Avon Lady Hits Hard Times As Company Cuts Another 600 Workers

 @angeloyoung_a.young@ibtimes.com
on June 24 2014 1:33 PM
Avon seller
Karen Giral, 20, works at her booth selling Avon products at a Grameen America open house at St. John's University in New York, April 18, 2009. Andrea Jung, the former CEO of Avon, is now the head of Grameen America. Reuters

The Avon Lady has fallen on hard times in recent years.

Poor management, stiffer competition and a federal probe into overseas bribery allegations have stripped the patina off the 128-year-old beauty company that built a fortune from its door-to-door cosmetics business by catering to practical, middle class women.

On Tuesday, Avon Products (NYSE:AVP) said it will lay off 600 people as part of a $400 million restructuring plan, the second since 2005 when allegations arose that Avon employees were bribing Chinese officials to gain access to the world’s fastest-growing beauty market. Avon settled with U.S. regulators in May, forking over $135 million to close the book on the controversy.  

Now, to appease shareholders -- many of whom sued the company for the loss in share value during the bribery probe -- Avon CEO Sherilyn McCoy, 55, a former Johnson & Johnson vice chairman, is moving forward with a plan that she says will save the company up to $250 million a year.

In 2012, McCoy replaced Andrea Jung, 56, who was widely viewed as responsible for Avon’s string of missteps, including moving the company away from its core door-to-door business model and trying to move into the competitive over-the-counter direct-selling retail market, putting its products up against the likes of L’Oréal. The company focused on opening mall kiosks and counters at Sears and J.C. Penney, two ill-chosen retail targets that are facing their own slew of problems. During the turmoil, competitors edged in on Avon’s core customers, budget-conscious women more likely to wear Vera Bradley instead of Luis Vuitton, eroding its customer base.

“When things started to slow, there was an admission that the company had been resting on its laurels,” BMO Capital Markets Analyst Connie Maneat told Fortune about Jung’s leadership.

Avon said in May that it lost $168.3 million in the fiscal first quarter of 2014 on an 11 percent revenue decline to $2.18 billion. The company had a string of losses after the number of individual sales representatives declined from 6.4 million in 2012 to about 6 million today.

Avon will announce its second quarter earnings on July 28. Analysts polled by Thomson Reuters expect it to report $96.6 million in profit, down from $126.9 million in the same quarter last year. Avon shares fell to $14.68 in mid-day trading in New York on Tuesday, down nearly 15 percent since the start of the year and down 30 percent year over year. In the fourth quarter of 2012, the company slashed its dividend payment to investors from 23 cents to 6 cents per share.

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