3/10/2006 - With Avon in the midst of a major restructuring CEO Andrea Jung says that savings are going to be poured back into the company’s future, with research and development, the internet and advertising targeted for major investment.The company is currently in the middle of a restructuring program that aims to save $200m – money that the company says it intends on investing back into the business in an effort to keep apace with the fast-moving nature of the industry.
In an article published this week in Fortune magazine, Jung points out that keeping up with the constant changes in the industry is crucial to remaining competitive, which in turn means significant investment.
“The game in beauty is changing so much, if your product isn't high tech or can't make a unique performance claim - plump your perfume lips, reduce your lines, look glossy, and stay on for 24 hours - you can't go to market today,” she said in the interview. ”I'm not just talking about a $20 lipstick, but a $5 lipstick! We've spent $100 million on a new R&D center.”
Advertising will receive a lot more attention, with the budget increased by 50 per cent worldwide this year and set to double by 2008 as part of the company’s attempts to stay ahead in a market that continues to remain fiercely competitive worldwide.
Jung also says that resources will also be plowed into the internet. She points out that more than 70 per cent of the company’s representatives in the US are online and using the resource to do business, however, she also points out that in other markets this figure is ‘significantly lower’.
Not only can the internet be used as a tool to reduce costs and speed up customer service, but it can also be used to help reach consumers that have traditionally been hard to penetrate – particularly those in rural communities or in markets where the company is still trying to increase its penetration.
Such a market is China, and with the company now racing to increase its presence in the market following the resumption of direct sales there at the start of the year, the internet is also likely to play an increasingly important part in the development of this rapidly growing market.
Reflecting this, the company has already employed a 188,000 strong sales force in the country since the China authorities granted the sales license in March of this year.
Avon is now almost one year into its restructuring plan, which has seen a number of its distribution and manufacturing operations closed or consolidated. But for the most part the restructuring has concentrated on the company’s workforce.
Although there has been a huge recruitment program at grass roots levels in China, management has been the focus of the company’s restructuring program. This has seen the company reduce the total workforce by 10 per cent and the number of managers by 30 per cent, as part of a drive that has seen management tiering reduced from 15 levels to 8.
Although share prices dipped significantly in August following the announcement of quarterly results that showed the company’s recovery was going to take longer than expected, prices have been steadily rising over the past month, as investor confidence recovers on better long term prospects.
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