Avon's New Calling

CEO Andrea Jung wants to sell more than makeup--and not just door-to-door. Will her people buy it?

It's 8:30 on a Sunday evening in summer. Outside the Thomas & Mack Center in Las Vegas, where temperatures have hovered around 110F all weekend, the desert heat is still oppressive. Inside is another matter. The air-conditioning has made for a chilly stage as Andrea Jung waits in the wings to address the biggest crowd she has ever faced. And Jung herself couldn't be more cool and composed. In her red floor-length ball gown with spaghetti straps and white shoes with sharp-pointed toes, Jung, at 41, looks more like a movie star than the CEO of a $5.3 billion company. As she strides onto the stage, she is met by an explosion of applause from some 13,000 mostly forty- and fifty-something Avon women reps who have traveled to Las Vegas from all across the U.S. to see Avon's new product lines, listen to Engelbert Humperdinck, applaud Suzanne Somers' keynote speech, and do aerobics with Richard Simmons to songs like Breaking Up is Hard to Do. The contrast is striking: the svelte, fashionable, Ivy League-educated, New York fast-tracker preaching to the mostly Middle American moms and grandmas whose fashion tastes lean toward slacks for dressy occasions and sweat suits and sneakers for the rest of the convention.

Still, with a mike in her hand and giant TV screens in the background projecting her image, Jung has no problem firing up the crowd. "Avon is first and foremost about you," she proclaims. "I stand here before you and promise you that that will never change." She vows that Avon Products Inc. can be as big in the women's beauty business as Walt Disney Co. is in entertainment. She confides her proudest moment: Jung, the daughter of Chinese immigrants, traveled to China last year for the first time in her life to meet and speak to women in a Chinese factory. "We will change the future of women around the world!" she exclaims. And as the audience rises to a standing ovation, Jung wraps up with the most amazing declaration of all: "I love you all!"

To the uninitiated, it all sounds like a lot of hooey. But for Jung the stakes are huge: She desperately needs the support of the company's 3 million sales reps worldwide to answer Avon's new calling: getting today's women to buy a brand that hit its peak when their mothers were first trying on lipstick. The pioneer of door-to-door selling, founded in 1886, Avon is at a critical turning point in its history. At the dawn of the Internet Age, when three-quarters of American women work, Avon's direct-sales model, dated for a generation, now seems positively antiquated. As direct selling gets redefined by such Web players as Dell Computer Corp. and Amazon.com Inc., Avon ladies seem in danger of going the way of the horse and buggy. If it weren't for Avon's success in such markets as Latin America and Asia, the company would surely have faded long ago. Indeed, according to industry trackers Kline & Co., direct selling represented only 6.8% of the $27 billion of cosmetics and toiletries sold in the U.S. in 1999, down from 8% in 1995. Avon itself has seen sales growth--up only 5% a year over the past decade--slow even further, to a 1.5% increase in 1999. And though the company reversed a two-year decline in operating profits last year to post a 16% increase to $549 million, over the past 10 years profits are up only an anemic 4% a year. "We're in one of the greatest economies of all times, and Avon's still finding it hard to increase sales," says Allan Mottus, a consultant to beauty and retail companies.

The huge task of fixing Avon falls squarely on Jung's shoulders. Jung landed the top job last November in the wake of a fourth-quarter sales and earnings shock that sent Avon shares down 50%. Soon afterward, Jung's predecessor, Charles R. Perrin, resigned. Jung, with very little operating experience under her belt, was suddenly running a company with millions of independent sales reps and operations in 137 countries. Now, with the need to reconcile the intersection of the Internet's explosive growth with the company's Old Economy direct-sales business model, Jung is faced with what is shaping up to be one of Corporate America's toughest consumer-products turnarounds.

For a marketer who cut her teeth in high-end fashion at ritzy retailers like I. Magnin and Neiman Marcus, reinventing a dowdy megabrand like Avon would seem an unlikely career high. Precocious from the start, Jung was second-in-command at I. Magnin & Co. before she was 30 years old. At 32 she was in charge of all women's apparel for Neiman Marcus and regularly jetted to Europe for the runway shows. Two years later, in 1993, Jung married Bloomingdale's CEO, Michael Gould, 15 years her senior, left her job at Neiman Marcus in Dallas, and moved to Manhattan. Gould, whose previous job had been running the Giorgio Beverly Hills perfume business that Avon then owned, was already in the upper echelons of the New York retailing glitterati. In 1994, Jung joined Avon, making her mark by unifying Avon's many regional brands into one powerful global label.

Now, with her mission at Avon, Jung joins one of Corporate America's most elite groups: women, like Carly Fiorina of Hewlett-Packard Co, who are leading complex and problem-ridden corporations. "She's a young woman with a very big job," says executive headhunter Herbert Mines. "She has an opportunity to really demonstrate her abilities, and if she does well, others will undoubtedly reach for her." But if she fails, the business world will witness the collapse of one of the most-watched careers in American business. Another Jill Barad? It's possible. Even her supporters acknowledge that Jung has no easy task ahead. "Anytime you expand your business beyond your existing universe of operations, you have risk," says Larry D. Coats, portfolio manager at Oak Value Capital Management, which holds 1.7 million shares of Avon stock. "The key is in the execution--the careful, thoughtful, and deliberate execution."

Jung's vision for a new Avon is what she grandiosely calls the "ultimate relationship marketer of products and services for women." Her idea is to rebuild the organization from the ground up into a company that does much more than sell lipstick door-to-door. The Avon that Jung envisions will one day be the source for anything and everything a woman wants to buy. More than that, she wants to give busy women a choice in how they do their buying: through an Avon rep, in a store, or online. "Do you have an Avon rep? I don't," offers Avon board member Brenda C. Barnes. "People like us should be able to get the product."

The new Avon would be a radical departure from decades-old ways of doing business. For one thing, Jung is pushing into traditional retail, which Avon had always avoided for fear of competing against its reps. A trial run of 50 kiosks based in shopping malls is luring younger customers who had never before bought an Avon product. To squash any possible rep opposition, the kiosks are now being franchised to them. And this fall, in its boldest move yet, Avon will announce a deal to create a separate line of products for sale at a store-within-a-store at a major mass retailer such as Wal-Mart Stores Inc. or Kmart Corp.

It's the Web, however, that is Avon's best hope for the future, Jung says. Her biggest dilemma is figuring out just where all those Avon ladies fit in. One thing she's sure of: they will play a key role in Avon's reinvention. Jung knows independent sales reps have been the backbone of the company ever since one Mrs. Albee of Winchester, N.H., sold her neighbor a package of assorted perfumes in 1886. Today, reps still produce 98% of the company's revenue, though the top 20% of producers account for about 80% of sales. "If we don't include them in everything we do, then we're just another retail brand, just another Internet site, and I don't see the world needing more of those," says Jung.

LATE START. Can Jung really move Avon forward into an e-tailing future while keeping her reps happy? It's a long shot, but she has an ambitious plan. Jung is promising to offer them more business on the Net and ways for them to better manage the new reps that they recruit. She's earmarked $60 million to build a Web site focused around the reps and the Avon catalog. For $15 a month, any rep can become what Avon calls an "eRepresentative" who can sell online and earn commissions ranging from 20% to 25% for orders shipped direct or 30% to 50% for ones they do deliver. That's good money for very little work. And it's also good business for Avon. Today, most reps still fill out 40-page paper order forms in No. 2 pencil and send them in by mail or fax. The cost of processing that order is 90 cents. On the Web, it's 30 cents. Says Chief Operating Officer Susan Kropf: "Anything we can get off of paper has a significant cost advantage to us."

Unfortunately for Jung, Avon is getting a late start. Back in 1997, the company put up an early but basic Web site that offered only a small fraction of its products for sale. Management consciously downplayed the Net's role to avoid a backlash from reps. But as the importance of the Web became more obvious, it was clear that tack wouldn't work for long. But what would? The internal struggle over Net strategy dragged out over three long years and cost Avon its early online lead. Now, small upstarts like Eve.com are running away with the lion's share of the nearly $1 billion online beauty-products business.

While executives dawdled, reps, meanwhile, reacted with outrage last year when the company took the mild step of printing its Web address on catalogs. Many simply covered it with their own stickers and forced the company to quickly remove it. They also lambasted Avon for selling online while prohibiting reps from setting up their own sites. "It was like Avon was directly competing with the representatives that they claim to serve," says Jennifer Cobb, an Avon rep who quit nine months ago, in part out of frustration with Avon's Web policy.

Jung's response has been swift. To ensure the reps' concerns are considered, Avon has been polling them about the site, asking them what kind of technology could help them. Focus groups include both the Web-savvy and the technologically illiterate to create a site that everyone can use. The result: a Web-site design that gives customers an option to shop with Avon directly but first asks them if they'd like an eRepresentative in their Zip Code. "I don't believe [that] in the future, sitting alone in front of the Internet is how people are going to conduct their lives," says Jung. "What we do is about relationships, affiliations, being with other people. That is never going to go out." Already, 11,800 Avon reps have signed up to sell online. That's a small fraction of the total 500,000 U.S. reps, but Jung wants to get the 54% of them who aren't already online there by offering them Gateway Inc. PCs plus Internet hookups for $19.95 a month. At the Las Vegas conference, where Avon hyped the site heavily, "no one," says Len Edwards, head of Avon.com, "came up to me once and said, `You're stealing my business."'

If Jung's Web strategy prevails, she, for one, won't be surprised. Achievement has always been a given. Born in Canada, she grew up in Wellesley, Mass., the daughter of middle-class immigrant parents. There, she and her younger brother were raised in the demanding environment of a family determined to succeed. Her father, born in Hong Kong, received his master's degree in architecture from Massachusetts Institute of Technology. Her mother, born in Shanghai, was a chemical engineer before becoming an accomplished pianist. Jung excelled in school and studied Chinese and piano, which she still plays.

After graduating from Princeton University in 1979 with a magna cum laude degree in English literature, Jung surprised her family by entering the executive training program at Bloomingdale's. As she rose through the ranks there, and later at I. Magnin and Neiman Marcus, she forged friendships with such successful fashion tastemakers as designer Donna Karan and Anne Sutherland Fuchs, then publisher of Vogue. Karan, on whose board of directors Jung once sat, today calls her a mentor. Later in New York, Jung and her husband were regulars on the party circuit, where her Armani gowns and good looks were chronicled on the society pages.

MAKING THE CONNECTION. Earlier in her career, some co-workers say they found Jung "aloof" and detached. But at Avon, she has lost some of that reserve, and that has helped her connect with Avon reps. "Four years ago, I saw an extremely private, incredibly brilliant person," says Brian C. Connolly, Avon's senior vice-president for U.S. sales and operations. "Now I see a leader who's willing to tell the story of her heritage, her grandmother, her daughter. She's more comfortable in herself."

From her start at Avon, Jung seemed to look at the company differently than management old-timers. Brought in to study whether it should be moving into retail, she came back with a quick "no," arguing that neither the products nor the sales reps were ready. Her no-nonsense views impressed then-CEO James E. Preston, who offered her a job as head of marketing. Once Jung was on board, Preston became her mentor and ally. He promoted her career, asking her to speak at board meetings. That put her on a par with executives who had been at Avon for decades. "We looked at the market through one set of glasses," says Preston, one of the old guard. "She had a fresh take on what Avon could be."

More than anything, Jung proved she was decisive. She would approve a detailed, million-dollar ad campaign in as little as 15 minutes. Early on, she sacked Avon's ad agency and ordered a complete packaging redesign. She killed Avon's hodgepodge of regional brands and replaced them with global brands like Avon Color, a line of cosmetics. That cut out 35% to 40% of Avon catalog items. "You don't sell anything to Andrea. She buys it or she doesn't," says Mary Lou Quinlan, the former CEO of N.W. Ayer & Partners, the agency that Jung brought in when she ran Avon's marketing.

Still, in 1997, when the board began a search for Preston's successor, Jung had two strikes against her: She had no operating experience and she had never worked overseas, where Avon now gets two-thirds of its revenue. In the end, the board picked outsider Perrin, a former chief of Duracell. Jung became chief operating officer and heir apparent.

Though passed over for CEO, Jung's promotion leapfrogged a number of candidates with far more time at Avon, including her then-boss Christina A. Gold, who soon left the company. Preston remembers a senior manager, with 25 years at Avon, who came to him in protest after Jung was promoted. "I think this is a mistake," he recalls the executive saying. "She's unknown, unproven. She won't be accepted outside the U.S." But six weeks later, Preston says, after Jung had made a two-day visit to Latin America, the executive had changed his tune. "He said, `You were right. I was wrong. People loved her down here.' I thought, `Bingo!"' Preston says.

Jung will need to deploy all her charisma as she begins to move Avon beyond cosmetics, jewelry, and clothing into an array of new products and services. Next year, Avon reps around the world will begin selling nutritional supplements and vitamins manufactured by pharmaceuticals manufacturer Roche Holding Ltd., a line that Avon says could reach $300 million in sales within 5 years. She's pushing Avon hard into multilevel marketing, where reps get a percentage of the sales of those they recruit. And she has just launched Beauty Advisor, which trains Avon reps as personal advisers to their customers on what products look and work best for them. It's an area where smaller competitors such as Addison (Tex.)-based Mary Kay Inc. have long dominated. But Jung is betting that she can marshal Avon's enormous sales force to capture plenty of it. The company's offerings could eventually expand to include in-store spa facials and massages. Down the road, Avon might even offer expert financial services and legal advice targeted toward women.

TOO MUCH AT ONCE? It's a lot to do. But Jung insists that moving fast on several fronts is key. Until about five years ago, for example, sales in Taiwan were growing less than 5% a year. Then Avon's management in Taiwan introduced multilevel marketing and opened showrooms to sell Avon products directly to consumers. The payoff: Avon is now growing 20% a year in Taiwan.

Still, some wonder whether Jung isn't pushing too hard. In the late 1970s and 1980s, Avon went on an expansion tear, purchasing jewelry retailer Tiffany & Co., perfumer Giorgio Beverly Hills, and even a health-care company. Almost all lost the company money, and the result was $1.2 billion in debt and three hostile takeover bids in the early 1990s. "Their efforts at distribution and diversification," says Kline & Co. consultant Susan M. Babinsky, "don't have a real good track record." And though Avon cites a devalued Brazilian real and some weak holiday sales for its disastrous fourth quarter last year, others say the company was again trying to do too much at once: everything from exploiting technology to striving for double-digit increases in the beauty business, all while overhauling the Avon catalog in the U.S. To avoid a repeat of that kind of debacle, Jung is emphasizing open communication, including setting up a CEO advisory council of 10 top performers from every level of the company and from all around the globe.

That Jung, with her expensive designer suits and elegant jewelry, has found a way to bond with the average Avon rep may be her most surprising feat. As she walked the halls of the convention in the days leading up to her speech, Jung couldn't go more than a few steps without crowds asking her to pose for a group photo or sign an autograph. "I'm going to take a photo and have it blown up and put it on my wall for motivation," said Julie A. Mann, a 24-year-old rep from San Diego, who waited in line for 15 minutes.

Jung doesn't shrink from the idea that she's a role model, even though it's put her private life sharply in the public light. Ten years ago, she wouldn't have brought her daughter in to work. If she had a pediatrician's appointment, she would say she had an outside meeting. Today, she wants to set a different example, and her daughter, now 11, regularly visits the Avon offices and, for an occasional treat, Avon's Fifth Avenue spa. Not that Jung doesn't have her share of challenges at home. She's now separated from Gould, though they are both raising her daughter from a previous marriage and a 3-year-old adopted son. "She's the kind of woman that most women aspire to be," says Donna Karan. "But you're always asking, `Oh my God. How does she do it all?"'

Just being home can be a challenge. Jung, who traveled to 20 countries last year and has plenty of long workdays in New York, admits to occasional doubts and guilt. Does her 11-year-old know that Jung is the boss? "Not really. But she did ask me one time what it means to be CEO," says Jung. "I try to make her feel like she's no different from anyone else's daughter."

With so many eyes on her, Jung is under intense pressure to perform. So far, few are betting against her. Since her first day as CEO, Avon's stock is up 23%, compared to an 11% gain for the Standard & Poor's 500-stock index. Excluding a special charge last year, sales and earnings for the first half of 2000 are up 9% and 40% respectively. "She bit off a lot. The challenges are great," says investor Robert Hagstrom, senior vice-president of Legg Mason Fund Manager and director of Legg Mason's Focus Capital. But "at this point, it would be very hard to give her anything less than A's."

That's good for starters. Now Jung has to bring the same magic that she showed off in Las Vegas to the bottom line. Maybe then, Jung can turn Avon back into an "A" company.

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