Avon 2009 Annual Report Download - page 38

PART II
U.S. dollars of non-monetary assets. Refer to further discussion
of Venezuela on page 29 of this 2009 Annual Report. Despite
the negative impact of the accounting cost from the devaluation
of the Venezuelan currency, we anticipate the Company’s oper-
ating margin to improve in 2010 and to reach mid-teen levels
by 2013.
We believe that our strong operating cash flow and global cash
balances of approximately $1.3 billion, coupled with the continu-
ing execution of our turnaround strategies and the competitive
advantages of our direct-selling business model, will allow us to
continue our focus on long-term sustainable, profitable growth.
We are also focused on innovating our direct-selling channel
through technological and service model enhancements for our
Representatives and assessing new product category opportuni-
ties. We also continue to offer an increased assortment of “smart
value” products, which are quality products at affordable price
points, and promote our Representative earnings opportunity to
a wider audience.
Strategic Initiatives
At the end of 2005, we launched a comprehensive, multi-year
turnaround plan to restore sustainable growth. As part of the
turnaround plan, we launched our PLS and SSI Programs. Since
2005, we have identified, and in many cases implemented, restruc-
turing initiatives under our 2005 and 2009 Restructuring Programs.
We continue to implement certain initiatives under these restruc-
turing programs. The anticipated savings or benefits realized
from these initiatives have funded and will continue to fund our
investment in, amongst other things, advertising, market intelli-
gence, consumer research and product innovation.
Advertising and Representative Value
Proposition (“RVP”)
Investing in advertising is a key strategy. Although we signifi-
cantly increased spending on advertising over the past three
years, during 2009, our investment in advertising decreased by
$38 or 10% reflecting improved productivity, general softness
in media prices and the benefit of foreign currency translation.
As a percentage of Beauty sales, our investment in advertising was
flat compared to 2008. The advertising investments supported
new product launches, such as, Anew Reversalist Serum/Cream,
Anew Dermafull Helix, Spectra Lash mascara, SpectraColor Lip,
24-K Gold Lipstick, Supercurlacious Mascara and Spotlight
fragrance. Advertising investments also included advertising to
recruit Representatives. We have also continued to forge alliances
with celebrities, including alliances with Patrick Dempsey and
Reese Witherspoon for her In Bloom fragrance.
We continued to invest in our direct-selling channel to improve
the reward and effort equation for our Representatives. We have
committed significant investments for extensive research to deter-
mine the payback on advertising and field tools and actions, and
the optimal balance of these tools and actions in our markets.
We have allocated these significant investments in proprietary
direct-selling analytics to better understand the drivers of value
for our Representatives. We measure our investment in RVP as
the incremental cost to provide these value-enhancing initiatives.
During 2009, we invested approximately $56 incrementally in
our Representatives through RVP by continued implementation
of our Sales Leadership program, enhanced incentives, increased
sales campaign frequency, improved commissions and new
e-business tools. Investing in RVP will continue to be akey strat-
egy. We will continue to look for ways to improve the earnings
opportunity for Representatives through various means, including
the following:
•Evaluating optimum discount structures in select markets;
•Continuing the roll-out of our Sales Leadership Program, which
offers Representatives an enhanced career opportunity;
•Strategically examining the fee structure and brochure costs to
enhance Representative economics;
•Recalibrating the frequency of campaigns to maximize Repre-
sentative selling opportunities;
•Applying the optimal balance of advertising and field invest-
ment in our key markets; and
•Web enablement for Representatives including on-line training
enhancements.
While the reward and effort will be different within our global
portfolio of businesses, we believe that web enablement is a
key element to reduce Representative effort worldwide. We
will continue to focus on improving Internet-based tools for
our Representatives.
Product Line Simplification
During 2006, we began to analyze our product line, under our
PLS program, to develop asmaller range of better performing,
more profitable products. The continued goal of PLS is to identify
an improved product assortment to drive higher sales of more
profitable products. During 2007, we completed the analysis of
our product portfolio, concluded on theappropriate product assort-
ment going forward and made decisions regarding theultimate
disposition of products that will no longer be part of our improved
product assortment (such as selling at adiscount, donation, or
destruction). During 2007, we recorded PLS charges of $187.8,
primarily for incremental inventory obsolescence expense of $167.3.
Although the PLS program is ongoing, we recorded final PLS
charges in the fourth quarter of 2007.
Sales and marketing benefits have and will continue to account
for most of our projected benefits. Improving our product