Avon 2006 Annual Report Download - page 13

Our principal competitors in the CFT industry are large and well-
known cosmetics and fragrances companies that manufacture
and sell broad product lines through various types of retail estab-
lishments. There are many other companies that compete in more
narrow CFT product lines sold through retail establishments.
We have many competitors in the gift and decorative products
and apparel industries globally, including retail establishments,
gift shops and specialty retailers, and direct-mail companies spe-
cializing in these products.
Our principal competition in the fashion jewelry industry consists
of a few large companies and many small companies that sell
fashion jewelry through retail establishments.
The CFT, gift and decorative products, apparel and fashion jew-
elry industries are highly competitive. However, the number of
competitors and degree of competition that we face in the CFT,
gift and decorative products, apparel and fashion jewelry
industries varies widely from country to country.
We believe that the personalized customer service offered by our
Representatives; the high quality, attractive designs and prices of
our products; the high level of new and innovative products; our
easily recognized brand name and our guarantee of satisfaction
are significant factors in establishing and maintaining our com-
petitive position.
International Operations
Our international operations are conducted primarily through
subsidiaries in 62 countries and territories outside the U.S. In
addition to these 62 countries and territories, our products are
distributed in 51 other countries through distributorships.
Our international operations are subject to risks inherent in
conducting business abroad, including, but not limited to, the
risk of adverse currency fluctuations, currency remittance
restrictions and unfavorable social, economic and political
conditions.
See the sections “Risk Factors – Our ability to conduct business,
particularly in international markets, may be affected by political,
legal and regulatory risks” and “Risk Factors – We are subject to
other risks related to our international operations, including
exposure to foreign currency fluctuations” in Item 1A on page
10 of this 2006 Annual Report on Form 10-K.
Manufacturing
We manufacture and package almost all of our CFT products.
Raw materials, consisting chiefly of essential oils, chemicals,
containers and packaging components, are purchased for our
CFT products from various suppliers. Almost all of our non-CFT
products are purchased from various suppliers. Additionally, we
produce the brochures that are used by the Representatives to
sell our products. The loss of any one supplier would not have a
material impact on our ability to source raw materials for our
CFT products or paper for the brochures or our non-CFT prod-
ucts. Packages, consisting of containers and packaging compo-
nents, are designed by our staff of artists and designers.
The design and development of new CFT products are affected
by the cost and availability of materials such as glass, plastics and
chemicals. We believe that we can continue to obtain sufficient
raw materials and supplies to manufacture and produce our CFT
products.
As described previously, we are embarking on our SSI initiative to
reduce direct and indirect costs of materials, goods and services.
Under this initiative, we will shift our purchasing strategy toward
a global supplier orientation from one that is more local and
component oriented.
We are implementing an Enterprise Resource Planning (“ERP”)
system on a worldwide basis, which is expected to improve the
efficiency of our supply chain and financial transaction processes.
The implementation is expected to occur in phases over the next
several years. We began implementing the ERP system in Europe
during 2005, and will continue to roll-out the ERP system
throughout Europe over the next several years. We will begin
implementation in North America in the first quarter of 2007.
See Item 2, Properties, for additional information regarding the
location of our principal manufacturing facilities.
Product Categories
Each of our three product categories account for 10% or more
of consolidated net sales. The following is the percentage of net
sales by product category for the years ended December 31:
2006 2005 2004
Beauty 70% 69% 69%
Beauty Plus 19% 19% 18%
Beyond Beauty 11% 12% 13%
Trademarks and Patents
Our business is not materially dependent on the existence of
third party patent, trademark or other third party intellectual
property rights, and we are not a party to any ongoing material
licenses, franchises or concessions. We do seek to protect our
key proprietary technologies by aggressively pursuing compre-
hensive patent coverage in major markets. We protect our Avon
name and other major proprietary trademarks through registra-
tion of these trademarks in the markets where we sell our
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