avon's 0o#e se&#ent <. In 2009* the co#pany had a (.2 percent %ncreased %ts %nvest#ent dec %ne %n revenues %n %n representat%ves by 200+ over G)20 #% %on ; ,or (. -he co#pany's ad %n%t%at%ves %nc ud%n& the spend%n& "ent ,ro# ro out o, a ne" sa es G)(: #% %on %n 2008 to eadersh%p opportun%ty* G2<9 #% %on %n 200: and %#proved tra%n%n&* and G(:+ #% %on %n 2009. chan&es %n the Avon's ad bud&et ,or

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co##%ss%on structure 200+ "as )< percent 8. -he co#pany ,unded h%&her than the year ne" 6eb-based and be,ore #ob% e techno o&y too s <. Avon reported ,%rst :. -he Beauty d%v%s%on had 1uarter 2009 tota a 9.: percent %ncrease revenue o, G2.2 b% %on %n revenues "h%ch "as )( percent 9. @at%n A#er%ca o"er than that o, 200+'s contr%butes #ore ,%rst 1uarter revenue and pro,%t ,or 8. Beauty sa es %n the ,%rst Avon than any other 1uarter 2009 "ere )2 area percent o"er versus the +. Avon announced a pr%or year per%od ce ebr%ty dea "%th :. Avon %s %#p e#ent%n& a Courteney Co/ to be the 2009 restructur%n& ,ace o, the brand's ne" pro&ra# that %nc udes "o#en's ,ra&rance* c osure o, t"o .pot %&ht* "h%ch "as set #anu,actur%n& ,ac% %t%es to aunch %n Apr% 2009 9. Many ocat%ons o, the co#pany %s I.>)<00) cert%,%ed
3%%ortunities S=3 Strate ies W=3 Strate ies

). -he cos#et%cs %ndustry ). Pro#ote the bus%ness tend to be representat%ves throu&h countercyc %ca soc%a net"or3 channe s 2. De#and ,or such such as Baceboo3* products nor#a y -"%tter and others !.)* re#a%ns constant and .2* .(* .8* >)* >2* >($ una,,ected by econo#%c 2. I#prove RLD by d%stress %ntroduc%n& #ore (. -he co#pound annua C&reenD products !.(* &ro"th rate ,or eye >:* >9$ #a3eup "% be ).() percent co#pared to -0.2: percent ,or overa co or cos#et%cs ,or the per%od 2009 to 2))( <. A &ro"%n& trend %n the cos#et%cs %ndustry %s the %ntroduct%on o, C&reenD products 8. Aveda Cos#et%cs ,ound that :+ percent o, consu#ers "% re#a%n

). >,,er a deep d%scount to representat%ves that "ou d be "% %n& to pay ,or the%r %nventory %n advance %nstead o, cred%t !6)* 62* >)* >2$ 2. >,,er >n %ne coupons and d%scounts to oya custo#ers "hen reorder%n& the%r products on %ne !62* 6<* >)* >9$

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oya to a co#pany that has a soc%a and env%ron#enta co##%t#ent :. Many consu#ers are no" Cvot%n& "%th do arsD ,or or&an%c products and support%n& brands that support va ues s%#% ar to the%r o"n 9. -he baby boo#ers are a&%n& and they are #ore consc%ous on ho" they oo3 and %#prov%n& the%r oo3s
Threats S=T Strate ies W=T Strate ies

). In ter#s o, co or cos#et%cs* 4uro#on%tor Internat%ona * Inc. pred%cts that #any o, these #ar3ets "% see a s o"do"n %n vo u#e de#and 2. -he & oba econo#%c c %#ate "% st%, e ne" product deve op#ent* %nnovat%on* and susta%nab% %ty pro&ra#s %n 2009 (. An econo#%c s o"do"n usua y curbs co#pan%es ,ro# %nvest%n& %n research and deve op#ent* and %t %s that research that has brou&ht ,orth a "ea th o, &reen cos#et%cs <. A#arE%t .ahota o, Organic Monitor ,orecasts that consu#ers are un %3e y to &%ve up the%r co##%t#ents to or&an%c products Eust to save a ,e" penn%es

). I#prove #ar3et%n& strate&%es !product p ace#ent* b% boards* #a% -%n d%scounts J coupons* >n %ne coupons* etc.$ to e/%st%n& and ne" custo#ers !.)* .2* .(* -)* -8$

). Cont%nue d%scount%n& products that are not se %n& "e and then co#p ete y re#ove the# ,ro# the %ne !62* 6(* -8$ 2. I, necessary restructure #anu,actur%n& to p ants "%th %d e capac%ty and shut do"n add%t%ona ,ac% %t%es !6(* 6:* -2* -($

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8. -he %ndustry %s h%&h y co#pet%t%ve a#on& "e 3no"n brand and spec%a s o,,er throu&h depart#ent stores

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G.

S!AC' Matri( B.
Conser&ati&e
9 : 8 < ( 2 )

ressi&e

C.

I.
-9 -: -8 -< -( -2 -) -) -2 -( -< -8 -: ) 2 ( < 8 : 9

"efensi&e

-9

Com%etiti&e

4.

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*a%id Mar#et Gro7th Quadrant II Quadrant I

Wea# Com%etiti&e !osition

Stron Com%etiti&e !osition

Quadrant III

Slo7 Mar#et Gro7th

Quadrant IV

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6.

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+ey $actors 3%%ortunities ). -he cos#et%cs %ndustry tend to be countercyc %ca 2. De#and ,or such products nor#a y re#a%ns constant and una,,ected by econo#%c d%stress (. -he co#pound annua &ro"th rate ,or eye #a3eup "% be ).() percent co#pared to -0.2: percent ,or overa co or cos#et%cs ,or the per%od 2009 to 2))( <. A &ro"%n& trend %n the cos#et%cs %ndustry %s the %ntroduct%on o, F&reenF products 8. Aveda Cos#et%cs ,ound that :+ percent o, consu#ers "% re#a%n oya to a co#pany that has a soc%a and env%ron#enta co##%t#ent :. Many consu#ers are no" Fvot%n& "%th do arsF ,or or&an%c products and support%n& brands that support va ues s%#% ar to the%r o"n 9. -he baby boo#ers are a&%n& and they are #ore consc%ous on ho" they oo3 and %#prov%n& the%r oo3s Threats ). In ter#s o, co or cos#et%cs* 4uro#on%tor Internat%ona * Inc. pred%cts that #any o, these #ar3ets "% see a s o"do"n %n vo u#e de#and 2. -he & oba econo#%c c %#ate "% st%, e ne" product deve op#ent* %nnovat%on* and susta%nab% %ty pro&ra#s %n 2009 (. An econo#%c s o"do"n usua y curbs co#pan%es ,ro# %nvest%n& %n research and deve op#ent* and %t %s that research that has brou&ht ,orth a "ea th o, &reen cos#et%cs <. A#arE%t .ahota o, >r&an%c Mon%tor ,orecasts that consu#ers are un %3e y to &%ve up the%r co##%t#ents to or&an%c products Eust to save a ,e" penn%es 8. -he %ndustry %s h%&h y co#pet%t%ve a#on& "e 3no"n brand and spec%a s o,,er throu&h depart#ent stores T3TAL Stren ths ). -he co#pany %s the "or dKs ar&est d%rect

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se er "%th 8.< #% %on Avon representat%ves %n over )00 countr%es 2. -here are #%n%#a startup costs ,or an Avon bus%ness representat%ve (. -he brand has been ,ound to have 90 percent reco&n%t%on "or d"%de and %s %sted as one o, the "or dKs top & oba brands <. In 2009* the co#pany %ncreased %ts %nvest#ent %n representat%ves by over G)20 #% %on - ,or %n%t%at%ves %nc ud%n& the ro out o, a ne" sa es eadersh%p opportun%ty* %#proved tra%n%n&* and chan&es %n the co##%ss%on structure 8. -he co#pany ,unded ne" 6eb-based and #ob% e techno o&y too s :. -he Beauty d%v%s%on had a 9.: percent %ncrease %n revenues 9. @at%n A#er%ca contr%butes #ore revenue and pro,%t ,or Avon than any other area +. Avon announced a ce ebr%ty dea "%th Courteney Co/ to be the ,ace o, the brandKs ne" "o#enKs ,ra&rance* .pot %&ht* "h%ch "as set to aunch %n Apr% 2009 9. Many ocat%ons o, the co#pany %s I.>)<00) cert%,%ed Wea#nesses ). AvonKs bus%ness #ode prov%des ,or the co#pany to se products to %ts representat%ves on cred%tI so that ,or the #ost part* the representat%ves do not pay the co#pany unt% they &et pa%d by the%r custo#ers. -h%s re1u%res out ay o, %nventory t% the %nventory %s so d 2. AvonKs 0o#e se&#ent had a (.2 percent dec %ne %n revenues %n 200+ (. -he co#panyKs ad spend%n& "ent ,ro# G)(: #% %on %n 2008 to G2<9 #% %on %n 200: and G(:+ #% %on %n 2009. AvonKs ad bud&et ,or 200+ "as )< percent h%&her than the year be,ore <. Avon reported ,%rst 1uarter 2009 tota revenue o, G2.2 b% %on "h%ch "as )( percent o"er than that o, 200+Ks ,%rst 1uarter 8. Beauty sa es %n the ,%rst 1uarter 2009 "ere )2 percent o"er versus the pr%or year per%od :. Avon %s %#p e#ent%n& a 2009 restructur%n& pro&ra# that %nc udes c osure o, t"o #anu,actur%n& ,ac% %t%es

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*ecommendations

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L.

'!S:'B6T Analysis
G A#ount Needed: G80 #% %on .toc3 Pr%ce: G().90 -a/ Rate: 29.(Q Interest Rate: 8.08Q R .hares >utstand%n&: <29.) M% %on
Common Stoc# $inancin Recession Normal Boom G980*000*000 G)*800*000*000 G2*000*000*000 0 0 0 980*000*000 )*800*000*000 2*000*000*000 2)9*980*000 <(9*800*000 8+:*000*000 8(0*280*000 )*0:0*800*000 )*<)<*000*000 <2+*::9*(9+ <2+*::9*(9+ <2+*::9*(9+ ,..2 ..2D 0.0Recession G980*000*000 2*980*000 9<9*280*000 2)+*9<<*280 82+*(08*980 <29*)00*000 ,..2 D- !ercent "ebt = 0!ercent Stoc# Recession G980*000*000 880*000 9<9*<80*000 2)9*8++*+80 829*+:)*)80 <29*890*2)9 ,..2 "ebt $inancin Normal G)*800*000*000 2*980*000 )*<99*280*000 <(+*:9<*280 )*08+*888*980 <29*)00*000 ..2/ Boom G2*000*000*000 2*980*000 )*999*280*000 8+8*)9<*280 )*<)2*088*980 <29*)00*000 0.0,

4BIInterest 4B-a/es 4AR .hares 4P.

4BIInterest 4B-a/es 4AR .hares 4P.

D- !ercent Stoc# = 0!ercent "ebt Recession G980*000*000 2*200*000 9<9*+00*000 2)9*)08*<00 82+*:9<*:00 <2+*)99*)99 ,..0

Normal G)*800*000*000 2*200*000 )*<99*+00*000 <(+*+88*<00 )*08+*9<<*:00 <2+*)99*)99 ..2D

Boom G2*000*000*000 2*200*000 )*999*+00*000 8+8*(88*<00 )*<)2*<<<*:00 <2+*)99*)99 0.0-

Normal G)*800*000*000 880*000 )*<99*<80*000 <(9*((+*+80 )*0:0*)))*)80 <29*890*2)9 ..2/

Boom G2*000*000*000 880*000 )*999*<80*000 8+8*+(+*+80 )*<)(*:))*)80 <29*890*2)9 0.0,

M.

'%ilo ue

>n May 8* 2009* Avon Products* Inc. reported ,%rst-1uarter 2009 tota revenue o, G2.2 b% %on "h%ch "as )( percent o"er than that o, 200+'s ,%rst 1uarter. 0o"ever* th%s "as up ( percent on a oca currency bas%s as ,ore%&n e/chan&e pressured &ro"th by ): percenta&e po%nts. Beauty sa es %n the ,%rst 1uarter 2009

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"ere )2 percent o"er versus the pr%or year per%od but %ncreased 8 percent on a oca currency bas%s. Beauty un%ts %ncreased 2 percent* and n%ts overa "ere , at "%th the pr%or year 1uarter. Act%ve Representat%ves !sa es assoc%ates$ &re" 9 percent. B%rst 1uarter &ross #ar&%n o, :2.+ percent "as (0 bas%s po%nts be o" that o, the pr%or year 1uarter as pr%ce %ncreases* #anu,actur%n& product%v%ty &a%ns and bene,%ts ,ro# the co#pany's .trate&%c .ourc%n& %n%t%at%ve !..I$ he ped to #%t%&ate over 2 percenta&e po%nts o, un,avorab e transact%on e/chan&e %#pact. .e %n&* &enera and ad#%n%strat%ve e/pense rose as a percent o, revenue (90 bas%s po%nts versus 200+'s ,%rst 1uarter. .trate&%c spend%n& %ncreased as a percent o, revenue %n the ,%rst 1uarter as the co#pany ,ocused spend%n& ear y %n the year %n an e,,ort to bene,%t sooner ,ro# ne" Representat%ves. Desp%te the ,%rst 1uarter eve o, %nvest#ent* the co#pany st% e/pects ,u year co#b%ned strate&%c %nvest#ents %n advert%s%n& and %ts Representat%ve 5a ue Propos%t%on !R5P$ to re#a%n constant as a percent o, revenue. Advert%s%n& e/pense tota G9+ #% %on %n the ,%rst 1uarter* "%th a sh%,t to"ard Representat%ve recru%t#ent advert%s%n& ,ro# product advert%s%n&. Avon a so %nvested G)) #% %on %ncre#enta y %n the 1uarter ,or %n%t%at%ves to %#prove R5P. -he 2009 1uarter a so %nc uded %nvest#ent %n add%t%ona sa es brochures and , yers to h%&h %&ht the co#pany's s#art va ue product ran&e. >n May 9* 2009* Avon dec ared a re&u ar 1uarter y d%v%dend on %ts co##on stoc3 o, G.2) per share* payab e Sune )* 2009* to shareho ders o, record May 2)* 2009. Andrea Sun&* Cha%r#an and C4>* re#ar3ed* C6e p an to evera&e the %nherent advanta&es o, our d%rect se %n& bus%ness #ode dur%n& th%s t%#e o, uncerta%nty. 6e are o,,er%n& consu#ers an %ncreased assort#ent o, Ts#art va ue' productsU&reat 1ua %ty products at a,,ordab e pr%ce po%ntsU"h%ch contr%buted to Beauty un%t &ro"th o, 2 percent %n the 1uarter. 6e are a so a&&ress%ve y pro#ot%n& our Representat%ve earn%n&s opportun%ty to a "%der aud%ence. -he ear y stren&th o, th%s ne" recru%t%n& e,,ort re, ects the &ro"%n& re evance o, the Avon earn%n&s opportun%ty.D Sun& conc uded re&ard%n& the current econo#%c cr%s%s* CDesp%te the current cha en&es o, ,ore%&n e/chan&e and the & oba econo#%c recess%on* "e see th%s as a #o#ent o, opportun%ty. 6e %ntend to evera&e our un%1ue brand and d%rect-se %n& channe advanta&es %n order to &a%n #ar3et share. Coup ed "%th our #u t%-year turnaround strate&y* "e "% use th%s #o#ent to e#er&e a stron&er and #ore co#pet%t%ve co#pany %n the ,uture.D

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