Aug 2, 2007

High-Touch Distribution Gains Ground in Latin America

Avon products recently reported that direct-to-consumer sales of its beauty products rose 22% in Latin America, even as sales in the core U.S. market were flat. Avon, with almost $9 billion in annual revenue, is the world's largest direct seller, and markets to women in well over 100 countries through over five million independent Avon Sales Representatives.

Like Dell, there are troubling signs, however, that Avon is becoming increasingly distracted from its solid core competence and distinctiveness in distribution. In November 2005, the company announced a new focus on cefficiency and cutting costs; an all-too common strategic focus for once-proud U.S. brand manufacturers. Efficiency improvements are certainly desireable, but not when the search for them causes already stretched executive teams to lose sight of core strengths.

Nonetheless, Avon is in the midst of a multiyear restructuring plan involving steep job cuts, eliminating management layers to better react to market trends, realigning manufacturing centers and outsourcing work to countries where labor costs are cheaper. And the company launched two risky product-based changes: initiatives simplifying products lines with a focus on better performing and more profitable products, and expanding its global sourcing of products. They also announced they will close two distribution centers and build a new one as part of a restructuring of its U.S. distribution operations.

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