Avon Products Inc.

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Avon Products Inc.

9 West 57th Street
New York, New York 10019
U.S.A.
(212) 546-6015
Fax: (212) 546-6136

Public Company
Incorporated: 1886 as the California Perfume Company
Employees: 28,400
Sales: $3.30 billion
Stock Exchanges: New York Tokyo

The oldest beauty company in the United States, Avon Products has grown from a modest line of perfumes sold door-to-door to the world’s leading brand of cosmetics. The unique direct-selling method so responsible for Avon’s success, however, also contributed to its dramatic slowdown in the mid-1970s, when women entered the workforce in record numbers. Unsuccessful efforts at diversification into the health-care service industry left the company with massive debts and a few moderately successful entries into the prestige fragrance industry. By mid-1990, Avon had reduced its debt by more than 40%. Fighting takeover bids, Avon has begun to refocus on its roots: beauty and direct selling. Its products are sold in more than 100 countries by nearly 1.5 million representatives.

In 1886, eager to leave the bookselling business, and finding his customers often preferred his promotional perfumes, David H. McConnell created a line of perfumes, brewed in a pantry-sized space in New York City, to be sold door-to-door. The first product line, called the Little Dot Perfume Set, consisted of five scents: white rose, violet, lily of the valley, heliotrope, and hyacinth. McConnell named his endeavor the California Perfume Company in an effort to invoke the beauty and excitement of that state. McConnell intended to build a business around quickly used products sold directly to the consumer, and to use the national network of sales agents he had organized during his years as a bookseller. The nation’s first Avon Lady was Mrs. P. F. E. Albee of Winchester, New Hampshire, the wife of a U.S. senator. Within the first six months of operation, Albee had assembled a solid base of 100 salespeople and their customers; within 12 years, Albee had recruited and trained nearly 5,000 representatives.

In addition to new scents, other products were soon added to California Perfume Company’s product line. Popular early items included spot remover, Witch Hazel Cream, machine oil, mending cement, Almond Cream Balm, food flavorings, Tooth Tablet, and carpet cleaner. In 1896, ten years after setting out, McConnell hired Adolf Goetting, a noted perfumer who had been in the business for 25 years. The following year, a new laboratory was built in Suffern, New York. That same year, the first illustrated catalogue was produced. The company’s product line had expanded to more than 100 products by its 20th year. In 1914, its expansion into Canada was marked by the opening of an office in Montreal.

The first products in the California Perfume Company’s line of Avon Products—a toothbrush, cleanser, and vanity set—appeared in 1920. The Avon name was inspired by the area around the Suffern lab, which McConnell thought resembled the countryside of William Shakespeare’s home, Stratford-on-Avon, England. Never wavering from its strategy of door-to-door sales and catalogues filled with low-cost home and beauty products, the company passed the $2 million sales mark in 1926. By 1928, the company was doing business in 48 states.

During this time, the representatives, under Albee’s supervision, were partaking in one of the first opportunities for American women to experience a degree of economic freedom without upsetting their culturally accepted role as homemakers. The three-week sales campaigns and “specials” strategy was launched in 1932. McConnell died in 1937 and was replaced by his son, David H. McConnell Jr., who was chairman for the next seven years; growth remained steady. In 1939 the California Perfume Company became Avon Products. During World War II, over 50% of the Suffern lab was devoted to wartime production of such things as insect repellent, pharmaceuticals, and paratrooper kits, and cosmetic production slowed.

Avon instituted several changes during the 1950s, not least of which was its entry into overseas markets. In the early 1950s, the sales representatives’ territories were downsized by several hundred homes, a strategy which allowed more representatives to be added, quadrupling the sales force and increasing sales sixfold over the next 12 years. Avon advertisements appeared on television for the first time, including the famous slogan, “Ding Dong, Avon Calling,” which was first televised in 1954. That same year, Avon opened bases in Venezuela and Puerto Rico—its first ventures in what would become the lucrative Latin American market. It also hit the European market in 1957 with Avon Cosmetics, Ltd., in the United Kingdom.

W. Van Alan Clark had taken the reins from McConnell in 1944 and remained chairman through 1966, overseeing such changes as the rapid expansion of foreign sales and Avon’s listing on the New York Stock Exchange in 1964. Clark was replaced by J. A. Ewald, who was followed by W. Hicklin in 1967. Under Hicklin, the traditional three-week sales cycle was changed to two weeks to improve sales. The three-week campaign is still used overseas, including Asia, whose market Avon entered in 1969 by opening operations in Japan. Japan has remained one of Avon’s key foreign markets, along with Brazil, Mexico, and the United Kingdom.

The 1970s presented Avon with its greatest upsets. Though sales topped $1 billion in 1972, and its profitable costume-jewelry line—begun in 1971—had made Avon the world’s biggest jewelry manufacturer in just five years, Avon’s growth stalled in 1973, hard hit by a recession and the mass entry of women into the workforce. The direct-selling system, Avon’s innovation and strength, was nearly toppled by social changes management had not anticipated. The status of the U.S. dollar reduced the company’s international profits; recession and inflation crippled its high-sales decanter products line; in 1975, about 25,000 Avon Ladies quit; Avon products were outpaced by retail cosmetic firms offering jazzier products to women with new attitudes. All these factors converged and led to troubled times—and eventual restructuring.

The most visible change Avon then made was to become more sensitive to its market. Sales representatives began to follow women into the workplace, where about 25% of Avon’s sales are made today; new businesses were tested, including direct-mail women’s apparel; changes were also made in product line and pricing as a result of market studies. Fred Fusee, who had advanced through the manufacturing side of Avon to become its chairman in 1972, was replaced in 1975 by David W. Mitchell, whose years with Avon had been spent in marketing. Mitchell worked to solidify Avon’s presence in the beauty business via consumer and product research, product development, and promotion. The image of Avon products was overhauled to give it a more contemporary appeal, advertising time was more than tripled, and sales were revamped. And in 1979, Avon purchased Tiffany & Company, the upmarket jeweler, for $104 million.

The Tiffany purchase set the tone for the next decade: diversification through acquisition. This included an ill-fated billion-dollar plunge into the health-care industry and a later entry into the prestige-fragrance industry.

Hicks Waldron, who had helped turn around General Electric, left his post at R. J. Reynolds to become Avon’s chairman in 1983. Shortly before Waldron’s appointment, Avon had purchased Mallinckrodt, a chemical and hospital supply company. Waldron followed this purchase up, in 1984, with the acquisition of Foster Medical Corporation. Initially thriving in the home-health-care-equipment field, Foster became the fastest-growing division of Avon. Almost immediately, however, Foster was devastated by Medicare cost-containment efforts, coupled with lack of management foresight. At the same time, Tiffany’s profits were steadily declining—in part because customers were alienated by the introduction of lower-priced merchandise—and the Tiffany subsidiary was sold in 1984.

Avon then tried to focus in on health care for the elderly with the 1985 purchases of the Retirement Inns of America and The Mediplex Group, a nursing home operation. In this same year, almost 15% of Avon’s sales came from healthcare and its annual profits overall were about half of what they were in 1979. Given this, Waldron abandoned the diversification. Mallinckrodt was sold in early 1986 and Foster in 1988, both at great loss. Avon also announced plans to sell the remaining health-care divisions. The company sold Retirement Inns of America in 1989 and The Mediplex Group in 1990. Avon’s brief health-care industry foray left it $1.1 billion in debt.

Diversification into prestige fragrances has proven more stable. Parfums Stern and Giorgio, Inc. were both acquired in 1987. Parfums Stern includes Oscar de la Renta, Perry Ellis, and other designer perfumes. Giorgio remains a top-selling national brand and has introduced additions to the Giorgio line under Avon. Strapped for cash, the company sold Parfums Stern in early 1990 and has entertained bids for Giorgio.

When Waldron retired in 1989, his successor, James E. Preston, immediately faced a number of potential raiders. Avon fought off a bid by Amway Corporation in partnership with Irwin L. Jacobs, a Minneapolis, Minnesota-based raider who then launched a takeover attempt himself. While these efforts receded in late 1989, a new suitor appeared in the form of the Chartwell Association, an investment group which includes the chief financial officer of Mary Kay Cosmetics. The Avon sales force has proven the greatest deterrent to takeovers. In massive letter-writing campaigns, the crucial sales representatives have told aggressors that they would be unwilling to work for them. While the company is instituting internal safeguards, the loyalty of Avon’s sales representatives may well remain the greatest protection against takeover. Entering the 1990s trimmed of its unwieldy diversification into the health-care industry, Avon remains a leading beauty company.

Principal Subsidiaries

Cosmeticos Avon S.A.C.I. (Argentina); Avon Products Pty. Limited (Australia); Avon Cosmetics Vertriebsgesellschaft m.b.H. (Austria); Arlington Limited (Bermuda); Stratford Insurance Co., Ltd. (Bermuda); Avon Cosmeticos, Ltda. (Brazil); Avon Canada, Inc.; Cosmeticos Avon S.A. (Chile); Avon Capital Corp.; Avon Diversified Services, Inc.; Avon International Operations, Inc.; Avon-Lomalinda, Inc.; Avon-Mirabella, Inc.; Avon Pacific, Inc.; Giorgio Beverly Hills, Inc.; Manila Manufacturing Co.; Productos Avon del Paraguay, Ltd.; Productos Avon S.A. (Dominican Republic); Productos Avon, S.A. (El Salvador); Avon S.A. (France); Productos Avon de Guatemala, S.A.; Productos Avon, S.A. (Honduras); Avon Cosmetics (FEBO) Limited (Hong Kong); Avon Limited (Ireland); Avon Cosmetics S.p.A. (Italy); Avon Products Company Limited (Japan, 60%); Avon Cosmetics (Malaysia); Dendirian Berhad (Malaysia); Avon Cosmetics, S.A. de C.V. (Mexico); Avonova, S.A. de C.V. (Mexico); Avon International Finance N.V. (Netherlands Antilles); Avon Cosmetics Limited (New Zealand); Avon Cosmetics (Nigeria) Ltd. (40%); Cosmeticos Aliados S.A. (Peru); Productos Avon S.A. (Peru); Productos De Bellesa, S.A. (Peru); Avon Cosmetics, Inc. (Philippines); Avon Products Mfg., Inc. (Philippines); Avon Cosmeticos, Lda. (Portugal); Avon Cosmetics, S.A. (Spain, 75%); Avon Cosmetics (Taiwan) Ltd.; Avon Cosmetics (Thailand) Ltd.; California Manufacturing Co. Ltd. (Thailand); Avon Cosmetics Limited (U.K.); Avon Cosmetics de Venezuela, C.A.; Avon Cosmetics GmbH (Germany).