Avon 2009 Annual Report Download - page 21

PART I
(Dollars in millions, except per share data)
ITEM 1. BUSINESS
When used in this report, the terms “Avon,” “Company,” “we,”
“our” or “us” mean, unless thecontext otherwise indicates, Avon
Products, Inc. and its majority and wholly owned subsidiaries.
General
We are aglobal manufacturer and marketer of beauty and
related products. We commenced operations in 1886 and were
incorporated in the State of New York on January 27, 1916. We
conduct our business in the highly competitive beauty industry
and compete against other consumer packaged goods (“CPG”)
and direct-selling companies to create, manufacture and market
beauty and non-beauty-related products. Our product categories
are Beauty, Fashion and Home. Beauty consists of color cos-
metics, fragrances, skin care and personal care. Fashion consists
of fashion jewelry, watches, apparel, footwear and accessories.
Home consists of gift and decorative products, housewares,
entertainment and leisure products and children’s and nutritional
products. Sales from Health and Wellness products and mark.,
aglobal cosmetics brand that focuses on the market for young
women, are included among these three categories based on
product type.
Unlike most of our CPG competitors, which sell their products
through third-party retail establishments (e.g., drug stores,
department stores), our business is conducted worldwide primar-
ily in one channel, direct selling. Our reportable segments are
based on geographic operations in six regions: Latin America;
North America; Central &Eastern Europe; Western Europe,
Middle East &Africa; Asia Pacific; and China. We have centralized
operations for Global Brand Marketing, Global Sales and Supply
Chain. Financial information relating to our reportable segments
is included in the“Segment Review” section within Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, which we refer to in this report as “MD&A”, on
pages 28 through 33 of this 2009 Annual Report on Form 10-K,
which we refer to in this report as our “2009 Annual Report”,
and in Note 12, Segment Information, on pages F-27 through
F-29 of our 2009 Annual Report. Information about geographic
areas is included in Note 12, Segment Information, on pages
F-27 through F-29 of our 2009 Annual Report.
Strategic Initiatives
In November 2005, we launched acomprehensive, multi-year
turnaround plan to restore sustainable growth. Our four-point
turnaround plan includes:
•Committing to brand competitiveness by focusing research
and development resources on product innovation and by
increasing our advertising;
•Winning with commercial edge by more effectively utilizing
pricing and promotion, expanding our Sales Leadership pro-
gram and improving the attractiveness of our Representative
earnings opportunity as needed;
•Elevating organizational effectiveness by redesigning our struc-
ture to eliminate layers of management in order to take full
advantage of our global scale and size; and
•Transforming the cost structure so that our costs are aligned
to our revenue growth and remain so.
Over the past four years, we have been implementing our turn-
around plan through various strategic initiatives, including our
2005 and 2009 Restructuring Programs, product line simplifi-
cation program (“PLS”), strategic sourcing initiative (“SSI”) and
investments in advertising and our Representatives. Additional
information regarding our strategic initiatives is included in the
“Overview” and “Strategic Initiatives” sections within MD&A on
pages 19 through 22 and additional information regarding our
inventory is included in the“Provisions for Inventory Obsolescence”
and “Liquidity and Capital Resources” sections within MD&A on
pages 24 and 33 through 36 of our 2009 Annual Report.
Distribution
We presently have sales operations in 65 countries and terri-
tories, including the U.S., and distribute our products in 40
more. Unlike most of our competitors, which sell their products
through third party retail establishments (i.e. drug stores,
department stores), we primarily sell our products to the ultimate
consumer through the direct-selling channel. In our case, sales of
our products are made to the ultimate consumer principally
through direct selling by approximately 6.2 million active
independent Representatives. Representatives are independent
contractors and not our employees. Representatives earn aprofit
by purchasing products directly from us at adiscount from a
published brochure price and selling them to their customers,
the ultimate consumer of our products. We generally have no
arrangements with end users of our products beyond the Repre-
sentative, except as described below. No single Representative
accounts for more than 10% of our net sales.
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