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Marketplace Morning Report

Avon calling it a day in the U.S.

Nova Safo Mar 15, 2016
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Avon headquarters in New York. The cosmetic company will relocate to the U.K. 
Mario Tama/Getty Images

Avon, the American women’s cosmetics brand founded in New York 130 years ago, is moving to the U.K.

The company, which made its name in door-to-door direct sales, announced that it is relocating its corporate headquarters overseas to save money by combining with an established commercial operation in the U.K.

Avon said its move is not a corporate inversion to reduce  taxes. The company plans to remain incorporated in New York.

Rather, it is an attempt to reduce costs by a targeted $350 million over the next three years. Part of those cost reductions will come from 2,500 job cuts among the company’s 28,000 labor force.

The move to the U.K. is an indication of Avon’s changing business. It has recorded four years of falling sales, thanks to a sagging North American business. It’s North American direct sales have plummeted 50 percent in the last eight years, according to Fortune.

The door-to-door business has waned as more women have entered the workforce, said Barbara Kahn, a marketing professor at the University of Pennsylvania’s Wharton School. Avon has also faced increased competition from more modern cosmetic brands offering in-store services and from Internet-based home ordering companies, said Kahn.

“There is a lot of these subscription services,” she said, “Where you… get a box of cosmetics to try at home.”

Avon has struggled to keep up with the digital revolution.

Internationally, Avon believes there is hope in other countries – such as those in Latin America and Turkey. Avon CEO Sheri McCoy, speaking recently on CNBC, said women in foreign countries are enthusiastic about the brand.

“We are still growing our representative base. Women are still coming in. They love the products. They want the earnings opportunity. And so if you look at the health of the brand, it’s still very strong,” McCoy said.

Avon recently sold its North American business to the private equity firm Cerberus Capital Management. In return, the company got $170 million for that business, and a $435 million investment in its products.

The company is now focusing on trimming costs as it looks toward foreign markets. Combining its headquarters with commercial operations already in place in the U.K. is part of that strategy, the company said.

“If most of the organization’s operations are no longer U.S.-based, then realistically… being closer to where most of their operations are should allow them to achieve some efficiencies,” said J.P. Eggers, an associate professor of management and organizations at NYU.

The question now is what the future of the iconic American brand will be here in the U.S. The private equity firm running the brand will be working on a turnaround of Avon’s U.S. fortunes. 

Here are some examples of some past Avon commercials, when it enjoyed far greater popularity here at home. 

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