January 9, 2008, 12:00 AM

Avon begins the New Year with more consolidation

Avon will record a charge of $120 million for the fourth quarter to restructure some international direct selling operations, streamline its global supply chain, and outsource certain call center and transaction processing operations.

Bill Briggs

Senior Editor

The restructuring at Avon Products Inc. and Avon.com continues. The direct marketer of women’s beauty and cosmetics products announced that it will record a charge of $120 million for the fourth quarter of 2007 to restructure some international direct selling operations, streamline its global supply chain and outsource certain call center and transaction processing operations.

Since late 2005 under the direction of CEO Andrea Jung, Avon, No. 29 in the Internet Retailer Top 500 Guide, has continually restructured its operations to become more competitive. Eventually through restructuring and related efforts, Avon expects to achieve total annual savings of about $430 million, including $300 million in 2009. Potential cost savings for 2008 weren’t disclosed.

In the latest round of consolidation, Avon plans to cut employees, consolidate sales operations and reduce other administrative overhead in Europe, reconfigure its manufacturing facility in Neufahrn, Germany, open a new distribution center in Brazil, and close another facility in Guatemala.

"Continuing transformation as part of a turnaround mentality is now a `way of life` for Avon as we enter the third year of our turnaround,” says Avon vice chairman and chief finance and strategy officer Charles Cramb. “While we anticipate additional initiatives to further improve organization effectiveness and drive cost savings to fuel growth, they will not be reported as part of our turnaround plan."

Avon, which will release its year-end financials in February, reported net income of $139 million on revenue of $2.3 billion in the third quarter, compared with net income of $86 million on sales of $2 billion in Q3 2006.

At the same time Avon restructures its business operations, the company is also enhancing Avon.com and building new distribution centers in the U.S. Avon.com now features more personalization applications such as tools that help shoppers find their sales rep or a new one.

In August Avon announced plans to invest $117 million in a new distribution center in Zanesville, Ohio. The new center will employ about of 500 people and will have the capacity to ship 50% of Avon`s U.S. sales volume when fully operational, the company says.

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