Avon 2013 Annual Report Download - page 11

PART I
(U.S. 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 and Fashion & Home. Beauty consists of color, fragrance, skincare and personal care. Fashion &
Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and
leisure products, children’s products and nutritional products.
Our business is conducted worldwide primarily in one channel, direct selling. Our reportable segments are based on geographic operations
and include commercial business units in Latin America; Europe, Middle East & Africa; North America; and Asia Pacific. Financial information
relating to our reportable segments is included in “Segment Review” 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 21 through 52 of this 2013 Annual Report on Form 10-K,
which we refer to in this report as our “2013 Annual Report”, and in Note 13, Segment Information, to the Consolidated Financial
Statements on pages F-42 through F-45 of our 2013 Annual Report. We refer to each of the Notes to the Consolidated Financial Statements
in this 2013 Annual Report as a “Note”. Information about geographic areas is included in Note 13, Segment Information on pages F-42
through F-45 of our 2013 Annual Report.
In 2012, we outlined initial steps toward achieving a cost-savings target of $400 before taxes by the end of 2015. In connection with this
cost-savings target, in 2012, we announced a cost savings initiative (the “$400M Cost Savings Initiative”), in an effort to stabilize the
business and return Avon to sustainable growth, which is expected to be achieved through restructuring actions as well as other cost-savings
strategies that will not result in restructuring charges. The $400M Cost Savings Initiative is designed to reduce our operating expenses as a
percentage of total revenue to help us achieve a targeted low double-digit operating margin by 2016. The restructuring actions under the
$400M Cost Savings Initiative primarily consist of global headcount reductions and related actions, as well as the restructuring or closure of
certain smaller, under-performing markets, including our exit from the South Korea, Vietnam and Republic of Ireland markets. Additional
information regarding our initiatives is included in “Overview” within MD&A on pages 22 through 23, and in Note 15, Restructuring
Initiatives on pages F-45 through F-49 of our 2013 Annual Report.
In July 2013, we completed the sale of our Silpada business (“Silpada”) for $85, plus an earn-out of up to $15 if Silpada achieves specific
earnings targets over two years. Unless otherwise indicated, our MD&A and 2013 Annual Report relate solely to the discussion of our
continuing operations. See Note 3, Discontinued Operations on pages F-15 through F-17 of our 2013 Annual Report for more information.
Distribution
We presently have sales operations in 62 countries and territories, including the United States (“U.S.”), and distribute our products in 43
other countries and territories. Unlike most of our CPG competitors, which sell their products through third-party retail establishments (e.g.,
drug stores and 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 more than 6 million active independent
Representatives. Representatives are independent contractors and not our employees. Representatives earn 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.
Representatives can start their Avon businesses for a nominal fee, or in some markets, for no fee at all. 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.
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