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Andrea Jung – Avon Products, Inc. (AVP)

Company Overview
Avon is one of the United States’ oldest companies. Originally founded as the California Perfume Company in 1886, Avon has always been about marketing. On October 6, 1939, the wildly successful California Perfume,by then with over $4M in sales and more than 25,000 representatives, changed its name to Avon Products, Inc. People believe that the company was re-christened “Avon” for the whimsical reason that Suffern on the Ramapo, the New York State town in which the founder of the company lived, reminded him of Shakespeare’s Stratford-on-Avon1

Avon today calls itself “The Company for Women” and is one of the leading companies in the personal products industry. A global company with over $10 billion in annual revenue, it is the world’s largest direct marketer with 5.4M independent sales representatives. Currently, its product line includes not only beauty items but also jewelry and apparel. In addition, Avon has moved to the cyber-world, allowing customers to purchase its products via the Internet at

Finally, it is hard to miss Avon’s commitment to social responsibility. The corporate website,, prominently features a “Hello Tomorrow” logo and descriptive section that invites visitors to click and find out more. “Hello Tomorrow” is a program that not only enhances the sales representative’s ability to sell via the web, but also funds programs to enhance the empowerment of women and children worldwide. A cynic may say it is gimmicky, but it is consistent with Avon values. Avon’s values, conceived in 1886, as stated are to “meet fully the obligations of corporate citizenship by contributing to the well-being of society, and the environment in which it functions.”

Andrea Jung
Since the company’s values match her value system and passions very closely, Chariman/CEO Andrea Jung is a perfect match as the leader of Avon. In an early speech to sales representatives in Las Vegas when she first took on her role at age 41, she described to her audience what she called her proudest moment. Jung, a child of Chinese immigrant parents, traveled to China for the first time the prior year to meet and speak to women working in a Chinese factory. It made an impact on her. ”We will change the future of women around the world!” she exclaimed to the Vegas crowd2.

Her first action as CEO was to adopt a new vision for Avon. Jung challenged Avon to become “The Company for Women,” an organization that enables its sales reps to achieve economic self-sufficiency. Her goal was to re-make Avon into an organization that would work for the modern woman. To do so, Andrea had to address several legacy issues, and one of which, ironically, was at the core of Avon: its direct sales force. For a customer to buy anything, she was required to locate an Avon representative; this is inconvenient for the modern, Internet-savvy working woman. This distribution method worked well when women were not generally in the workforce, but it was no longer a model that worked well in today’s world.

Andrea knew she needed to provide customers additional purchasing options while not alienating the traditional sales representatives. In a brilliant move, she developed, which allows purchases with or without a sales representative’s assistance. In addition, Avon developed trial kiosks for shopping malls, and allowed representatives to franchise them. Finally, Avon created a separate line of products to be sold through mass retailers such as Wal-Mart3 .

As her changes took hold, and Avon generated steady sales growth, Jung decided to expand Avon’s product lines. She hoped to attract a younger female consumer while not alienating her core middle-aged buyer. Her first product line expansion into nutritional supplements and vitamins was very successful. Next, Jung launched the equally successful “mark™” brand of cosmetics. It is positioned as the brand celebrating young women making their mark in the world.

Ms. Jung also expanded globally. Avon opened franchised stores in China as direct selling in that country was banned. Later Avon moved into Russia using direct selling, and the Russian market quickly became one of Avon’s fastest growing markets.

In 2004, Avon had trouble providing earnings guidance. It raised and lowered earnings estimates through the year hurting its credibility with Wall Street analysts. By the end of the year, earnings were up due to the impact of foreign sales, but sales in the U.S. had been poor. In August 2005, Avon announced that profits were off by 54% due to “a revamping program.” Another unfortunate factor affecting the stock price at this time was pending legislation that would adversely impact multi-level marketing companies. Stock short-sellers affected the market price significantly, and by October, the stock price had crashed by 40%. It looked as if the golden girl had her run, and her time was up. When this sort of thing happens, most Chairmen/CEOs are quietly asked to leave.

Instead, Andrea re-thought what she had done, gathered her advisors, and re-invented Avon again. She took the advice of a fellow CEO: “Pretend you were fired and brought back in new.”4 So, she eliminated eight levels of management and cut costs by $300 million. She also suspended guidance to security analysts about Avon’s projected earnings. Avon is again generating steady growth, and its stock price is approaching the highs of 2005.

Her rise to leadership was much like the popular Disney attraction “Test Track.” Imagine if you will, a sports car — you get in. You know it has power. It starts slowly, a few quick turns without much braking, ok, Bo-ring. But then, there’s a final breakaway. You careen from zero to 60 mph in no time flat. Your body is suddenly pressed to the back of the car seat, cheeks rippling. At first you laugh, and then you think, “I don’t like this.” Then it is fun again, and as suddenly as it started, it stops dead. You are surprised, shocked and flushed. You laugh again. You got there okay! You get out of the car, a little unsteady, but find that you can walk fine, and then you move to the next attraction.

That is exactly what Andrea Jung did. Jung received a BA in English literature from Princeton University in 1979 in 3 years, not the usual 4. After graduation, Jung joined the management trainee program at Bloomingdale’s but was a bit bored. She later joined I. Magnin, in San Francisco, becoming senior vice president and general merchandise manager, and then Neiman Marcus, in Dallas, as executive vice president. In 1993 Jung became a consultant for Avon, 1994 A year later she became president of the product marketing group for the United States. In 1999 Jung became president and CEO and was elected chairman in 2001 at the age of 41. Talk about fast track!5

But that success came with a price. Jung is separated from her second husband and naturally had to give up a private life. Jung says she is driven by a passion to make a difference. Through Avon, she seems to have found an avenue for it. “There is purpose in my work: enabling women to be self-empowered, to learn to run their own businesses and achieve the economic means to provide education.” At the end of the day, she says, that trumps all things6.

Current Season
Avon’s 2008 second quarter was double that of last year, largely due to sales in Latin America and Eastern Europe. While Avon profit was affected by increased oil prices and the economic slowdown in the US, its quarterly profit still hit $0.55 cents a share compared to last year’s $0.26 cents a share.

In addition, Avon is beginning to derive some momentum from the restructuring and downsizing begun in 2005, enjoying a lower cost structure. The company is attempting to hold down costs while spending more to attract good sales representatives.

Recent News
In recent news, Avon declared a regular $.20 cent per share quarterly dividend. Also, because Avon’s earnings were above expected for the second quarter, the results drove the stock price higher than some analysts expected it to be at this time. This resulted in a number of analysts downgrading the stock to a “hold” from a “buy,” since they felt it had reached its target value. This is arguable, since Avonplans to grow. An investor can only wait and see.

Interested in the Stock?
Since Jung took control in 2001, she’s had a vision. Avon’s stock price has moved from $12.41 on Sept. 1 1999 to a high of $46.14 on June 1, 2004. This was largely due to moves by Jung to re-structure the company and improve the brand image. However, market conditions and some restructuring costs as well as an inability to accurately forecast earnings led to lower and lower stock prices lower throughout 2004 and 2005 to a low of $27.00 on Sept 1, 2005. Since 2005, when Jung realized she needed to “reform” the company again, by eliminating management, stopping analyst earnings guidance, and restructuring the company, the stock price has climbed backed steadily to a tight 52-week range of $31.95 to $45.34, and is currently trading around $43.00. Avon is now able to accurately predict earnings and speak to analysts again. Analysts rate the stock this way: 7 believe it is a “Buy”, 4 believe it is a “Strong Buy” and 2 believe that if you have the stock you should just “Hold” it.

Avon has generated steady growth since hitting its low point in Oct 2005, when the stock price tumbled because of costs of a restructuring program, and some legislative factors beyond Avon’s control. Clearly, Jung is adept at dealing with market conditions, and customer wants and needs. Her suspension of earnings guidance for 2 years was a smart move, because she needed to solidify the business and ensure that her team knew how to forecast earnings correctly. Avon is definitely a company to watch!

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