Avon Products Inc, the world’s largest direct seller of cosmetics, on Wednesday dismissed rumors that it is exiting China after a prolonged slump in sales. According to industry sources, the company has been facing a torrid time in China due to weakness in direct sales and product innovation.
“Avon is making good progress (in China) and we are confident that we have the right strategy to make the business profitable,” said a statement from the company.
“China has been an important market for us in the past 25 years and we will continue to leverage on our strong network of beauty boutiques and wide range of products for sustained growth,” it said.
Recent media reports had suggested that the company was contemplating a retreat from China after several of its top officials resigned and revenue fell drastically.
For the third quarter that ended in November, Avon’s revenue fell 22 percent to $1.7 billion while net loss was $697 million. The company’s Asia-Pacific revenue dipped 16 percent, as growth in the Philippines was offset by declines in other Asia-Pacific markets, led by China.
“This was a difficult quarter affected by currency and other macro pressures, and our financial results were not where we would like them to be,” Sheri McCoy, chief executive officer of Avon, said in the company’s financial result for the third quarter.
Avon has almost $9 billion in annual revenue globally and its product line includes beauty, fashion and home products, with several well-known brands like Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals and Mark.
Things were not so bad for Avon when it entered China in 1990.
At that time, the country had seen very little high-end beauty products, a factor that propelled its growth. In 1997, Avon China’s revenue exceeded 1 billion yuan ($154 million), according to Jiemian.com, an information portal.
However, since then it has been a downhill journey for the company.
Between 2011 and 2014, the company’s revenue was 1 billion yuan, 700 million yuan, 600 million yuan and 350 million yuan. In contrast, direct-selling giant Amway Corp recorded revenue of 28.7 billion yuan in 2014, according to Jiemian.
Rachel Lee, regional business director of Kantar Worldpanel China, said Avon’s failure in China was due to the lack of clear direction on the necessary distribution channels. The conflict was between direct sales and non-direct channels. “Such vague altitudes hamper communication and collaboration with partners,” said Lee.
Lack of innovation, especially in product development has also hurt Avon as it could not keep pace with the fast-changing preferences of young Chinese consumers, she said.