It Took a Lady to Save Avon (Fortune, 2001)December 18, 2011: 9:00 AM ET
Editor's note: Every week, Fortune.com publishes a favorite story from our magazine archives. This week, we look back at the career of Andrea Jung, the CEO of Avon. The company recently announced that it will replace Jung as CEO and that when it does, she will stay on as executive chairman. Jung has had a 12-year run as CEO of Avon, the longest of any female CEO of a Fortune 500 company. Here is a look back at Jung on the early end of her tenure as CEO, when she was a 43-year-old rising star, and looked like the company's savior.
Elegant and poised, with a will of iron, Andrea Jung knows how to win.
By Katrina Brooker
Andrea Jung, the chairman and CEO of Avon, is sitting in her office on the 27th floor of Avon's NewYork headquarters considering an obvious question: What does it mean to be the first woman to lead the beauty products company in its 115-year history? "I guess it helps," she says wryly. "You know, you go home and you try on a new mascara, and I guess a male CEO can't do that." She's joking, of course, but there's something to what she says. Glamorous, poised, and always impeccably turned out, Jung knows what women want and how to sell it to them. And that's what has made her one of the most successful CEOs--male or female--in recent years.
When Jung, 43, took over Avon in November 1999, the company was in deep trouble. During the greatest economic boom in history, its stock was crumbling. As fewer women wanted to peddle Avon products, its sales sagged. The Avon Lady seemed to have passed out of present time into the sphere of kitsch. "There was that feeling, 'Is the day of the Avon rep over?' " recalls board member Ann Moore, an executive vice president at Time Inc. But Jung surprised a lot of people. Over the past 20 months she has overhauled nearly everything about the way Avon does business: how it advertises, manufactures, packages, and even sells its products. Most surprising, she has done it not by abandoning the seemingly outdated Avon Lady, but by reviving her. Under Jung, more Avon Ladies are signing on than ever before. In the U.S. their numbers--after years of decline--will actually grow this year.
"The results under Andrea are strikingly different than they have been under any other CEO," says Heather Hay Murren, an analyst with Merrill Lynch. Indeed, over the past two years sales growth has climbed from 1.5% in 1999 to an expected 6% this year, and revenues should hit $6 billion. Operating profits, which grew at an average of 4% throughout the '90s, are expected to climb this year by 7%. And operating margins are on track to top 14%--their highest level in a decade. Before the Sept. 11 terrorist attack and the subsequent drop in the markets, Avon's stock had hit its 52-week high of $50, up 70% since Jung took over. To reward her efforts, Avon's board recently made Jung chairman--a title that had been withheld contingent on how she performed as CEO. "She is really shining," says Jack Welch, who until his retirement last month sat with Jung on GE's board. "I think you've got a CEO that is just blossoming on the job."
She blossomed so quickly at the top, perhaps, because she'd spent time getting to know the company and its foibles. Jung came to Avon seven years ago after working for such retailers as Neiman Marcus and Bloomingdale's. At Avon her task was to create a global brand. At the time, each region was in charge of its own campaigns. As a result, the company logo, packaging, and ads in Latin America, for example, looked nothing like those in the U.S. The last memorable slogan was the "Ding-dong, Avon calling" jingle that dates from 1953. Jung created a new "Let's talk" campaign and pushed for the current corporate tag, "The company for women."
She also trusted her own instincts about style and taste. She knew that Avon's largely working- and middle-class customers couldn't afford Lancome or Estee Lauder, but that didn't stop them from craving the elegance they associated with those brands. So she redesigned Avon's packaging to make its bottles and jars look as modern and sophisticated as products in upscale department stores.
To get a grip on the desires of her customers, as well as the struggles of the sales force, she signed on as an Avon Lady herself. "I wanted to go through the selling experience," recalls Jung. "I was going door to door in my neighborhood." It was by ringing doorbells on New York's Upper East Side that she really began to understand Avon's larger business. She heard customer gripes over discontinued colors, mishandled orders, confusing promotions. One customer chewed her out for showing up with a catalog that didn't offer her favorite skin cream.
By the time she took over as CEO from Charles Perrin, Jung was familiar with Avon's failings, and she knew she needed to move fast to fix them. Four weeks into her new job, in December 1999, she laid out her turnaround plan at an analysts conference. She talked about launching an entirely new line of businesses, developing blockbuster products, and selling Avon in retail stores--something it had never done in its long history. At the same time she promised to meet the company's goal of cutting hundreds of millions in costs out of the back end by the end of 2000. It was an ambitious plan, one few believed Jung could pull off. It "has a high probability of disappointment," sniffed one Paine Webber analyst report at the time. "Nobody thought we could do it," says Jung. "And that just made us want to prove them wrong."
Jung worked at a breakneck pace to execute her plan. In 2000 she added 46% to Avon's research-and-development budget to get blockbusters to market faster. Normally Avon spends at least three years developing new products, but Janice Teal, head of R&D, recalls Jung saying to her: "You've got two years. I need a breakthrough, and that's the goal." And indeed, by the end of that year, Jung got what she wanted. Last winter, Avon launched Retroactive, an anti-aging skin cream that has been a runaway hit. This year it's expected to gross $100 million. In the spring, Jung began selling a slew of other new products--vitamins, jump ropes, yoga mats, and aromatic therapy oils--under a line called Wellness, which is expected to bring in $75 million in sales. (In fact, some 40% of Avon revenues come from non-beauty product sales.) Still, Jung's boldest move was delivering on the promise to sell Avon in retail stores. In August she launched a line of makeup and skin cream--Becoming--that currently sells in 75 J.C. Penney stores around the country. Jung hopes that over the next five years store sales will grow to $300 million.
As R&D was testing new creams and lotions, a massive overhaul on the back end of the business was also under way. For years Avon had struggled to rein in the costs of its messy manufacturing and distribution systems. It had too many suppliers. Its sales reps were still writing out their orders by hand. And far too often--a third of the time--something went wrong with those orders. With little operational background, Jung asked Susan Kropf, a 31-year vet of Avon's operations, to clean up the back end. "She challenged us to really think about how we spend our money, to be more nimble and faster to market," says Kropf. To that end, Kropf cut back on the number of Avon suppliers from 300 to 75, saving $60 million. She automated everything that happens from the moment an order is placed by an Avon Lady to when it leaves the warehouse, and also renegotiated freight rates. All in all, these efforts have slashed a whopping $400 million from Avon's costs.
The cost savings gave a boost to profits, but Jung knew that in order for the company to grow she was going to have to breathe life into the ranks of the Avon Ladies. "If Avon stopped adding numbers of active representatives, you know, the fuel and the lifeblood of the business slows down," she says. To lure in reps, Jung dusted off an idea that had been floating around the company for years but had never been widely pushed. Dubbed "Leadership," the idea was to pay Avon Ladies to recruit other Avon Ladies. Each rep who signs up for the leadership program gets a percentage of the sales of every rep she recruits, and of every rep they recruit, and so on and so on--down three generations of Avon Ladies. To make sure they keep selling lipstick, reps must maintain $500 a month in sales. With that change, Jung has mobilized an army of women to scour their neighborhoods, offices, schools, banks, and shopping malls for potential recruits. "I spend my Saturdays outside the supermarket trying to talk people into being an Avon Lady," says Maria Tirotta, who has been an Avon Lady in East Rockaway, N.Y., for the past decade. She now spends more time signing on new reps than on selling products. In fact, over the past 18 months she's brought in 350 new reps. This year she'll gross $1.3 million in Avon sales--half of which will come from her recruits. Isonia Ricks, a rep from Brooklyn, N.Y., who signed on this spring, already spends half her time recruiting as well. She spent one recent morning on a street corner in her neighborhood calling out to passersby, "Are you interested in making money?" Within an hour she had 14 new leads. With thousands of such Avon Ladies mobilized around the country, the company is finally starting to see their numbers rise: This year, rep growth in the U.S will be up 3%.
Of course, the challenge for Jung now is to keep up the pace. That may not be easy. In light of the recent terrorist attacks on the U.S. and the resulting economic fallout, Avon--along with the rest of the world--is facing tough times. "The next couple of years are going to be no walk in the park," cedes Jung. Already, since Sept. 11, Avon's stock has fallen 10%. And its revenues could be hit hard as many of the big overseas markets, such as Argentina and Brazil, get crushed and its U.S. consumers increasingly cut back on spending. At the same time, some of Jung's changes have yet to prove viable. The plan to sell Avon products in retail stores has already hit some potholes. In July, right before Becoming launched, one of Avon's retail partners, Sears, unexpectedly decided to scale back its makeup department and backed out of the deal.
To guide Avon through this next phase, Jung's plan is to stick to the plan. "I'm not changing any of our thinking," she insists. "This turnaround is far from complete. I'm probably thinking that we need to be even bolder and faster." Indeed, already this summer she announced plans to launch another new line of business--selling to teenage girls. She's given her R&D department until 2002 to come up with another blockbuster. She's striving to cut the time it takes to get a product to market from 88 weeks to less than 50. She's pushing to reduce the number of mishandled orders from 32% to 10%. And over the next two years she expects Avon to cut another $200 million in costs out of its manufacturing and distribution.
She's determined to do all of this. And by way of explaining what drives her determination, she tells a little story. She tells it earnestly, without irony or jest. When she was in fourth grade in Wellesley, Mass., Jung recalls, she desperately wanted a box of 120 colored pencils. Her parents made her a deal. She could get the set if she got straight A's in school--no B's, no A-minuses, just straight A's. By her own admission, Jung was never a natural student, but she badly wanted that pencil set. So while other kids goofed around after school, Jung holed up in her room and studied. She missed out on birthday parties and tennis games, but by the end of the year she delivered to her parents a full set of A's--and in return she got a full set of 120 colored pencils. "I'll never forget that," Jung says. "My parents ingrained in me early on that the perfect score is always something to strive for. I want to win and I want to succeed no matter what." And if the girl would give up a year of fun for a box of pencils, what won't the woman do to make her company succeed?