Avon's New Lipschtick

ANNE NAYLOR ISN'T your typical Avon lady.

She doesn't pin her hair in a crisp bun, host teas, or wear skirt and sweater sets to market the latest cosmetics wares. And the phrase "Avon calling" has never been a part of her vocabulary.

This fresh-faced 21-year-old from Mokena, Ill., has a trendy haircut, wears hip clothes and giggles while discussing business strategy. Forget the dainty sandwiches of yesteryear. Today's tools of the trade include stylish sales brochures, the Internet and pocketfuls of mint-flavored French Kiss lipstick samples.

Naylor is peddling Mark, Avon's (AVP) new makeup line targeting 16-to-24-year-old American females, perhaps the ficklest consumer demographic in the world. Selling to these fashion-forward gals is serious business. Naylor knows it, and Avon knows it. In fact, the 117-year-old cosmetics grand dame is counting on Naylor, and thousands like her, to revive sales in its biggest and most sluggish market: the U.S.

Avon is trying desperately to shed its prim-and-proper image among the Gen Y crowd. Its hope? That as its core baby-boomer customers get older, a younger, hipper clientele will swoop in and drive sales long into the future. In makeup speak, the $6.2 billion direct-selling giant has scraped off its pancake foundation and applied some sheer cheek tint. And plenty of lip gloss.

Makeover, Anyone?
Wearing a dark denim shirt over a white T-shirt with "Mark" written on it and a matching black choker necklace, Naylor is animated as she rattles off some of her proven tactics for landing new clients. She has canvassed mall parking lots in suburban Illinois, approaching young women to get their names and numbers for sales calls later. She frowns on putting fliers under windshield wipers, though. "That's passive advertising. You want to do as much active advertising [as you can]." At a nearby college, Naylor has discretely worked registration lines, talking up young ladies and collecting e-mail addresses for future sales. "Girls want to be the first ones to have what's new out there," she says. She has even drummed up leads at the local laundromat.

That's a far cry from chamomile and crumpets. But Avon's youth movement is actually several years in the making. After issuing a nasty profit warning in September 1999, its stock plunged 28% to $25 in one day's time, an event that led to the ouster of Chief Executive Charles Perrin a week later. Not only had the company fallen out of step with the glamorous 1990s, but it also struggled to compete with mass merchandisers like Target (TGT) and Sephora. To lead the company into the new millennium, Avon tapped then President and Chief Operating Officer Andrea Jung, the candidate who'd been passed over for the CEO position 16 months earlier.

In retrospect, it seems the 41-year-old Jung was the perfect hire. She quickly set out to jump start its flagging direct-selling program, attract new customers in developed markets and freshen up Avon's product lines. The moves paid off beautifully. Avon quickly began to attract a younger, more upscale clientele, and expanded its reach to 143 countries. It now boasts 3.9 million representatives around the world, compared with 2.8 million in 1999. To put it another way, about 753 women, on average, have become Avon reps every day for the past four years.

The profits have been stunning. The company's third-quarter 2003 results, reported on Oct. 28, beat Wall Street's already high expectations, with sales rising 11% from a year ago to $1.61 billion (the strongest pace since 1994) and net income surging 47% to $133.1 million, or 56 cents a share — two cents more than analysts had projected. Such numbers have kept the stock buoyant throughout the bear market. This year, Avon's shares are up an impressive 25%, far outpacing the S&P 500.

But Avon's turnaround isn't complete. It needs to find new sales-growth opportunities in its mature markets — most important, the U.S. Third-quarter sales in the U.S. rose a solid 7%, thanks to its new antiwrinkle cream, Anew Clinical. But that pales in comparison with Russia's 60% sales growth or Europe's 23% increase. And it's clear that, over the long term, Jung's quick fixes will yield diminishing returns. That's only natural. Avon has already expanded its reach horizontally. Now, it must expand vertically.

Enter August's debut of Mark.

Girl Power
The strategy is simple: Snare customers by selling makeup in social settings — at parties, in dorm rooms, between classes, wherever girls gather. It's social beauty, says Deborah Fine, president of Avon Future, the division responsible for Mark. Social beauty is hardly a new concept, she says. It was born when the first Avon lipstick was manufactured more than 100 years ago and two Avon employees toddled off to the restroom together to try it on.

Sound bites aside, Mark is an impressive line of cosmetics, more than 300 in all, ranging from $4 to $28 in price — competitive even by drugstore standards. There's a rainbow of shimmery lip glosses, kicky little tubes of lipstick and a palette of sheer foundation shades. Eyeliner, mascara and a variety of other products can be "hooked-up" with handy connectors that snap items together. Eye shadows and blush can be mixed and matched in slick magnetic cases. There's also a full assortment of skin-care products, accessories and perfume. The packaging is cool, the colors fetching.

And Avon has clearly pulled out all the marketing stops (although it declines to assign a dollar amount to its rollout effort). In addition to a national print- and broadcast-advertising campaign, Mark has been covered in enough beauty and fashion magazines to fill a Trapper Keeper of tear sheets. YM, Allure, Cosmo Girl, Lucky, Oprah, Real Simple, Grace, Modern Bride — the list goes on. And a battalion of "Mark ambassadors" — gals who try to create buzz on college campuses — were hired and trained to get the word out. (Two ambassadors are strategically positioned at each of the country's 50 largest campuses.)

The push is paying off. In two months' time, says CEO Jung, Mark's brand awareness among its target audience is already nearing that of Estee Lauder's (EL) trendy Mac cosmetics line. Suzanne Grayson, a marketing-industry consultant with the San Juan Capistrano, Calif.-based marketing firm Grayson Associates, backs up Jung's claim. She says Mark is gaining brand awareness in exactly the demographic it's targeting. (Grayson Associates has done consulting for Avon in the past, but has no current consulting ties.)

The Internet has been an integral part of Avon's recruitment and sales efforts. So-called daughters of Avon (literally daughters and young acquaintances of Avon representatives) make up the first wave of Mark reps, and unlike their older predecessors, they consider the Web to be Command Central. From the beginning, Mark reps have been able to train, order and receive assistance online. In addition to the traditional mentoring relationships between new reps and older ones, there are also chat rooms and online forums for young women to vent, exchange ideas or even talk about the new season of Smallville.

"We have taken every piece of the business and evolved it to a point that it would resonate with a new generation," boasts Fine.

But will it sell? There's no guarantee that a young, instant-gratification-oriented clientele will opt to buy makeup and skin-care products through a representative. Why, after all, would a young woman make an appointment with a Mark rep, place an order and then wait days for the products to be shipped, when she could simply go to a drugstore or a boutique like Sephora and walk out with makeup in hand?

Fine points to the personal relationships forged between Mark reps and customers, as well as the line's value proposition. "Young women are social and want to be beautiful," she says, both of which play to Mark's strategy.

Some analysts worry that Mark will be too closely associated with Avon, a markedly older brand — especially since so many first-wave Mark reps are daughters of Avon reps. "I think there's a chance [the line] could work out," says Carl Sibilski, an analyst at investment-research firm Morningstar. "But I think it's dicey."

Fine brushes off these criticisms. This line isn't a weak facsimile of Avon products, she says. It's a product portfolio that was built from the ground up over the course of two years. Mark resonates with young women — both in terms of employment opportunity and product desirability. Indeed, young women were integral to the line's development; the party kit — used by Mark reps to hold "social beauty parties" — was designed by a 28-year-old and four of her friends. "We're speaking a different dialect," says Fine. "It's not a new language, it's a dialect."

Making Up Is Hard to Do
Pre-launch financial projections seemed achievable enough. Avon forecasted Mark to generate $100 million in sales in 2004, its first full year of business — a mere fraction of the company's $6 billion in annual sales. And it said Mark would be responsible for one to two percentage points of the company's U.S. sales growth. But while Mark hit the low end of the latter target during the third quarter, Avon cut its 2003 sales forecast to a range of $16 million to $20 million from $30 million. During the October conference call, management was vague in assigning a dollar amount to its 2004 forecast, leading Deutsche Bank Securities' analyst Andrew Shore to slash his estimate to $50 million — half of the company's original projection.

It should be noted that the number of young women who've been attracted to selling Mark has been impressive. So far, Avon has recruited 20,000 young women to hawk its new beauty line, reaching management's year-end goal by October. Jung told analysts during Avon's third-quarter conference call that Mark's rollout has been more encouraging than she expected. With fresh products and a new sales force, direct selling for the company is essentially being reinvented. "It's historic for us," crowed Jung. "It's really a moment for us here at Avon."

But recruiting sales people is one thing; rolling out a new product efficiently and effectively is quite another. While new reps flood Mark's message boards with effusive praise of the product line, the forums have also crackled with frustrations about shipping delays and Internet problems. Avon is trying its best to iron out the kinks. There are, for example, several postings detailing how the company has shipped delayed orders to representatives free of charge to make up for the inconvenience.

And then there's the learning curve. This is a young, largely inexperienced sales force that requires a great deal of training. Reps need to be taught selling discipline and how to build order size. To her credit, Jung admitted as much on Avon's recent conference call. "She is not an established seller yet," Jung said of the prototypical Mark rep. Nor can this new army of social beauty peddlers be expected to operate with the same levels of efficiency and success as traditional Avon reps right away. As Fine put it in a September interview: "It's only about 11 minutes into the game."

Still, the slower-than-expected sales pace prompts the question: Is Avon's push into a younger market falling on shoulders that are simply, well, too young? After all, every sales force has its share of slackers — and with college campuses brimming with distractions, it's likely that some Mark reps will lose their selling focus from time to time. Moreover, many Mark reps are working on a part-time basis, selling a little bit here, a little bit there. By contrast, Avon reps treat selling as a full-time job, says Linda Bolton Weiser, analyst at Oppenheimer & Co. She doesn't think college-aged women view selling Mark in quite the same way: "I know how I was in college," she says.

Anne Naylor seems to be the picture perfect mark rep: motivated and ambitious, with an infectious enthusiasm. She's instantly likeable; one wants to buy something from her. Mark sales lingo ("The face of Mark is ageless; It's all about attitude") rolls off her tongue with ease. But is this enterprising young woman typical of all Mark representatives? Perhaps not.

We Love That Foundation
Skepticism aside, a few things are clear. Avon knows women, and it knows how to get them to produce. This is one of the most successful direct-selling companies on the planet. It's a company that gave women financial independence before they had the right to vote. It has a sales force equivalent to the population of Ireland, makes an arsenal of resources available to its reps and knows about motivation. Its three-year-old Global Sales Leadership program, which provides higher earnings potential to saleswomen who also recruit representatives, is considered one of the company's biggest growth drivers.

And the young Mark sales force is already enjoying the mother company's nurturing touch. In the south suburbs of Chicago, for example, Avon's district-sales manager, Barbara Corcoran, has designated Naylor as the district coordinator. Right now, her schedule is packed with new-recruit appointments. Later, as the young women progress, she'll serve as the company's point person to answer questions, discuss strategy and, perhaps most important, listen.

Do these young saleswomen have too much on their plate? Naylor scoffs at the notion. "I think they've been given what they can handle," she says. "I don't see why anyone would doubt it."

Coming from Mark's front lines, this is an encouraging attitude. Never underestimate girl power.