This one’s for you, Cindy…
Looks like another American Icon is biting the dust: The Avon Girl.
Not our Avon girls, man… say it ain’t so! But soon there’ll be far fewer Avon sales representatives ringing doorbells to sell the company’s cosmetics directly to consumers.
Cosmetics giant Avon Products reported a fourth-quarter net loss Tuesday amid declining sales and rising commodity costs. Chief Executive Officer Andrea Jung said the company doesn’t expect its margins — the revenue the company keeps after paying all of its costs — to improve this year.
The downbeat forecast comes amid a Bloomberg News report with the help of consulting firm McKinsey. On a conference call with investors Tuesday, executives said they see “immediate” potential savings through reducing headcount, which likely means fewer door-to-door sales representatives in the not-too-distant future.
That would surely hurt a company that markets itself as the world’s leading direct seller. Avon markets to women in 100 countries through a network of 6.5 million independent sales representatives, according to information on the company’s website.
Once a thriving cosmetics company, Avon is now seeking to right the ship of its sinking operations after years of tepid earnings and declining profit.
In December it announced the departure of longtime Chief Executive Jung as soon as a replacement could be found. Additionally, Avon has been hurt by an internal bribery investigation that began in China, and its stock has come under pressure over the past year because of the company’s poor performance in countries like Brazil.
Shares of Avon have declined some 60 percent since hitting a high in 2004
Bloomberg News reports that a company overhaul will include cutting costs in Avon’s North American unit, where sales have dropped every year since 2007 and slid about 7 percent in the third quarter.
Bloomberg interviewed one analyst who was skeptical of the plan’s potential success.
“This is a rudderless ship right now, and trying to turn it massively may not get you anywhere,” said Ali Dibadj, an analyst at Sanford C. Bernstein in New York. “The problem with Avon isn’t that it needs a restructuring, it’s that it has been in perpetual restructuring, literally for the past 15 years.”
The Value of Hard Work and Tenacity
But while Avon may be a called a rudderless ship, Andrea Jung — its Chief Executive Officer since 1999 — is anything but. A sleek, chic, and glamorous 53, Jung is perennially to be found in the Top Ten of Fortune’s annual 50 Most Powerful Women, and is a living testamonial to the value of hard work, focus, discipline and tenacity, having started out as a manager trainee at Bloomingdale’s.
Jung, who grew up in a traditional Chinese-American family with a tremendous amount of discipline, had made her way to Princeton and wanted to go into the Peace Corps. But her parents didn’t have a lot of money, so they insisted she take a more conventional path.
When Jung called them about quitting that first job at Bloomingdale’s, “the reaction was fast and furious,” she recalls. Her parents told her: “You are not quitting. You start at the bottom and you work your way to the top.”
“So, I didn’t quit,” Jung says. “I persevered, and it ended up being a really terrific run in retail.”
She traded retail — Bloomingdale’s and then Neiman Marcus — for the beauty industry, moving to Avon in 1994. Jung was assigned to create a global Avon brand and did that so impressively that she was considered for the top job three years later.
But she got passed over. And though she felt tempted to quit, she stayed. Two years later, she got the CEO job and became the youngest female chief executive in the Fortune 500.
“Bloom where you’re planted,” says Jung. “And follow your compass, not your clock,” she adds, preaching patience in any career.
She has certainly demonstrated that. Now at the helm for 12 years, Jung is Number 5 on the 2010 Fortune 50 Most Powerful Women list, and the longest-serving among the female Fortune 500 CEOs.
“I feel like the wise old woman CEO, trying to pave the path for a lot more after me,” she says.
The Biography of Andrea Jung, Chairman and CEO of Avon Products
Born: 1959, in Toronto, Ontario, Canada.
Education: Princeton University, BA, 1979.
Family: Daughter of Hong Kong–born father (architect) and Shanghai-born mother (pianist and chemical engineer); married Michael Gould (CEO of Bloomingdale’s; separated); children: two.
Career: Bloomingdale’s, 1979–1985, vice president and merchandising manager; J. W. Robinson’s, 1985–1987, general merchandising manager; I. Magnin, 1987–1991, senior vice president and general merchandising manager; Neiman Marcus, 1991–1994, executive vice president; Avon, 1994–1996, president, product marketing; 1996–1997, president of global marketing; 1997–1998, executive vice president and president of global marketing; 1998–1999, president and chief operating officer; 1999–, chief executive officer; 2001–, chairman.
Address: Avon Products, Inc., 1345 Avenue of the Americas, New York, New York 10105
Andrea Jung was a trailblazer. One of only two women CEOs of a Fortune 500 company, she was also the highest-ranking Chinese American in corporate America.
After becoming Avon’s first female CEO, she began transforming the company. To become the global powerhouse that Jung envisioned, Avon needed to entice younger customers while still retaining middle-aged buyers.
After three years at the company’s helm, Jung had managed to retain core customers and sales reps while reaching out to a new generation of buyers and sellers. The daughter of Chinese immigrants, Jung earned respect from both industry peers and the Avon direct sales force comprised largely of suburban mothers.
Jung led one of the world’s largest sellers of cosmetics, an operation with sales of $6.8 billion in 2003 and a presence in about 137 countries.
Destined For Success
Jung’s parents were highly accomplished, first-generation immigrants from China who moved to the United States for their children’s education. Her father, born in Hong Kong, received a master’s degree in architecture from the Massachusetts Institute of Technology, and her mother, born in Shanghai, was a chemical engineer and later an accomplished pianist.
Jung grew up in Massachusetts in a household that placed a high priority on achievement, and she responded with resolute drive. She once recalled coveting a box of colored pencils as a school child: “My mother said to me that if I got a set of perfect marks I could have that box. I got the box” ( Financial Times , November 6, 2003).
Jung embraced her parents’ high standards. Academically she earned high marks, learned classical piano, and became fluent in Mandarin. Her heritage was a source of pride that she brought to work each day.
“My father was worried that raising me as a respectful Chinese daughter would be a barrier to what he perceived as the cut-throat traits of an American CEO. So, it has been interesting for me to marry my cultural background with succeeding in a tough business world” (London Times, June 29, 2002).
Jung began her career as a management trainee for Bloomingdale’s, and she quickly revealed her drive to succeed. She became second in command at I. Magnin & Company in her late twenties and was in charge of all women’s apparel for Neiman Marcus by age 32.
Along the way, she developed key relationships, befriending such notable fashion executives as the designer Donna Karan and Anne Sutherland Fuchs, then publisher of Vogue . Jung even brought work home with her, marrying Michael Gould, CEO of Bloomingdale’s, in 1993.
Jung began to develop a keen sense of the importance her image could play. After moving to Manhattan, New York, she and her husband became regular fixtures in local newspapers’ society pages.
A New Addition Shakes Up An Old Company
Jung left her job at Neiman Marcus and joined Avon in 1994. Immediately she made her mark. In one of her first contributions to the company, she unified Avon’s assortment of disparate regional brands into powerful global lines like Avon Color. She fired Avon’s ad agency and oversaw a complete packaging redesign.
Her decisiveness caught the eye of then CEO James E. Preston, who appreciated her bold take on the business. Said Preston, “We looked at the market through one set of glasses. She had a fresh take on what Avon could be” ( BusinessWeek , September 18, 2000).
Preston became her mentor and ally, asking her to speak at board meetings and increasing her exposure to upper management, ensuring a quick climb up the corporate ladder. Just three years after joining the company, Jung was named head of global marketing at age 37.
In 1997 the Avon board began a search for Preston’s successor, and Jung was temporarily passed over due to her lack of experience in operations and overseas business. But the board had noticed her talent, and she was promoted to COO in 1998.
Some thought she was ascending the corporate ladder too quickly. Preston recalls the senior manager with 25 years of experience protesting her promotion, complaining that she would never be accepted overseas.
He reversed his position after Jung earned high marks on a two-day visit to Latin America. As COO, Jung got the necessary grooming required to become the leader of Avon.
Reaching Out To Avon Reps
But embracing these new distribution channels was not without risk. Ever since the first Avon representative, armed with makeup samples and catalogs, knocked on her neighbor’s doors, direct salespeople had been the backbone of the company. The danger of alienating those reps became painfully clear with the advent of the Web.
In the late 1990s, Avon printed its Web site on catalogs, only to find that its outraged reps covered them up with their own stickers. Additional criticism followed Avon’s decision to sell online while prohibiting sales reps from setting up their own sites.
Until Jung found a way to resolve those issues and integrate the reps into her new vision for the company, Avon’s future would rest on a precarious foundation. Jung noted, “If we don’t include them in everything we do, then we’re just another retail brand, just another Internet site, and I don’t see the world needing more of those” ( BusinessWeek , September 18, 2000).
To that end, Jung announced her decision to invest $60 million to build a Web site that would involve, not alienate, Avon’s reps. Reps could sign up to become “e-representatives” for $15 a month, earning commissions of 20 to 25 percent on orders shipped directly or 30 to 50 percent for orders they delivered to customers themselves.
The initiative promised additional income for Avon reps as well as considerable savings for the company. The cost of processing an order from the Web is 30 cents, or roughly one-third the cost of processing the paper order. The site gave customers the option of shopping with Avon directly or with the help of an e-representative in their zip code.
Said Jung of the new opportunities for an Avon rep, “She can actually sell at retail in a licensed way, she can have a kiosk in a mall today. She has an Internet opportunity to have her own Web site” ( The Early Show , CBS, July 26, 2001).
Avon reps responded enthusiastically to Jung’s initiatives, made all the more remarkable by how little in common the CEO had with the suburban moms who sell Avon’s products. Jung wore Chanel and pearl chokers. Her colleagues joked that she was allergic to casual wear. Yet Avon reps routinely waited in long lines for photo ops with Jung.
The Avon executive Brian C. Connolly observed, “Four years ago, I saw an extremely private, incredibly brilliant person. Now I see a leader who’s willing to tell the story of her heritage, her grandmother, her daughter. She’s more comfortable in herself” ( BusinessWeek , September 18, 2000).
Expanding Product Lines
In the early 21st century, Jung expanded Avon’s lines of cosmetics, jewelry, and clothing by adding nutritional supplements and vitamins manufactured by Roche Holding, a line that the company said could generate $300 million in five years.
Taking a cue from the Avon competitor Mary Kay, Jung launched Beauty Advisor, a program that turned Avon reps into beauty consultants who help customers choose the clothing and makeup that work best for them. She even floated the possibility of offering financial and legal services to women.
Throughout Jung’s ambitious expansion, her management style was to emphasize open communication, goal orientation, and feedback from her sales force.
To that end, she set up a CEO advisory council of 10 top salespeople from every level of the company internationally. In addition, she brought panels of Avon representatives to New York City to share their concerns and react to her ideas. She even enlisted as an Avon lady in New York City. “I was terrible,” she said (London Times, June 29, 2002).
In the first half of 2000 Jung received an auspicious report card—sales and earnings were up 9 percent and 40 percent respectively. The investor Robert Hagstrom, senior vice president of Legg Mason Fund Manager and director of Legg Mason’s Focus Capital, remarked, “She bit off a lot. The challenges are great. But at this point, it would be very hard to give her anything less than A’s” ( BusinessWeek , September 18, 2000).
Buoyed by a Recession
The dismal economy of the early 21st century gave Avon a new relevance. Sales reps who were unable to find employment in the traditional job market flocked to the company, as did customers who were turned off by the high prices and non-existent service indigenous to department stores.
In 2002 Avon’s sales force grew by about 10 percent to nearly four million, and unit sales rose 13 percent worldwide. In Russia and other parts of eastern Europe, sales spiked 40 percent. Such fashion arbiters as Allure and Marie Claire even began mentioning Avon’s products in their magazine pages.
According to Thomson First Call, in early 2003 Avon had the strongest buy recommendations of companies that sold personal care products. Said one analyst with Goldman Sachs, “This is one of the highest-quality growth stocks that I cover” ( New York Times , June 1, 2003).
Still, investors remained cautious about Avon’s diversification efforts, especially since so many of its attempts under previous CEOs had failed.
Some of Jung’s own attempts also lost money. Only a few months after she signed a deal allowing JC Penney to carry a new Avon line of mid-priced cosmetics, the department store pulled the brand. A Penney spokeswoman said, “We wouldn’t have given up a product that was profitable” ( New York Times , June 1, 2003).
Jung blamed the failure on Penney, saying that the company failed to provide enough support, and wrote off the venture as a learning experience.
Concurrent with the global recession that started in March 2001, it remained to be seen whether sales reps would seek other jobs once the economy turned around.
Allan G. Mottus, a consultant to the beauty industry and publisher of The Informationist , a trade publication, remarked that “Avon does well in a recession, because it provides low-cost items that are sold by women who cannot move up in the workplace. In a full economy, a lot of good people are going to defect” ( New York Times , June 1, 2003).
In order to achieve Jung’s stated goal of enticing younger customers while retaining middle-aged buyers, Avon began to offer new products, such as vitamins, weight-control programs, and other “wellness” offerings aimed at women 35 and older.
Jung launched Mark. cosmetics—the punctuation is meant to emphasize women making their mark—a line that is used and sold by younger women. (Just a few months after the 2003 launch, Avon had recruited about 20,000 sales reps; sales of the line contributed one point of growth to the third-quarter sales in the United States.)
Ever conscious of the power of image, Jung also gave Avon’s brochures a modern makeover, printing them on glossier paper and featuring the tennis champions Venus and Serena Williams. An Avon spa joined Fifth Avenue in New York City.
The average age of Avon’s typical customer proved that Jung was on the right track. When Jung became the first woman to head Avon in 1999, the typical customer was 43; as of 2003 she was 37.
Personal Values Focus a Company’s Philanthropy
CEOs of leading multinationals frequently use charitable giving to further their business goals. Jung was no exception. Most fashion-related companies have been major supporters of the fight against breast cancer and AIDS, two diseases that have taken heavy tolls on fashion.
In a true nexus of her own values and corporate citizenship, Jung personally led Avon’s philanthropic efforts in the area of breast cancer. Her grandmother died of the disease at age 63 when Jung was 14.
This loss had a deep effect on Jung, who recalled, “It was the early Seventies, and the C-word was forbidden in our house. She didn’t want us around her in case it was contagious. There was such fear about the subject” (London Times, June 29, 2002).
In September 2002 Avon announced that it was making $30 million in grants to fight breast cancer. The grants were announced at the first-ever Kiss Goodbye to Breast Cancer Concert & Awards at Avery Fisher Hall.
Natalie Cole headlined the concert, which itself raised more than $2 million for the Avon Breast Cancer Crusade. The campaign focused on funding five critical areas: breast cancer biomedical research, clinical care, support services, education, and early detection programs.
The motivation for Jung’s corporate largesse transcended her empathy for breast cancer victims; she saw philanthropy as the duty of a corporate citizenry. “The new generation of leaders have to be committed to giving back more. Corporations have a responsibility to the communities where they do business” (London Times, June 29, 2002).
But even Jung would not shy away from the positive publicity her charitable commitments brought to her company. Philanthropy is just good business.