Avon Plans To Get Smaller To Grow

Those Avon catalogs may start to look a little slimmer next year as the direct beauty seller cuts back on the number of products in its portfolio.

The 2007 initiative was put in place as the company announced a 47 percent drop in profits for the last quarter on lower revenues, even after doubling its ad spending from $32 million to $66 million.

Formally called "Product Line Simplification," the SKU-cutting initiative will attempt to clean up the internal workings of Avon by dropping anywhere from 15 to 40 percent of Avon's SKUs, Avon Products' CEO Andrea Jung said last week. The idea is for the beauty seller to focus better by having a smaller product lineup.

The program is also the last leg of a restructuring that has involved layoffs and cutting the executive staff in half, going from 16 to 8.

As it cuts back in some areas, Avon will be beefing up others. It plans a major color cosmetics initiative next year, which will be a revamp of its Avon Color line.



While reducing the product line may make sense to Avon managers, the move may not be popular among customers or Avon reps--a key group of employees for Avon, which is trying to step up its U.S. and global rep count.

"Reps are attached to product lines that may not be profitable to Avon but probably are to the [them]," Morgan Stanley analyst William Pecoriello wrote in a research report. One example he pointed to is the Christmas line, with Avon centering many of its campaigns on the holidays and gift-giving occasions such as Mother's Day.

"Reps are very attached to all Avon's catalog," Pecoriello wrote, basing his remarks on an Avon rep survey that Morgan Stanley conducted in 2004.

In fact, even some core customers could be turned off to product elimination. Another Morgan Stanley study from last November found that with the churn of products, buyers are often frustrated when they can't find and reorder desired items.

Nonetheless, Bill Schmitz of Deutsche Bank called the Avon shopping experience "extremely cluttered, with the catalog littered with heavily promoted and low-margin skus." Despite their concerns, Pecoriello and other Wall Street analysts are generally in favor of the program, which should cut operating costs.

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