Avon reports near $11m loss in 2010
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Avon Products Inc, a manufacturer and marketer of beauty related products, reported a loss of $10.8 million last year, as it shifts from retail sales to direct selling via individual distributors.
According to the New York company's fourth quarter fiscal report, released Tuesday, revenue through December 31 decreased by 45 percent to $55 million year over year in China. That follows a decrease of 30 percent year over year in the third quarter, while in the second quarter losses reached $2 million.
For all of 2010, Avon realized total revenue of $10.9 billion, up 6 percent over the previous year, and net profit was up by 7 percent to $1.07 billion.
China is the only country where the company is reporting a loss.
The report attributed the loss to the impact of "the company's planned transition away from a hybrid model to one which focuses on direct selling."
For Avon, the hybrid model means mixing stores and direct selling strategies together.
Avon entered the Chinese market in 1990, and was one of first direct-selling corporations in China.
The company sold its products in stores till 2006 when it got a license for direct sales from the government.
To date the US company has about 80 branches with 6,000 exclusive stores, and some 600,000 direct sellers.
As planned, Avon started the transition plan in early summer last year, and predicted the plan would be finished by the first half of this year.
Andrea Jung, CEO of Avon, said the company will abandon its retail stores and revert to direct-sales in some 18 months time.
She predicted that the company's performance in China is expected to halt the losses sometime in 2012, the China Business News quoted her as saying Thursday.
However, market watchers said that it may be difficult for the company's transition to be successful in such a short time period.
"Compared with rival such as Amway which has developed its direct sales business well in China, Avon has focused on retail stores for years. When it tries to shift back to direct selling, it definitely will face conflicts between the two," Wu Zhigang, chief marketing consultant at Beautway, a cosmetic consulting company in Beijing, Thursday told the Global Times.
Rival Amway said its revenue last year stood at $3.2 billion in China, with plans to open stores in Beijing, Guangzhou and Shanghai in the works.
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