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Analyst predicts gloomy future for Avon following catalogue of calamity

By Andrew MCDOUGALL , 01-Oct-2012
Last updated the 01-Oct-2012 at 17:35 GMT

As if the last year hasn’t been tough enough, cosmetics company Avon is now being tipped to have another torrid twelve months.

The company has seen profits dip , uncertainty over its management and a probe into accusations of corruption regarding its China operations in the last year, and now global analyst 24/7 Wall St. has singled the US firm out as one of the companies likely to ‘disappear’ in 2013.

Each year, 24/7 Wall St. identifies 10 important American brands that it predicts will disappear within a year, and this is the first time a cosmetics giant has featured in recent years.

This year’s list reflects the competitive nature of certain industries and the reason companies cannot afford to fall behind in efficiency, innovation or financing; and Avon have made it in at number 10.

“It would be hard to find another large American company as bad off as Avon Products,” says 24/7 Wall St.

A turbulent time

Last year Avon’s longtime CEO, Andrea Jung, left the company with uncertainty looming over the firm’s direction. She was replaced by Sherilyn S. McCoy , formerly of Johnson & Johnson, in April, although her lack of experience running a public corporation make it an even bigger task.

The turn of the year also saw the Security and Exchange Commission examine Avon’s communications with securities analysts which ended up with CFO Charles Cramb losing his job .

Avon is also under scrutiny as to whether its Chinese operations meet compliance standards under the Foreign Corrupt Practices Act .

All this has added up to put Avon in a vulnerable position in the midst of a highly competitive beauty market; however, with management not concentrated on its core business, but rather on other issues, 24/7 Wall St. says the company is in danger.

Making the grade

To make the ‘disappear’ list, brands are judged on the following criteria: Financial losses; Suggestions that the brand may go out of business; Rapidly rising costs; Companies that are sold; Bankruptcy; Major customer loss; and operations with rapidly withering market share.

Each brand on the list suffers from one or more of these problems, with Avon ticking more than one box.

According to 24/7 Wall St., each of the 10 will be gone, based on the given criteria, within 18 months.

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