Avon Calling… Anew

In its heyday, “Ding Dong, Avon Calling” (as seen above in this 1962 commercial) was ubiquitous. But today, the fall of an iconic brand built on a now outmoded premise is the headline of Richard Levick's Forbes piece, which laments “Avon Calling When It Should Have Been Clicking.” 

In a world dominated by e-commerce, Avon isn't even carried by drugstore.com, one of the web’s largest beauty products retailers. And chances are, those female customers of yore are no longer home to answer the door.

Avon is in play, having just rejected an unsolicited $10 billion buyout offer from Coty Inc. Another bid is expected from Richmont Holdings, a company helmed by founder and chairman John Rochon, former CEO of Avon rival Mary Kay who led an attempted takeover of Avon in the late 1980s.

Writes Levick:

The story resonates on multiple levels as, once again, another icon of American business culture may face extinction. Coty’s offer is just another reminder of how time-honored companies must somehow find a way to transform fabled legacies.

Ousted CEO Andrea Jung is being held accountable for almost everything – from diminished sales and devalued stock price to inadequate and delayed resolution of investigation by the Securities and Exchange Commission on improper sharing of information with analysts and allegations of bribery by employees in China and elsewhere. A lengthy analysis in the April 30 issue of Fortune claims Avon’s management problems under Jung were exacerbated by a reticence to fully embrace its door-to-door roots. 

A former Avon executive summed up the inherent bifurcation thus:

There's the public company, the one Andrea represents, [but] the company that actually sort of fuels the business and is at the heart of what Avon is, is not a consumer packaged-goods company at all. If you go to Mexico City or Moscow or to the heartland, that's the real Avon Lady.

The typical Avon sales rep earns less than $50,000, selling the products part-time, and pay $10 to enroll. “What Avon is actually selling is an earnings opportunity to its sales representatives, who then turn around and sell Avon's lipsticks and lotions to the end user.” This was new territory for Jung, whose background was high-end retail, having worked for Neiman Marcus, I. Magnin, and Bloomingdale's, and whose marketing and luxury experience lacked operations acumen. As Fortune observed:

The sale of the venerable company would have been unthinkable eight years ago, when its market value topped $21 billion. But today a buyout could be the final act of a wrenching corporate drama starring Jung, a glamorous, ambitious executive, who wanted desperately to remake pedestrian Avon in her own image.

The marketplace is defined by brands. Avon has a strong one. The marketplace is global. So is Avon. The marketplace demands loyal customers. Avon – self-defined as “the company for women” – knows who they are. But the marketplace also demands leaders and Avon needs one.

Since that column appeared, Avon named Johnson & Johnson veteran Sherilyn McCoy as its new CEO, slated to assume leadership on April 23 from Jung, the brand’s first female CEO in its 126-year history. But Jung, at the helm since 1999, will stay on with a two-year contract as executive chairman.

“With the leadership change, Avon is signaling that it doesn't need to be bought,” says Barclays Equity Research analyst Lauren Lieberman. "Unless something emerges in Ms. McCoy's employee agreement (i.e., that she will receive an inordinate payout in the event of a change in control), we think Avon's board is making a definitive statement on their view that it can turn around its business without the help of an outside suitor."

McCoy has her hands full, but a starting base salary of $1.2 million, plus 200,000 in restricted stock units, an $850,000 deferred cash award and $1.9 million as a signing bonus, should be powerful incentive. The Wall Street Journal reported, “McCoy is giving up a lucrative retirement package at Johnson & Johnson (JNJ) after a 30-plus-year career at the pharmaceutical giant, where she recently lost a race to become chief executive.”

A new race and an iconic brand in the throes of a major legacy make-over.