Avon China suffered a loss of $10.8 million in 2010

Direct selling company Avon (NASDAQ) is undergoing transformational pain in China. In 2010, China's business totaled a loss of US$10.8 million.

According to Avon’s latest financial report for the fourth quarter of 2010, the company’s total revenue in the fourth quarter of China was US$55 million, a year-on-year drop of 45%, a net profit of US$4.3 million, and a loss of US$3 million in the same period of 2009. In the first quarter of 2010, China's business lost a million US dollars, and its second-quarter loss narrowed, but it still lost 2 million US dollars.

Performance shows that in 2010, Avon achieved 10.863 billion US dollars in global revenues, an increase of 6%; the global net profit of 1.073 billion US dollars, an increase of 7%. In all regions, only China suffered losses, Latin American performance declined, and other regions achieved growth.

In view of the reasons for the loss in China, Avon Financial reported that it was due to the company’s continued shift from a hybrid model to focusing on direct sales and diluting the negative impact of retail sales on the region’s revenue.

Avon is one of the earliest multinational direct sales companies to enter China. At present, it has nearly 80 branch offices, more than 6,000 service outlets, and hundreds of thousands of direct sellers. In 2006, Avon won the first direct sales license in China. However, the friction of the mixed mode of the two stores and outlets has caused the Avon China market to stagnate.

In fact, after getting the direct sales license in 2006, Avon China has been experiencing negative growth since 2007. All returning to direct sales is its strategic choice. According to Avon’s plan, the transition to direct sales will be implemented in stages from the summer of 2010 and is expected to be completed in the first half of 2011. However, how to deal with more than 6,000 stores on the Chinese market is a thorny problem. During the contract renewal with dealers in June last year, the Avon new contract was referred to as the “Overlord Clause” and there was a suspicion of cleaning the store. The store questioned.

Wu Zhigang, chief marketing consultant of Shengshi Chuanmei, said in an interview with reporters that with the progress of its direct sales business, Avon will have a bigger and more definite move in the transition to full sales model in 2011. "For Avon, the best choice should be to reverse this "intermediate state" as soon as possible, to clarify its sales strategy in the Chinese market." Wu Zhigang believes.

On the other hand, despite Avon’s efforts to make full use of the business opportunities brought by entering the world’s most populous consumer market, since October 2008, Avon’s headquarters started investigating the possible bribery in China’s business because of an internal whistle-blowing letter. Afterwards, the entire China region was in a huge shadow, which further worsened the performance of China's subsidiaries.

In April 2010, Avon announced that it will involve four senior executives involved in bribery, including Gao Shoukang, President of Greater China, Chief Financial Officer of China, senior corporate officials responsible for corporate affairs and government communications, and New York City reporting directly to Avon Global CFO. Auditor Rosette suspended.

After Avon, the general manager of Avon’s former Latin American region, landed in China, Avon China also officially launched “advancing the direct marketing plan”. Although Avon has previously stated that most stores have already been renewed, people in the industry believe that this is only a transition and a buffer. In the future, more than 6,000 stores may be abandoned.

Avon’s global CEO Zhong Binxin believes that the adjustment of the business model in China is imperative. The core is to return to the full direct sales model in the next 18 months, abandoning retail stores. She predicts that if the plan goes smoothly, China's performance may turn back to profit in 2012. In the future, Avon will compete with Amway, Rugao, Perfect, Mary Kay and other international partners to develop more intense competition in the field of direct sales.

However, according to Wang Wanjun, a direct sales expert and the general manager of Jiufangma's management consultancy, for Avon, rebuilding reputation is more important than transformation. In order for Avon to win in China, it is necessary to change the "benefit-oriented" strategy first, and even rebuild its business reputation at the expense of speed. Otherwise, it will be difficult to obtain the trust of the direct sales force and it will be even more difficult to recover the defeat in China.