Avon 2008 Annual Report Download - page 15

products are purchased from various suppliers. Additionally, we
design 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 com-
ponents, 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 further described in the “Overview” and “Strategic Initia-
tives” sections within MD&A on pages 20 through 23, we have
begun implementing SSI to reduce direct and indirect costs of
materials, goods and services. Under this initiative, we are shift-
ing our purchasing strategy from a local, commodity-oriented
approach towards a globally-coordinated effort.
We are also implementing an enterprise resource planning
(“ERP”) system on a worldwide basis, which is expected to
improve the efficiency of our supply chain and financial trans-
action processes. The implementation is expected to occur in
phases over the next several years. We completed implemen-
tation in certain significant markets, and will continue to roll-out
the ERP system over the next several years.
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:
2008 2007 2006
Beauty 72% 70% 69%
Fashion 18% 18% 18%
Home 10% 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 propri-
etary technologies by aggressively pursuing comprehensive patent
coverage in major markets. We protect our Avon name and other
major proprietary trademarks through registration of these trade-
marks in the markets where we sell our products, monitoring the
markets for infringement of such trademarks by others, and by
taking appropriate steps to stop any infringing activities.
Seasonal Nature of Business
Our sales and earnings have a marked seasonal pattern charac-
teristic of many companies selling CFT, gift and decorative
products, apparel, and fashion jewelry. Holiday sales cause a
sales peak in the fourth quarter of the year; however, the sales
volume of holiday gift items is, by its nature, difficult to forecast.
Fourth quarter revenue was approximately 26% and 31% of
total revenue in 2008 and 2007, respectively, and fourth quarter
operating profit was approximately 28% and 26% of total
operating profit in 2008 and 2007, respectively. The fourth quar-
ter operating profit comparison between 2008 and 2007 was
impacted by costs to implement our restructuring initiatives and
costs related to our PLS program. The fourth quarter of 2008
includes cost to implement our restructuring initiatives of $7.4,
whereas the fourth quarter of 2007 includes $100.9 of costs to
implement our restructuring initiatives and $103.7 of costs
related to our PLS program.
Research and Product Development
Activities
New products are essential to growth in the highly competitive
cosmetics industry. Our research and development department’s
efforts are significant to developing new products, including
formulating effective beauty treatments relevant to women’s
needs, and redesigning or reformulating existing products. To
increase our brand competitiveness, we have increased our focus
on new technology and product innovation to deliver first-to-
market products that deliver visible consumer benefits.
Our global research and development facility is located in Suffern,
NY. A team of researchers and technicians apply the disciplines of
science to the practical aspects of bringing products to market
around the world. Relationships with dermatologists and other
specialists enhance our ability to deliver new formulas and ingre-
dients to market. Additionally, we have satellite research facilities
located in Brazil, China, Japan, Mexico and Poland.
In 2008, our most significant product launches included Anew
Ultimate Contouring Eye System, Bond Girl fragrance, Pro-to-Go
Lipstick,Anew Ultimate Age Repair Elixir, Supershock Mascara,
Ultra Color Rich Plumping Lipstick, U by Ungaro fragrances and
Anew Rejuvenate Eye.
The amounts incurred on research activities relating to the de-
velopment of new products and the improvement of existing
products were $70.0 in 2008, $71.8 in 2007, and $65.8 in
2006. This research included the activities of product research
and development and package design and development. Most
of these activities were related to the development of CFT
products.
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