Avon unable to reverse its decline in China
Staff Reporter 2012-12-23 12:14
An Avon retail store in Guangzhou. (File photo/Xinhua)
Avon Products has been unable to reverse its decline in China, with the ineffective measures introduced by former executives still haunting the China operations of the company, known for its door-to-door saleswomen, the Chinese-language newspaper Time Weekly reports.
Following the resignation of Andrea Jung as the CEO and chairwoman earlier this year, Avon recently announced a plan to lay off 1,500 employees globally and to pull out from South Korea and Vietnam.
While Avon's Chinese operations declined to comment on the proposed job cuts, the newspaper said the company was still dealing with the aftermath of a bribery scandal that was first made public in 2008.
The alleged bribes that Avon employees paid to Chinese officials were revealed following an audit in 2008, which led to the removal of several executives from the company, including former Avon China president Gao Shoukang.
With Gao out of the company, the distribution network of 6,000 stores he built in China, which had become a main sales channel besides the door-to-door sales representatives, was re-evaluated by his successor Rene Ordonez and the company's American headquarters.
In May 2010, Avon China announced a plan to terminate distribution through its physical stores, leading to a revolt from store owners which continues to trouble the company, the newspaper said.
Although the network of physical stores did generate revenue for Avon, the newspaper said the stores had become a major obstacle in the company's plan to concentrate on the door-to-door business approach.
The costs of maintaining a physical store led to store owners cutting prices to attract more customers, damaging Avon's image of being a premium brand, a former shop owner said.
The newspaper said Avon has not responded to its questions about the company's disputes with the store owners, which still remain unresolved.
The turmoil has hurt Avon's operations in China, which only reported sales of 1 billion Chinese yuan (US$160.5 million) in 2011, compared with market leader Amway's 26 billion yuan (US$4.17 billion), and over 10 billion yuan (US$1.60 billion) posted by companies including Mary Kay, Perfect, and Infinitus.
Jeremy Lin's appointment as Avon China President in March 2012 has also not helped the company achieve a turnaround, the newspaper said.
One Avon sales representative said the company poorly manages its goods and sets low standards for its sales personnel, leading to intense competition among them.
With news of the US Food and Drug Administration investigation having found that Avon exaggerated the effects of its Anew skin products in advertising in October, the newspaper said it is unclear whether the 126-year-old company will manage to rebound in 2013.
