Avon 2010 Annual Report Download - page 15

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 the context otherwise indicates, Avon
Products, Inc. and its majority and wholly owned subsidiaries.
General
We are a global 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 cosmetics, fragrances, skincare and personal care.
Fashion consists of fashion jewelry, watches, apparel, footwear, accessories and children’s products. Home consists of gift and decorative
products, housewares, entertainment and leisure products and nutritional products.
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 primarily 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 19 through 42 of this 2010 Annual Report on Form 10-K,
which we refer to in this report as our “2010 Annual Report”, and in Note 13, Segment Information, on pages F-33 through F-35 of our
2010 Annual Report. Information about geographic areas is included in Note 13, Segment Information, on pages F-33 through F-35 of our
2010 Annual Report.
Over the past five years, we have been implementing our multi-year turnaround plan through various strategic initiatives, including our
2005 and 2009 Restructuring Programs, product line simplification 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 23 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 through 25 and 39
through 42 of our 2010 Annual Report.
In July 2010, we purchased substantially all the assets and liabilities of Silpada Designs, Inc. (“Silpada”), a direct seller of jewelry products,
primarily in North America.
Distribution
We presently have sales operations in 64 countries and territories, including the U.S., and distribute our products in 41 more. Unlike most of
our competitors, which sell their products through third party retail establishments (e.g., 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 6.5 million active independent Representatives. Representatives are
independent contractors and not our employees. Representatives earn a profit by purchasing products directly from us at a discount 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 Representative, except as described below. No single Representative accounts for more than
10% of our net sales.
A Representative contacts customers directly, selling primarily through our brochure, which highlights new products and special promotions
for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through which our products are sold.
A brochure introducing a new sales campaign is usually generated every two weeks in the U.S. and every two to four weeks for most
markets outside the U.S. Generally, the Representative forwards an order for a campaign to us using the mail, the Internet, telephone, or
fax. This order is processed and the products are assembled at a distribution center and delivered to the Representative usually through a
combination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects payment
from the customer for his or her own account. A Representative generally receives a refund of the full price the Representative paid for a
product if the Representative chooses to return it.
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