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Should you join Avon? A review of the largest cosmetic direct selling company

Cosmetics firm Avon Products is the largest direct seller of cosmetics in the world. Famous for its cosmetics, the company now also features a Fashion & Home division. Their business is conducted primarily through direct selling, and is thus not considered a multi-channel business.

It’s no secret, women love the company. Their products continue to dominate the industry and the company isn’t slowing down. So why have I held out on this opportunity?

Enter my buddy Brad:

(10 minutes, mute distractions)

Watched the video all the way? Good.

Dan and Brad schedule 45 minutes for each call, so only schedule if you’re serious:






Overview

Avon Products has been around for longer than most people think the cosmetics industry has even existed. This year marks their 130th year in business and oh what a long and exciting road it’s been.

From their roots as the California Perfume Company in 1886 to the meteoric rise and prosperity under founder David H.McConnell and what Avon Products has become today, one thing has always stood true for this company: it’s all about women.

Indeed, their motto is “The Company for Women”.That’s not to say, however, that there aren’t any men involved.There are even some male distributors of Avon products.

They donate heavily to women’s causes, most notably breast cancer research.The Avon Foundation for Women is the largest corporate philanthropy that focuses on women’s causes in the world.Through the end of 2012, the foundation had given out more than $910 million around the world.
Here are few of the admirable ways in which this company fulfills its (very strong) sense of corporate social responsibility:

  • their Speak Out Against Domestic Violence
  • the Avon Breast Cancer Crusade
  • the Avon Walk for Breast Cancer
  • the Kiss Goodbye to to breast Cancer
  • Emergency relief…
    • their donations to World Food Program for typhoon survivors in 2014
    • their donation to the United Way of Central Oklahoma May Tornadoes Relief Fund in 2013
    • their donations to help rebuild after Hurricane Sandy
    • many more examples: earthquake relief in Haiti, Hurricane Katrina, 2008 earthquake in China etc
  • Avon Yellow Ribbon pin sales to help military families

As recently as 2012, the company almost suffered a hostile takeover. This occurred despite their dominating the direct selling world as number two on the DSN Global 100. Only Amway is larger than Avon Products, whose 2014 net sales were $8.90 billion (Amway’s were $11.90 billion that same year).

The takeover that hit the news so heavily in 2012 was initiated by Coty, a German fragrance company not many people have heard of. Coty manufactures and markets perfumes under celebrity names, which is why the name is not very recognizable. The company offered a stock price at 20% higher than the then-current price of Avon’s stock (AVP – NYSE) but Avon delayed until the deal fell through. Warren Buffett even got in on the deal but as of this writing nothing has happened so far.

The have had a huge shakeup in management, after years of sub-par management under CEO Andrea Jung. Avon hasn’t fired her, but rather made her co-head of the company after hiring Sheri McCoy as the new CEO. Ms.McCoy used to run a major portion of Johnson & Johnson and she was ranked the 10th most powerful business women in 2011 (well Jung was number six!). It’s probably the wise move of hiring the new CEO that made Avon resistant to takeover (for the time being).

In the meantime, Avon surges forward, selling in 100 markets, employing over 33,000 employees and 6 million distributors world wide. They now offer technology-based products, competing with the finest cosmetic brands in the world. Their ANEW skincare line has national (if not international) brand recognition and is widely respected as a product. And if you haven’t heard of ANEW, perhaps you’ve heard of Skin-So-Soft?  It’s widely used as a gentle yet effective bug repellent.

Avon is still sold primarily door-to-door. It’s not unusual for many of my neighbors to come home and find an Avon catalog slipped under their door or place on their welcome mat.

In China, one of Avon’s largest markets, there are Beauty Boutiques. These are actual brick-and-mortar establishments selling Avon products. These exist as a holdover from the brief couple of years (1998 to 2001) during which China had actually outlawed direct selling. Avon was granted a direct selling license (the first ones ever!) so they’re good to go now in China.

That’s good, because Avon has been in China for a quarter of a century. Despite rumors they’re leaving because of slagging sales, Avon continues to consider China a very important market for its products. Avon’s total direct sales in that country accounted for 8% of total skincare spending. 8% of Chinese families use Avon. Their big competition there is Mary Kay Inc and Amway.

Products

Products in general are reasonably priced but cost slightly  more than similar products you’ll find in drugstores. Products range from cosmetics to the following:

  • fashion panties (the current “Love Your Curves” campaign is wonderful)
  • watches
  • fragrance
  • footwear
  • apparel
  • gifts
  • decorative home products
  • housewares
  • entertainment
  • hair care

Opportunity

There are two ways to earn money:

  1. product sales
  2. team commissions

#1. Product Sales.

Distributors sell from “campaigns”, which usually last around 2 weeks. The more you can sell off that campaign brochure, the less you pay for the products. That means your commissions go up as you sell more…and you get to try again every two weeks.

Your first campaign as a distributor nets you a 40% commission on core products and 20% on others. After that, your commission depends on how much you sold in the previous campaign, ranging from 20% to 50%.

# 2. Team Commissions

The more reps you sign up and the more successful they are, of course, the more you make. Become a Unit Leader by acquiring at least 4 new reps under your wing, and reaching a group sales volume of $1,000 or more. Earn 1%-5% on all your first generation sales and 1% on second and third generation.

And so on …Advanced Unit Leaders have 10+ reps on two legs, and they must be unit leaders. Group sales must be $3,000 and you get 1% – 8% on your first generation, 2% on second generation, and 1% on third generation sales.

There are also the ranks of Executive Unit Leader (12+ reps, $8.000) Senior Executive Unit Leaders (20+ reps, $20,000). They earn higher commissions on the three levels.

There are also tons of killer bonuses and incentives as you achieve rank ($200 as you become Unit Leader, for example). You also get a bonus when any of your reps under you get promoted. You must re-qualify for your rank with each promotion!

Recap

Avon stock may be suffering a bit of a slump right now because of the economic troubles in China, but don’t write any obituaries yet. Avon will probably survive, as they always have. They continually come up with the right products to offer newer generations of women, and the direct selling business has always been kind to them. This is a solid company, so don’t let any recent bad news about their stock price scare you off.

That being said, it’s still the sad story of selling hype and chasing a hot opportunity.

There is a better way. You can build real value-driven business, and feel good about it.

Check this out. This will help wreck your money-chasing habits.
-Jeremy

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