This turnaround plan for Avon was announced in November of 2005 and is focused on creating efficiencies in the operation, thereby cutting costs. They're also focusing on the "career opportunity" for representatives and they're trying to make it more attractive.
Avon is one of the oldest multi-level marketing (MLM) companies around. It was established in 1886, a time when door-to-door sales were a common way of purchasing items that were needed. Over time, the business model has evolved to more of home party model and one-on-one selling that doesn't necessarily involve knocking on stranger's doors.
But one often overlooked problem with companies like Avon is the fact that they live and die by how many new representatives they can recruit. While MLM companies like to focus the public's attention on selling products, the reality is that it is through the recruitment of new representatives that these companies grow. Avon's number of representatives in North America has been shrinking, so like other MLMs, the company is relying upon recruitment growth overseas.
Representative turnover is high, however, in large part due to the fact that the representatives don't make much money from selling products. There isn't much profit in the products to start with, and when you factor in the cost of catalogs, samples, supplies, shipping, and travel, the profit margins are very thin for the distributors. They can make more money if they recruit others in to the program, but again, there is often much effort and very little return for the majority of representatives.
So was the real problem with Avon the cost structure? Or is it more likely a problem with the continuous recruiting of representatives? My hope is that this outdated method of doing business is something that more and more women are avoiding. While companies like Avon and Mary Kay tout their "opportunities" as ones that allow women to be home with their children while they make an income, the fact remains that there's little income to be made by the representatives and the bulk of that must be made outside of the home (defeating the whole purpose of being a "work at home" mom).
With over 99% of distributors losing money in the MLM schemes, it's no wonder that recruiting new representatives may be harder and harder. Avon's cost-cutting will help for a while. But with their heavy reliance on constant recruiting of new representatives, long-term success with the current business model is questionable.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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Reader Comments (Page 1 of 1)
1-10-2008 @ 7:21AM
lynda said...
everyone seems to be losing jobs these days. let's all go to france
3-30-2008 @ 12:36AM
David Usher said...
Avon's heavy involvement in radical feminist policy will hurt their sales in the future. Their major campaign lobbying VAWA using both corporate and philantropic funds, which is attracting even more attention because they hired Reese Witherspoon, will be a net negative. Lots of women know VAWA is wrong, and they won't go anywhere near any company touting it.
See my story at http://mensnewsdaily.com/2008/03/27/reese-witherspoon-most-dangerous-avon-sales-rep/http://mensnewsdaily.com/2008/03/27/reese-witherspoon-most-dangerous-avon-sales-rep/ for more information.