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Avon stake holder refers to business as ‘a mess’

By Simon Pitman , 07-Feb-2013
Last updated on 07-Feb-2013 at 18:47 GMT

One of Avon’s biggest stakeholders says the business needs significant restructuring to turn it around but believes CEO Sheri McCoy is the right person to put the business back on the right track.

Joshua Strauss, a Chicago-based co-manager of the Appleseed Fund, which has held a sizeable stake in Avon for just over a year, says that the business is in poor shape, despite the industry being generally a good area for safe investment.

The Appleseed Fund was established in 2006 and has developed a significant investment portfolio that features some of the biggest cosmetics and personal care players, including Estée Lauder.

Everything rests on the company's current restructuring plan

“There’s no doubt that Avon is a mess,” said Strauss in an interview on ‘Bloomberg Surveillance’, the media company’s online radio channel.

When asked about what practices needed to be addressed to re-shape the business, Strauss expressed his belief that the company's current restructuring program needs to be implemented with precision to target the various areas of the business where there is weakness.

Speaking of outgoing CEO Andrea Jung, Strauss referred to her as a ‘rock star CEO’, but stated his belief that she had not done “a poor job of managing and investing in the business over the years”.

Where previous restructuring has failed...

Although the current Avon restructuring program marks the third major initiative of it’s the third of its kind since 2005, pointing to the fact that previous attempts to strengthen the business structure have failed.

But Strauss stated his belief that the current Avon CEO Sheri McCoy, who replaced Jung last October, is bringing new policies and procedures to the business and doing a lot to sort out the recurring problem of international bribery issues.

“The best practices that Sheri McCoy is bringing to the business is that fact that she is concentrating can on cleaning up the foreign corruption issues, as well as introducing firm procedures and accountability,” Strauss said.

Avon continues to struggle financially

For its most recent third quarter, ending in September 2012, the company announced that sales for the quarter were down 8 percent to $2.6bn, which represented an increase of 1 percent in constant dollar terms reflecting unfavorable foreign currency translations and shrinking market share.

Net profits were down from $164.2m in the corresponding period last year, to $31.6m, a figure that reflected the slower sales, together with increased expenses resulting from the company's comprehensive restructuring program.

The company has been struggling to maintain its market share for the past two years and is now targeting significant operational cost savings and an enhanced personnel structure in an effort to put the company on a more profitable track and speed up the recovery in its performance.

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