Avon's Update on Direct Selling in China (AVP 3Q05 Conf Call Quotes)

Avon Products (ticker: AVP) is hoping to capitalize on China's new direct selling regulations that take effect in two phases beginning today. Barred from communicating details of its direct selling compensation package Avon has been struggling. Orders are down and morale is weak. Chinese employees don't know what to expect from the new regulations. President and CEO Andrea Jung provided a China operations update during management's Q3 2005 earnings results conference call:

….recovery in the second half is not playing out as expected as beauty boutique owners continue to reduce the size of their orders in connection with the anticipated resumption of direct selling. Revenue in this market declined 16% in the quarter, however, the number of beauty boutiques, 6,000, remain intact. Activity rates continue to be high in the range of 90%….

As for the industry-wide regulations themselves, in September, as I'm sure you've seen from our competitors, the Chinese Government announced two set of direct selling regulations.

I would note, though, that December 1 is when the companies can begin to apply for a license, but there are many, many steps that need to be completed at the central as well as the provincial levels before direct selling can official launch.

While we wait for this licensing process to begin, we've continued to proactively reach out to our beauty boutique owners to assure them that they will have the same or greater earnings opportunity with Avon when the new regulations are finalized.

As part of our preparations, we've begun a massive training effort to ready a large force of field supervisors to recruit representatives when we are granted the license.

(Quotes are from the CCBN StreetEvents transcript.)

Related

• USANA Health Sciences on Direct Selling in China.
• Herbalife Executes Pre-Sales-License Strategy.
• All stocks covered by The China Stock Blog.

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