Remaking the Avon Lady Andrea Jung must show U.S. women that her brand hasn't gone out of style.
By Sarah Rose; Andrea Jung

(MONEY Magazine) – When Andrea Jung left a fast-track job at upscale retailer Neiman Marcus in 1994 to join mass-market cosmetic maker Avon, she set out to update the company's merchandise and change its dowdy image. By the time Jung was named second in command to new CEO Charles Perrin in July 1998, investors had bought in: The stock climbed 48% that year.

But while Jung improved Avon's products and packaging, women in the U.S. still seemed to associate the company with bubble bath and tacky lipstick. In the third quarter of 1999 it became clear that U.S. sales, which account for 30% of Avon's business, weren't growing. Investors hammered the stock down 35%. Perrin resigned in November, and Jung took over the corner office, becoming the first female CEO in the company's 114-year history.

Jung, 41, says she will continue with Avon's push to upgrade its image and find new ways to reach consumers without alienating its 3 million sales reps--the Avon ladies. What's different, Jung says, is the "urgency" with which she'll make those changes.

She has good cause to move quickly. Avon's stock price won't go anywhere if it can't get U.S. sales rolling again. To do that, Avon is doubling the U.S. ad budget to $40 million (still half of what Estee Lauder spends). The company is also looking at expanding its retail presence and will invest $60 million in its website, which will be relaunched in June. This, while trying to reassure all those sales reps that their lunch won't be eaten. It's a tall order for an executive who, while praised as a great marketer, has limited operating experience.

Investors at this point are cautious but encouraged. "Their strategy makes sense," says Robert Hagstrom, manager of Legg Mason Focus fund, which has 3% of its assets in the stock. Avon's sales force, he says, "gets the products out at a level that competitors can't, particularly in a global market."

MONEY's Sarah Rose sat down with Jung one month after she was named CEO.

Q. Your new initiatives appeal to a different kind of buyer than I'd imagined the Avon customer to be.

A. True, all of our strategies, which include our new advertising campaign, our current Internet strategy, as well as the product and image enhancements, have really not been targeted toward our core customers. We're trying to capture new customers.

Q. So do you risk alienating your core group by talking to a more upscale audience?

A. No. We have a brand that is priced at mass, and we are committed to that. We are not trying to be Clinique or Estee Lauder. We are not trying to sell $15 lipsticks. We are selling $3.15 lipsticks. And beautiful packaging, great formulas and great-looking models never alienate any beauty customer.

Q.What are you doing to improve Avon's weakest link--U.S. sales?

A.Certainly the great thing about Avon is the global portfolio. Still, U.S. sales are a third of the business, and we're in a highly competitive market. But we're doubling advertising spending in the U.S., almost doubling the samples we distribute, and we are really radically improving the sales brochures. We're also increasing our new product offerings by 30%, and these initiatives will back that effort. Also, the Internet is very U.S. based.

Q.Can I order an unlimited amount of products from your website, or do I need to go through a representative?

A.You can buy an unlimited amount on the site, and we hope you do!

Q.Can I buy directly in your retail outlets as well?

A.We've got 50 beauty kiosks in malls across the U.S. where you can buy directly from Avon.

Q.What plans do you have to expand the kiosks?

A.We have to evaluate a couple of things first. We are going to test franchising some of them, as we've done overseas, and we are considering partnering with a large retailer, probably one that is in the malls. This wouldn't be a Saks Fifth Avenue, though. We still don't want to go upscale.

Q.But about 98% of your sales come from your representatives. Won't the Internet and retail be the death of the Avon lady?

A.If you think about it, the Internet is direct selling, and that is what we invented 114 years ago. This technology can completely transform a representative's experience, even with her existing customers. Now the representative can submit purchase orders directly with one click to Avon. Any information about products, availability, anything that she would have called her client on the phone about, she can communicate around the clock via e-mail. If I am a representative, do I feel this is a conflict? No. I am giving you a standing ovation, Avon, because you've just given me an opportunity to have a much better business proposition.

On the retail side, about 95% of those sales are incremental--the customers shopping in the mall are not currently our customers. And representatives say they feel good about Avon in the kiosks, because they feel it enhances the brand's image.

Q.Much of your effort since joining Avon has been focused on improving the brand. Is it easier to control your brand when sales reps are on the Internet?

A.Yes. When we roll out the new Internet site, we will provide representatives with a template to create their own sites. About 90% of each site will be standard, while the rest can be customized with, for example, special offers from a representative.

Q.I take it, then, that you plan on preserving the direct-selling model?

A.Direct selling means making products available to women when they want them. I want to add other ways for people to get the products, but I'm not doing away with our representatives, by any means. I don't think customers are really going to be just direct-selling customers, or just Internet customers or just mall customers. They are going to want to be all three.