20th Anniversary Reflections: Not Your Mother’s Avon
October 1 1997 by Chief Executive
In celebration of Chief Executive magazine’s 20th anniversary, we’ve been asking CEOs who’ve held their positions for the better part of that period to reflect on the changes they and their companies have experienced during that time. In our sixth installment, Jim Preston, who has run the core beauty business at Avon since 1981 and the entire company since 1988, describes the facelift he gave this one-time dowager, erasing the disfiguring wrinkles it had collected during the ’70s and ’80s. Preston’s beauty secret: new markets, new marketing, and new distribution channels-added to a focus on what has proven to be the company’s key strength, its direct selling approach. But the foundation of Preston‘s success-measured in what will be nine consecutive years of growing sales and earnings-may well be his attention to Avon‘s main constituency: women, who, as he points out, “make up 99.9 percent of our representatives and 99.999 percent of our customers.” Women also comprise four of the company’s top executives, four of its 11 board members, and are the focus of a number of Avon‘s philanthropic activities, most notably a “breast cancer crusade,” aimed at educating women about early detection and treatment. The company’s vision, notes Preston, “is to be the company that best understands the needs of women globally”-mothers and daughters alike.
When I joined Avon in 1964, this company was one of the “Nifty Fifty,” a high flyer, the darling of Wall Street. People wanted to work for Avon; people wanted to invest in Avon. Morale was high; it was a wonderful, caring, people-oriented atmosphere. And our performance was stellar.
But all that disappeared in the late ’70s and ’80s. I became CEO of Avon during some very dark days. It was 1988. We had more than a billion dollars in debt; we were bleeding; we had just been hit by the first of what would be three takeover attempts in three years. Our credibility with Wall Street was zero because we had not had a good record for 10 years.
Someone asked me then, “What do you hope to accomplish as CEO of Avon?” I said, “Well, step one is survival.” In the back of my mind, there were a couple of things that were very important. In particular, I hoped we could restore Avon to the place it once held in the minds of both its employees and the investment community. To achieve that, I had to find a way to make Avon more relevant in the established markets of the U.S., Western Europe, and Japan. And I needed to build a management team of sufficient depth so that when I left this company, it would be even better than when I was here.
Since 1988, when we refocused the company on beauty, selling off a number of health-care businesses, there have been three forces at work that have changed both the industry and Avon:
Consolidation. Until the late ’80s, the beauty and fragrance industry was fragmented, made up primarily of small and medium-sized companies. But with a low birth rate in the U.S., there weren’t a lot of young people entering the marketplace. The market got tougher. That led to a share war, and share wars generally lead to consolidation. In just about five years, Procter & Gamble, which had had virtually no presence in the beauty business, bought Giorgio of Beverly Hills, Noxelle, and Max Factor. Unilever came in as a big player, buying Elizabeth Arden and Chesebrough-Ponds. L’Oreal also bought a number of companies.
This forced companies like ours to look harder at how we were doing business. We had to become a lot more efficient and effective to be profitable and compete globally.
Globalization. Many companies realized that while the U.S. would always be a profitable market, it was not a growth market. It was mature and well-established, with a lot of competition and a well-developed retail infrastructure. In order to grow, we had to look elsewhere.
Avon was fortunate because our system of selling direct does not require a developed retail infrastructure. Many years ago, we had targeted the international market, starting with Latin America, and then, during my tenure, Asia-Pacific, China, Eastern and Central Europe, and now Indochina. Whereas 15 years ago, 30 or 40 percent of our business was outside the U.S., now 65 percent is outside the U.S. In 1996, about 41 percent of our sales and 52 percent of our earnings were from developing markets. We are developing global brands and global marketing plans and exploring global sourcing opportunities.
We’ve entered about 16 new markets since 1990. We’ll be in the Ukraine and Romania later this year, Vietnam next year. We’re looking at the Stans-Kazakhstan, Uzbekistan, Turkmenistan-and at Laos.
The demands in these markets for the kinds of products we sell are great. But without a well-developed retail structure, it’s hard for consumers to find them. The ones consumers do find in stores are high-priced because import duties are so stiff. We often open a small manufacturing facility or bring in the raw materials and fill the bottles and jars in that country to qualify for manufacturing, so we don’t have to pay the duties. That, of course, allows us to set lower prices, which, in turn, gives us a better shot at gaining a larger market share.
Contemporization. Avon‘s been in business for 111 years. But for 109 of those years, the only way you could buy an Avon product was through an Avon representative. While that still works well in developing markets that don’t have a well-developed retail infrastructure, consumers in established markets want options. You can’t offer them only direct sales-but until two years ago, that’s what we did.
Today you can buy Avon by phone, by fax, by mail, or through a representative; we also have a Web site. This is a huge advantage over our retail-oriented competitors, who can’t tell the consumer to order direct or they’ll be thrown off the retail shelves. We were, frankly, a little slow to recognize this advantage, but now we’re trying to be aggressive in rolling out these multiple purchasing options around the world-especially in such established markets as the U.S., Western Europe, and Japan.
We used to see the working woman phenomenon as a liability. We thought, “They won’t be there when our representatives call. They’ll have other employment options, so our recruiting will be more difficult. Although that’s been true to an extent, the flip side is that when more women enter the work force, they have more money to spend on products like ours and more need for the kinds of products we sell. What they don’t have is time. We can provide a service, convenience, and value. And that’s one of the reasons you see improvement in our performance in the U.S. and Western Europe, because we are now saying to women, you tell us how you want to buy, when you want to buy, how you want to receive our products, and we’ll try to accommodate you.
We have also proven we can selectively add new products to our line that generate incremental sales and profits. Ten years ago we weren’t in the apparel business-this year we’ll probably do more than $700 million in apparel. Two or three years ago we weren’t in home furnishings. This year we’ll probably do $200 million or more in that category. There is a limit to how many products you can carry, and we’re approaching that limit, but that has been a major driver in our ability to continually grow business over the past few years.
Until recently, our line and our packaging were not contemporary enough. We hadn’t done advertising in a number of years. People saw Avon as their mother’s product. But we don’t want them to say, “My mother used it.” We want them to say, “I use it. I love it.” So we had to upgrade the quality of our packaging. We had to upgrade the quality of our sales brochures. We had to make it clear that we have long been at the forefront of advances in the development of cosmetics. Once we’d done that, we felt we were ready to say, “This is not your mother’s makeup. This is for today’s woman.” I think the role of the CEO of every company has become much more complex because most of us are now dealing on a global basis. If you want to be successful in the global marketplace, you have to be comfortable in a lot of diverse cultures. I spend 40 to 45 percent of my time traveling outside this country. That’s a big change. Ninety percent of my total travel used to be in the U.S.; now it’s 10 percent.
You have to be very concerned with what goes on in the world. Fifteen years ago, I didn’t read The Economist. Now it’s required reading. I’ve had to break away from a culture at Avon that said your every waking moment should be spent thinking about how to improve business for Avon representatives. Customers were seldom mentioned. We viewed the representative as a consumer, because she bought the product, paid for the product, took delivery of the product. We used to do most of our research with representatives and base decisions on what they said. When we finally began to do consumer research, 10 or 12 years ago, we found the representatives were not as in touch with what the customers actually wanted as we’d thought. So now we do a lot of consumer research around the world.
The job of the chief executive has also become more complex because of changes in dealing with our own government. OSHA didn’t exist 30 years ago. Some of the complicated tax regulations didn’t exist 15 years ago. The number of bills coming out of the Congress that can affect business today require that you stay close to legislation or regulations that can affect your industry and be willing to sit down with a congressman, or a senator, or a regulator, or a legislative aide, and make your case in a cogent, coherent manner.
A lot of people talk about their legacy as “look what I did.” Brought the stock back from 19 to 160 or whatever. I think a person’s legacy should really be determined by what he’s built. It’s one thing to, say, “Okay, we had a great eight or nine or 10 years.” But if those years were great solely because of one person’s personality or smarts, you haven’t done anything for the organization-except maybe hurt it. I’d rather be measured by what this company does in the five years after I leave. If I’ve done my job right, it’ll be better than when I was at the helm, and it will be better because it’ll have the strength in management and a foundation that is solid.