Not Your Mother's Avon A MIDDLE-AMERICAN ICON GETS SORT OF COOL
(FORTUNE Magazine) – I never would have dreamed that my first facial would be with an Avon Lady. You move from rural Minnesota to Manhattan to escape things like Avon Ladies. Yet here I am at Avon's new Fifth Avenue Spa, spending around $85 to have my face prodded, massaged, and covered in gook. The parsimonious Midwesterner in me balks--this requires an entirely different mindset than paying $7 for an Avon lipstick--but my facialist, Virginia, rebukes me. "This is not a luxury," she says sternly. "It's a necessity."
The Avon Centre, which opened in 1998, fits right in with the glam, the glitz, and the wretched excess of its neighbors in Trump Tower. There's a store on the first floor where Avon products are sold; the spa and hair salon occupy 14,000 square feet on the 14th floor. The spa is New York-trendy, with elegant yet understated decor, exotic treatments like the Deep Sea Mud Body Wrap ($125) and the Aromatherapy Salt Glow Escape ($75), and top grooming talent like eyebrow expert Eliza Petrescu, who is celebrated in fashion circles for her depilatory dexterity. (Call now: Eliza is booked through September.) But it is also friendly and unpretentious, as befits the legacy of the Avon Lady. "This is our chance to invite people into the Avon home after 113 years of being in other people's homes," chirps a spokeswoman.
The Avon Centre exists for the same reason that every prestige brand's Fifth Avenue store does: image, image, image. The big difference is that Avon isn't a prestige brand. But it dearly wants to be. The goal is to become a "world-class beauty brand," says President Andrea Jung. "We want to change people's minds about Avon." This fall Avon will launch its first global advertising campaign, and it will spend around $150 million in 2000 to promote its new image, more than double 1997's promotion budget.
Not only does the Avon Centre dress Avon up, but it offers a way for customers to buy Avon products without confronting a Lady. The same strategy applies to Avon's new retail outlets, Website, and 800 number. Not that all this means the end of the Ladies: Jung says the three million Avon Ladies worldwide will always deliver the lion's share of Avon's business, and that reps are thrilled to come to town and have their picture taken at the center.
The spa certainly convinced both me and my fashion-conscious colleague Shelly. We loaded up on various gels and conditioners and at one point actually gushed, "Wow, this is Avon?!" The spa is also snagging other customers who would never go near an Avon Lady--namely men, who make up about 10% of its customers. (We asked a man sitting in the "relaxation room" if he thought the spa was pretty. He frowned and said: "It's relaxing. That's as far as I'll go. I can't do 'pretty.'")
On Wall Street, Avon is the height of fashion. Crushed in the market downturn last fall because of concerns about its overseas exposure, its stock price has since doubled to $56 a share, an all-time high. In mid-April, Avon, which gets two-thirds of its revenues from outside the U.S., announced that first-quarter earnings would top expectations, and that operating profit in Brazil was up 50%. "They're doing everything right," says Scott Chapman, a portfolio manager at Founders.
The Street's love stems not from the joys of a good massage but from a much less glamorous source: penny pinching. "What's exciting is that Avon is very focused on cost reduction. There's a new financial discipline," says analyst Amy Low Chasen at Goldman Sachs. In the fall of 1997, Avon launched a program to carve out $400 million in costs by 2000. Jung says the cost-cutting plan is on track. The streamlining goes hand in hand with Avon's new goal of growing earnings by 16% to 18% annually, a target that Avon met in 1998--a year when other consumer-product companies were busy whining about global turmoil.
But cost cuts can give a business only a face-lift, not a full-body makeover. Avon still needs to move more product. In 1998 revenues grew just 3%--a long way from Avon's goal of producing 8% to 10% annual growth by 2000. For Avon to transform itself into an ultrastylish growth stock, it still has to persuade a bigger audience--trendsetters included--to buy Avon.