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US-based beauty products distributor struggles to maintain its image
By Yu Xi Source:Global Times Published: 2015-11-22 18:43:01
Cosmetics direct-sales giant Avon Products Inc has sidestepped recent rumors that it will eventually exit the Chinese market, making it difficult to ease people's concerns about the company's development in China. The company has reported falling sales revenue for three straight years since 2011. In the third quarter of this year, the company's global sales revenue declined by 22 percent year-on-year to $1.67 billion. Lacking a clear marketing strategy, combined with fierce competition and changing consumer habits, it will be difficult for the company to return to the good old days, experts say.
When asked if Avon was going to leave China, an Avon spokesperson did not address the question in an e-mail response to the Global Times on Thursday.
"Avon is making good progress, and we are confident we have the right strategy in place to return the business to profitable growth," said the spokesperson, who preferred to be anonymous.
Another employee at Avon, who refused to be named, told the Global Times on Thursday that the company hasn't received any information from its US headquarters about leaving China.
The spokesperson stressed that the company still has confidence in the Chinese market.
"China has been an important market for us for over 25 years, and we are proud to serve our loyal customers who know and trust the Avon brand, our strong network of beauty boutiques and our market-leading range of products," the spokesperson said. "Our team in China is focused on strengthening the business and ensuring consistent growth."
Still, Avon has had trouble easing concerns about its prospects in China. The company has been the subject of negative news in recent years. For instance, Avon agreed to pay $135 million in fines and other costs to settle a US bribery probe, financial information provider MarketWatch reported in May 2014.
The company has also been suffering from declining revenue and falling profits. In the third quarter of this year, it reported a loss of $679 million, compared with profits of $92 million in the same period of 2014. Its revenue fell 22 percent year-on-year to $1.67 billion in the third quarter.
In China, Avon's sales revenue has fallen for three straight years since 2011, from 1 billion yuan ($156.57 million) that year to 350 million yuan in 2014, despite measures to cut its workforce and change its business model, according to a report by Wuhan-based Changjiang Times on November 15.
In need of a makeover
The New York-based company has been around for 129 years, but didn't come to China until 1990.
As a major international beauty products brand, Avon drew many loyal Chinese customers because it sells quality products at reasonable prices, according to a woman who runs an Avon franchise store in Shanghai. She declined to be named in print.
Although the store's sales have so far declined about 30 percent since the end of 2014, she told the Global Times on Thursday that she chose to run an Avon store because she trusted the brand and the quality of its products.
But as more and more international beauty products enter the Chinese market, the Avon brand is showing its age. Specifically, it lacks marketing muscle, and its packaging is in need of a makeover.
"More and more young people have taken to beauty brands from South Korea and Japan. Most of my customers who are quite loyal to the brand are over 35 years old," the woman said.
For beauty products purveyors, maintaining the brand's image is critical, said Wang Xiao-xing, an analyst with consultancy Analysys International.
"With the rapid rise of the Internet, it's no longer enough to advertise only through traditional methods such as television," Wang told the Global Times on Wednesday. "It's essential to explore new methods of marketing."
"One of Avon's problems is that it has repeatedly changed its business model on the Chinese mainland," said Liu Yonghua, a brand-building expert. "The changes have resulted in a tremendous loss of talent and strategic confusion."
When the company first came to China, it was a door-to-door cosmetics distributor. After China banned direct sales in 1998 due to a rash of pyramid schemes, Avon opened thousands of retail stores to sell its products.
In 2006, the Chinese government allowed Avon to resume direct sales. Since then, the company has sold its products through both its retail stores and direct sales. However, the results have been messy in terms of pricing and management, Liu told the Global Times on Friday.
"I was responsible for Avon's retail business almost a decade ago," said a former executive, who preferred to be anonymous. "After the company resumed its direct-sales business in 2006, I left the company. Many other colleagues then left in quick succession."
Since e-commerce took off in China in 2009, many international beauty brands started selling their products online, Liu said. Domestic beauty product brands have been playing catchup ever since.
Avon retains a large, loyal middle-aged customer base, Liu said. It could leverage that advantage further. But for consumers born after 1990, the company might need to create a new brand with innovative products to satisfy their needs.
To stay or go
It is not uncommon for foreign beauty product brands to abandon the Chinese market in recent years to reduce costs and improve efficiency. The New-York based cosmetics maker Revlon Inc announced at the end of 2013 it would leave China. In January 2014, French cosmetics giant L'Oreal announced that its cosmetics brand Garnier would exit the Chinese market due to poor sales.
When asked what she would do if Avon left China, the owner of the Avon franchise store said she would have no choice but to change to another business.
"I have been running the store for almost two decades," she said. "I don't want to change because I'm familiar with the business and trust the products. It's very convenient for me to sell wholesale goods in Shanghai. Where would I purchase products if it closes its business in China?"
Newspaper headline: Avon shows its age
Photo: CFP
Rumors have recently circulated around the Internet that the US-based direct-sales giant Avon Products Inc is going to exit the Chinese market sooner or later due to poor performance in the region.When asked if Avon was going to leave China, an Avon spokesperson did not address the question in an e-mail response to the Global Times on Thursday.
"Avon is making good progress, and we are confident we have the right strategy in place to return the business to profitable growth," said the spokesperson, who preferred to be anonymous.
Another employee at Avon, who refused to be named, told the Global Times on Thursday that the company hasn't received any information from its US headquarters about leaving China.
The spokesperson stressed that the company still has confidence in the Chinese market.
"China has been an important market for us for over 25 years, and we are proud to serve our loyal customers who know and trust the Avon brand, our strong network of beauty boutiques and our market-leading range of products," the spokesperson said. "Our team in China is focused on strengthening the business and ensuring consistent growth."
Still, Avon has had trouble easing concerns about its prospects in China. The company has been the subject of negative news in recent years. For instance, Avon agreed to pay $135 million in fines and other costs to settle a US bribery probe, financial information provider MarketWatch reported in May 2014.
The company has also been suffering from declining revenue and falling profits. In the third quarter of this year, it reported a loss of $679 million, compared with profits of $92 million in the same period of 2014. Its revenue fell 22 percent year-on-year to $1.67 billion in the third quarter.
In China, Avon's sales revenue has fallen for three straight years since 2011, from 1 billion yuan ($156.57 million) that year to 350 million yuan in 2014, despite measures to cut its workforce and change its business model, according to a report by Wuhan-based Changjiang Times on November 15.
In need of a makeover
The New York-based company has been around for 129 years, but didn't come to China until 1990.
As a major international beauty products brand, Avon drew many loyal Chinese customers because it sells quality products at reasonable prices, according to a woman who runs an Avon franchise store in Shanghai. She declined to be named in print.
Although the store's sales have so far declined about 30 percent since the end of 2014, she told the Global Times on Thursday that she chose to run an Avon store because she trusted the brand and the quality of its products.
But as more and more international beauty products enter the Chinese market, the Avon brand is showing its age. Specifically, it lacks marketing muscle, and its packaging is in need of a makeover.
"More and more young people have taken to beauty brands from South Korea and Japan. Most of my customers who are quite loyal to the brand are over 35 years old," the woman said.
For beauty products purveyors, maintaining the brand's image is critical, said Wang Xiao-xing, an analyst with consultancy Analysys International.
"With the rapid rise of the Internet, it's no longer enough to advertise only through traditional methods such as television," Wang told the Global Times on Wednesday. "It's essential to explore new methods of marketing."
"One of Avon's problems is that it has repeatedly changed its business model on the Chinese mainland," said Liu Yonghua, a brand-building expert. "The changes have resulted in a tremendous loss of talent and strategic confusion."
When the company first came to China, it was a door-to-door cosmetics distributor. After China banned direct sales in 1998 due to a rash of pyramid schemes, Avon opened thousands of retail stores to sell its products.
In 2006, the Chinese government allowed Avon to resume direct sales. Since then, the company has sold its products through both its retail stores and direct sales. However, the results have been messy in terms of pricing and management, Liu told the Global Times on Friday.
"I was responsible for Avon's retail business almost a decade ago," said a former executive, who preferred to be anonymous. "After the company resumed its direct-sales business in 2006, I left the company. Many other colleagues then left in quick succession."
Since e-commerce took off in China in 2009, many international beauty brands started selling their products online, Liu said. Domestic beauty product brands have been playing catchup ever since.
Avon retains a large, loyal middle-aged customer base, Liu said. It could leverage that advantage further. But for consumers born after 1990, the company might need to create a new brand with innovative products to satisfy their needs.
To stay or go
It is not uncommon for foreign beauty product brands to abandon the Chinese market in recent years to reduce costs and improve efficiency. The New-York based cosmetics maker Revlon Inc announced at the end of 2013 it would leave China. In January 2014, French cosmetics giant L'Oreal announced that its cosmetics brand Garnier would exit the Chinese market due to poor sales.
When asked what she would do if Avon left China, the owner of the Avon franchise store said she would have no choice but to change to another business.
"I have been running the store for almost two decades," she said. "I don't want to change because I'm familiar with the business and trust the products. It's very convenient for me to sell wholesale goods in Shanghai. Where would I purchase products if it closes its business in China?"
Newspaper headline: Avon shows its age
Posted in: Insight