Avon to Reduce Products, Suppliers in Restructuring

Avon Products Inc. said Friday that it will offer fewer discounts, make fewer products and use fewer suppliers to save as much as $400 million a year by 2000.

Wall Street liked the news, driving shares of the New York-based cosmetics company up $6.88, or 10%, to $73.75 in trading of 3.88 million shares, more than five times the three-month daily average.

Avon said it will take pretax charges of $150 million to $200 million as it cuts 30% of its fragrance, cosmetics and toiletries lines. Reducing the number of products will allow Avon to focus on developing goods under global brands, which will reduce marketing and supplier costs, analysts said.

“Clearly, Avon is the next preeminent global consumer products powerhouse,” said analyst William Steele of Buckingham Research Group. “Instead of having a lot of products in the catalogs that come and go, they’re focusing the consumer on strong umbrella brands.”

The popular Anew brand of skin-care products, for example, will be expanded with new skin creams, including Anew Night Force, Anew Day Force and Anew Eye Force, he said.

The company also plans to consolidate its cheaper cosmetics under its ColorTrend brand, a new product line that will be introduced next year, said company spokesman Victor Beaudet. These cosmetics will target women in their teens and early 20s, he said.

Avon will also close its purchasing office in Hong Kong, eliminating about 80 jobs, Beaudet said. The office’s responsibilities, which include buying gift items and jewelry for Avon’s catalogs, will be contracted out to other companies, he said. Other job cuts will be announced as the restructuring progresses, he said.

Developing global brands also is expected to make Avon’s marketing programs more focused as it doubles advertising spending by 2000.

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Avon plans to reinvest half its savings, or $200 million a year, in advertising and marketing to target women who don’t currently purchase through its direct-selling system. These women are mainly in large, established markets such as the United States, the company said. Avon currently spends about 1.4% of its annual sales on advertising.

Fewer products also means fewer suppliers, analysts said, which will reduce costs. Avon expects to save about $75 million by centralizing its suppliers and purchasing, Beaudet said. Operating profit margins are seen rising as much as four percentage points by the end of 2000, the company said.