Avon, one of the leading beauty company in the world, can sell its entire business. The company is considering the various strategic options for business development including the sale of its entire company or North American unit. Shareholders are pushing the company to find the potential buyer reports Wall Street Journal. In the last few years Avon has been unsuccessfully trying to improve its financial position by cutting costs, updating their products and trying to stop the reduction the number of sales representatives. According to the group of shareholders Shah Capital, Barington Capital Group LP and NuOrion Partners, which jointly owns 3.5% of company’s stock, they are very disappointed in the company’s board of directors. From the words of shareholders, board of directors couldn’t stop the stock price to fall and also they could not hire a new Chief Executive Officer.
The current CEO Sheri McCoy said in August of last year that she would leave the company in March 2018 because of the pressure from Barington Capital. The value of Avon’s shares had dropped nearly 90 % since McCoy took over the company in 2012.
The main issues of the company’s downfall are:
1. Obsolescence of the direct sales system. Avon agents are no longer as relevant and effective as in previous years.
2. Declining number of sales representatives means decreasing customer awareness.
3. Ethical issues: bribery is an offensive tool that is hurting reputation of the company.
4. Growing competition in the domestic and international markets. Every day there are new promising cosmetic brands that confidently fill the market. Avon cannot compete with many of them. The company is to blame for this – working in the consumer market, it is necessary to develop the ability to predict changes in preferences of its target audience and to react to them in a timely manner.
Application of concepts from this course that help structure analysis of the information provided in the article.
Analyzing external environment of the company is extremely important. Analyzing general, competitors and industry environments will help the company to identify threats and opportunities which company will face. By monitoring the external environment, the firm will be able to: identify changes that affect different aspects of the strategy, determine the threats, assess what environmental factors can be used to achieve a strategic goal. This will allow company to direct their efforts in the most favorable for business development. Analysis of the external environment helps to obtain important results: predict unforeseen circumstances, determine preventive technics, helps to turn potential threats to potential techniques.
The strategy must be ethical. It should include lawful actions and exclude unlawful actions, otherwise it will not pass the test for compliance with the norms of morality. This means more than just compliance with the requirements of the law. Ethical and moral norms go beyond legal prohibitions and the phrase “do not do this” to the problem of moral duty, the words “can” and “not.” Ethics consider the moral obligations of a person and the principles on which they are based. Management have to make sure the strategic plan is aligned with ethics and anticorruption program. When company losses its ethical value it does lose their brand image and sales going forward.
Your original analysis of the situation
Avon was the first beauty company in direct sales. But in recent years, Avon struggled to adapt its model of direct sales to the realities of modern life. Nowadays women less often buy cosmetics through catalogs. There is no need in sales representatives now when you can independently order what you need through internet. The number of distributors has been declining the last five years. Avon started at the beginning of twentieth century when 80 percent of American women were staying home and waiting for their husband return from work or were involved in agriculture. McConnell promised that “any consumer Avon will be able to become a business lady” – and it worked. grew exponentially. Now the company has 6.5 million representatives in 100 countries.
In the modern world the number of working women in the world increased at a tremendous rate. Avon agents were no longer as relevant and effective as in previous years. This shows the obsolescence of direct sales system. In addition, the competition was increasingly composed of traditional retailers, such as Revlon and P & G, and gaining strength online players. Company should have adapted new technologies and developed in the direction of online sales. But everybody was scared that there would been no need in sales representatives. Only since 2014 the company was ready to sell products through the website but it was too late. Competitors have long bypassed in that direction.The company could not stand up on retail rails either – it simply did not have a built-in system for selling its products in stores. Over the last decade, Avon, which has existed for more than a hundred years, has been associated with a number of major scandals and a million spending on their settlement. Among them were charges of bribery in China, when the company’s representatives allegedly bribed, made expensive gifts and paid for vacations to officials in China to gain access to the market and license their products. The company had to spend more than $ 500 million to”wash off” itself from the corruption scandal. When the company’s brand image is hurt because it was convinced in bribery, company loses not only litigation costs but sales along with it. Because of these ethical issues the company’s sales has been decreasing since 2007.
Avon’s traditional business model is dead: many innovations of past years, social changes, competition and inability to keep pace with consumer expectations have killed it.
Recommendations to the top management team of the company discussed in the article.The search for strategic alternatives will be the best solution for Avon. However, this is fraught with risk for the company’s partners, since in this case their positions and incomes will be threatened – a decline in the direct sales market may scare off potential buyers. In order to gain its former power, Avon needs to do something big. My suggestions are: 1. Heavily invest to expand in internet sales. 2. Go retail: open stores, sell products at supermarkets and malls.3. Recruit Chief Operational Officer who will start managing the company. 4. Invest in R&D to create new products to keep up in the competition.