Avon, Restructuring, Outsourcing

Avon revises costs of its restructuring and outsourcing program

New York-based cosmetics giant Avon Products Inc. said that the cost to implement its multi-year, four-part turnaround plan would be at the high end of its previously announced $300 million to $500 million range. After a detailed financial review, the company said that it anticipates restructuring costs for all initiatives to total in the range of $500 million, with implementation continuing over the next three years. Avon also said it expects to realize annual savings in excess of $300 million when the restructuring is completed.
 
The company said that its largest savings will come from actions to improve organizational effectiveness by removing layers of management and broadening spans of control throughout its global organization. The company intends to undertake other projects focused on realigning its global manufacturing base; improving procurement and distribution processes; and regionalizing, centralizing and outsourcing certain activities and transactional processes.

Avon said it expects to re-invest a large portion of its restructuring savings back into its business to drive sustainable revenue growth. Savings are to be spent on increased advertising, enhanced support and programs for its representatives, additional product research and development and market research. Advertising is forecasted to increase 50% in 2006 alone, and to more than double from 2005's level by 2008.

Andrea Jung, chairman and CEO, commented, "We are encouraged by the progress we are making as we implement the early phases of our turnaround plan. With the costs and benefits now fully sized, we are focused on the proper sequencing of initiatives to ensure successful execution. The organization is fully aligned behind our plan and committed to this important task, and we are confident that we are taking the necessary steps to restore Avon to sustainable growth."

Shares in Avon are down more than 35% from the company’s 52-week high last April.