London-based Avon Products, Inc. (NYSE: AVP) announced steps to simplify its operating structure, reduce product line complexity and reduce inventory holding levels.
For its strategy to “Open Up” Avon, the company says it has taken decisive action over the past several months to identify and capture cost savings within existing commercial practices, supply chain operations and global infrastructure footprint. In keeping with a focus on ensuring operations and infrastructure are fit-for-purpose, the company is pursuing a structural reset of its inventory processes, including a 15 percent reduction in inventory levels and 25 percent reduction in Stock Keeping Units (SKUs) and a 10 percent reduction in its global headcount.
15% Inventory Reduction & Write-Off
Avon is taking a one-time inventory obsolescence expense of approximately $88 million, as a result of its SKU reduction efforts, which will advance the simplification of Avon’s operations, and drive cost savings through lower raw material and procurement cost.
According to Avon, this reset will result in lower operational and ongoing obsolescence costs. Over the longer term, it will result in a more concentrated focus on high-turn, higher margin products, driving greater earnings for Representatives due to lessened discount pressure and enhanced service levels.
“Core to our ‘Open Up’ Avon strategy is to have simpler, leaner operations, and for our infrastructure and mindset to reflect Avon’s reality, said Jan Zijderveld, CEO of Avon. “The initiatives announced all advance these objectives. This reset is an opportunity for us to sharpen our portfolio and concentrate on products that are important and relevant to our customer. This represents an opportunity not just for Avon, but for Her to accelerate her earnings through a more focused portfolio, experience better service, and deliver high quality, modern products she can be proud of.”
10% Reduction in Global Workforce
The company today also announced plans to reduce its global workforce by approximately 10 percent to align with ongoing operating model changes and to create a leaner organization that is better aligned with Avon’s current and future business focus. These actions are expected to be substantially completed by the end of 2019. This announcement is on top of an 8 percent reduction of the global workforce completed in 2018.
“Decisions like these are always difficult; however, we must take the actions necessary to improve our operations and strengthen our ability to continue investing in our transformation initiatives and fuel our future growth” said Zijderveld. “I would like to express my sincere gratitude to the talented employees affected by this restructuring, and we will do our utmost to ensure everyone is treated with fairness and respect.”
In connection with the reduction in force announced, the company expects to achieve annualized pre-tax savings of approximately $97 million by the end of 2019. The company expects to record total charges related to these actions of approximately $100 million before taxes incremental to the approximately $51 million in charges associated with “Open Up” Avon that had been approved to date.