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Avon calling off direct sales model in China

  • Staff Reporter
  • 2013-01-10
  • 13:09 (GMT+8)
An Avon store in Guangzhou. (Photo/Xinhua)

An Avon store in Guangzhou. (Photo/Xinhua)

Cosmetics giant Avon has seen its sales in China dip over the past few years, affected by negative incidents including cases of bribery which have damaged its image. Avon China is set to close a dozen branches, laying off as many as 200 employees. The company's China division has swayed between the company's traditional direct selling model and retail operations, and its new boss now plans to focus on overall retailing, Chinese web portal NetEase Money reports.

The once popular Avon has encountered repeated problems in China, including product returns, negative publicity and reduced advertising, resulting in declining sales, NetEase Money said. Avon's board recently approved a plan to lay off 1,500 workers worldwide this year and withdraw from markets including South Korea and Vietnam, the report said.

In 2008, Avon announced it would lay off 2,400 employees, but Avon China at that time said the cuts would not affect the Chinese market. This time, less than one week after Avon's headquarters announced plans to lay off 1,500 workers, Avon China has taken action, the report said.

Avon China plans to shut down a dozen branches in China, keeping only one branch in every province-level region, NetEase reported, citing an executive of an Avon China's branch. The executive said there are currently several branches in Guangdong province but only one branch in Guangzhou will survive.

Avon China will keep 32 branches — it currently has 44 — laying off between 100 and 200 employees, the report said.

Executives and spokespeople from the company have declined to comment on the report.

Managers at nearly 10 Avon China branches, including those in Taiyuan, Ningbo and Tangshan, who all declined to be named, have confirmed the closure of branches and the layoff of workers, NetEase reported.

Most staff members being laid off have chosen to accept the compensation package on offer, but some are continuing to negotiate with the company.

Avon entered China in 1990, and at its peak had 74 branches with 2,000 employees. In 2003, Avon China scored sales of 2.4 billion yuan (US$385 million), but sales went into decline from 2004. In the last three years, Avon China's sales fell at least 20% each year, and its revenues fell below 1 billion yuan (US$160 million) in 2012, the report said.

In 2011, the direct selling sector in China notched total revenues of 140 billion yuan (US$22.5 billion), with Amway top with 26.7 billion yuan (US$4.3 billion), followed by Perfect Resources with 12 billion yuan (US$1.9 billion), and Infinitus with 8.1 billion yuan (US$1.3 billion), while sales of Avon, the first licensed direct selling company, fell 52% to just 1 billion yuan (US$160 million), ranking No. 15, NetEase said.

In 1998, Beijing introduced restrictions on direct sales models and Avon China was forced to turn to traditional retail channels by setting up shops. In 2006, Avon China became the first company to obtain a direct sales license in the country, and it operated a dual model of direct selling plus retailing. Since then, it has been struggling between the two operation models, the report said.

The incumbent Avon China chief is now primarily focused on retail operations, and the company's traditional model of direct selling may be abandoned, the report said, citing inside sources.

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