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Can Avon's Transformation Updates Aid Representative Growth?

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Avon Products, Inc. (AVP - Free Report) has been focusing on boosting growth of Representatives for quite some time, which is a key factor for the success of its direct-selling business. Recently, management has highlighted the key milestones in the transformation of its service supply chain, including digital advancements, leadership appointments as well as operational updates.

The company has made significant improvements in servicing its Representatives across the globe, by improving delivery and service beside satisfying those, and improving retention levels. It utilized exclusive software for real-time sales planning for its Representatives. The updated technologies permit higher adaptability to demand volatility, thus, predicting Representative and customer demand, and synchronizing its ability to fulfill their demands by right-sizing inventory and boost delivery capabilities. Avon's technologies also focus on a significant reduction in delays, higher process efficiency, optimization of resource allocation and continuous Representative engagement.

Notably, the latest Machine Learning Model has been rolled out in three of the company’s top 10 markets, following impressive pilots in the U.K., Russia and Mexico. It remains on track for further rollouts in its top 15 markets by early next year, starting with Brazil in November. Management intends to utilize this technology to accomplish a complete automated campaign planning process over the long term.

Further, the company transformed its efforts by appointing Rob Lowndes, the present vice president, Global Fashion and Home, for the role of vice president, Sales and Operations Planning (S&OP). The new leader will harmonize the company’s objectives with latest technologies and adopt a value chain approach to manage sales as well as make plans to boost product availability and service quality worldwide. He will be answerable to the company’s global president.

Avon also remains committed to more in-depth tracking of boosting Representative satisfaction via regular pulse surveys. In April, the company planned to speak to about 100 Representatives in all of the top 14 markets every day. This helps it in evaluating success across 10 fundamental service KPIs and use the feedback to update actions. Notably, the company made 25,000 calls to its Representatives in a span of 11 weeks.

All these initiatives clearly demonstrate Avon’s dedication to reignite and re-energize its Active Representatives along with maximum customer satisfaction. Management is on track to deliver 1-2% Active Representatives growth in the long term by revamping the experience of its 6 million Beauty entrepreneurs.

Management has adopted a segmented approach to differentiate between its Representatives and rewarding those accordingly. Under the approach, the company identifies that a full-time Representative is different from a part-time Representative and just a Beauty Avon fan. These Representatives have different needs and motivations, and require different tools, training and support as well as compensations. Moreover, the company has started imparting training for its Representatives by setting up a new global academy to deliver training in each country. It expects to impart training to nearly 0.5 million Representatives in the second half of 2018.

However, we note that the company has witnessed soft Representatives growth in recent quarters. In the last-reported quarter, the top line was impacted by lower Active Representatives, mainly in Brazil, Russia and Mexico, along with challenges in key markets, particularly in Brazil. Further, negative impact due to the trucker strike in Brazil hurt sales.

In addition, Avon has a dismal surprise trend, as its bottom line lagged estimates in nine of the preceding 12 quarters. Also, sales missed estimates in six out of the trailing eight quarters. Further, the company has reported loss per share in the last two quarters. These concerns have weighed on investors’ sentiments, too, as the stock has lost 27.3% in a year against the industry’s 17% rally.

Avon, which shares space with The Estee Lauder Companies Inc. (EL - Free Report) , currently carries a Zacks Rank #4 (Sell).

Nevertheless, the acceleration in its transformation in service supply chain inspires optimism about the recovery of Avon’s business by reviving its Active Representatives.

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