Avon Discusses Direct Selling in China (AVP)

| About: Avon Products, (AVP)
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From Avon's (NYSE:AVP) Q1 2006 earnings conference call:

Andrea Jung - Chairman, CEO

Turning to China, as you know we were officially granted our direct selling license on March 2nd, given the extensive pre-communication, our Beauty Boutique owners were well-prepared for the announcement, and were pleased there was no incremental disruption in our business. Very importantly, our Beauty Boutique owners now better understand their role within our new direct selling structure.

They can continue to sell to customers at retail, and to provide salon and beauty consultation services as they currently do. However importantly, they will now have an additional way to earn fees by acting as service centers, that provide a variety of after-sales services, such as order pick-up, product returns, credits and billing assistance to our new direct selling sales representatives, who are called Sales Promoters, or SPs.

To cement this mutually beneficial relationship between our Beauty Boutique owners and sales promoters, we’ve combined our China field management structure into one model, which integrates both channels of distribution. In addition now that our license has been granted, we’ve begun to significantly step our investment up, to aggressively support the national rollout of direct selling opportunity here, and capitalize on this unique window of opportunity.

This month we launched a comprehensive consumer education campaign in ten major cities, including newspaper and television advertising, a consumer hotline and road shows across the country, to learn how to start a government-approved direct selling business. This is a similar technique to how we launched our business in Central and Eastern Europe more than a decade ago. In addition, We’re also investing in field incentives to spur recruiting, and quickly build our total number of sales promoters in this country.

So overall, I would just say we’re moving very rapidly in China to take advantage of our unique window of opportunity. Indications are that the performance of our Beauty Boutiques appear to have stabilized as they adjust to the new business model.

In terms of our first quarter performance in China, you’ll remember that the first quarter of 2005 was the only quarter last year that was not impacted by the April announcement of the direct selling test; so once again we lap a difficult comparison.