Avon 2011 Annual Report Download - page 11

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, skin care 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 five regions: Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; and Asia Pacific.
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 41 of this 2011 Annual Report on Form 10-K, which we refer
to in this report as our “2011 Annual Report”, and in Note 13, Segment Information, on pages F-33 through F-35 of our 2011 Annual
Report. Information about geographic areas is included in Note 13, Segment Information, on pages F-33 through F-35 of our 2011 Annual
Report.
Over the past six years, we have been implementing various initiatives, including our 2005 and 2009 Restructuring Programs, and
investments in advertising and our Representatives. Additional information regarding our initiatives is included in the “Overview” and
“Initiatives” sections within MD&A on pages 19 through 21 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 23 and 38 through 41 of our 2011
Annual Report. In 2011, we committed to undertake a detailed assessment of our long-range business plan in order to improve our
performance and better position ourselves in the increasingly complex economic environment. The review will include internal and external
inputs, executional capabilities and capital allocation.
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. Additionally, in December 2010 we sold the ownership interest in Avon Products Company Limited (“Avon
Japan”) to Devon Holdings K.K., an affiliate of TPG Capital.
Distribution
We presently have sales operations in 65 countries and territories, including the U.S., and distribute our products in 42 other countries and
territories. 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 6.4 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 Internet, mail, telephone, or fax.
This order is processed and the products are assembled at a distribution center and delivered to the Representative usually through a
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