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Stratagem
 
INTERVIEW
“For Avon as a corporation, a sell-out is out of the question!”

Issue Date - 27/10/2011
 
With a presence in over 140 countries, the Fortune 500 Avon Products Inc., is the largest direct-selling company in the world. And India is considered a critical market by the company. Hemant Singh, MD, Avon India, explains to B&E’s Steven Philip Warner how Avon fanatically believes in reaching out to the masses with the right investments in R&D and how, the company for now, is all about ‘Organic’ growth.

For the first twenty-seven years of his career, Hemant Singh worked at HUL, PepsiCo and Modicare (he was the CEO of Modicare, when he left the company). 2009 saw him being welcome aboard the $10.86 billion-a-year revenue-earning (FY2010) company – Avon Products Ltd., as its Executive Director (Business Development) for the APAC region. Today, he serves as the MD of Avon India. In an exclusive interview with B&E, this man who runs the show at a company which prides itself for being “The Company for Women,” reveals some geographical market-specific trade secrets.

B&E: India as a market contributes to less than 5% of Avon’s global sales. How important really is India for the largest direct selling company in the world?
HS: There is a reason for it. The company was started 125 years ago. In India, the industry is only 15 years old. So first, there is the time gap. Secondly, given the pace at which we are growing, India is fast becoming a huge grosser for us. Our rate of growth in this market has been phenomenal. In 2009, Avon’s India revenues grew at 46%. In 2010, we grew 56%. And as we speak, this year already, the growth has been 55% y-o-y. And our plan for the next 5 years is that we should grow at a CAGR of 60%. I don’t think any company in our business in India can even talk about such figures. So yes, India is very important for Avon.

B&E: So would India be a market more important than China?
HS: No. India and China, from the point of view of the population and the rate of growth, are both right up there amongst the two most important markets in the APAC region.

B&E: Jewellery is something that you added much later in your portfolio, globally. Did that call for any change in approach to your sales strategy?
HS: Whether it be skincare or colours or jewelry, they all fall in the same superset called beauty products. So the introduction of the jewellery range did not influence our sales strategy really. As far as India is concerned, jewellery is naturally a huge opportunity. It is a $13 billion market. Of that $10 billion is real jewelry, and the rest is all about gold & silver-plated jewellery, which is what we do. At present, this fast growing segment contributes to 17% of our sales, while colours (& cosmetics) and skincare contribute to 40% and 15% respectively. So that gives a good perspective of how fast we have grown in the jewellery segment.

B&E: Let’s talk about outsourcing. You currently have close to 1000 products in your portfolio. There must be a huge chunk of that being obtained through outsourcing of the manufacturing function. Right?
HS: Most of our products are made in-house. But that does not mean that in every country where we are present, we have a factory. In India, we have a plant in Dehradun, which has a multi-product manufacturing capability with a limit up to 50 million units a year. But having said that, we do outsource as well. In fact, for many of our products, we have a global sourcing strategy in place.

 
B&E: Avon has been involved in inorganic activities in the past. For instance, just last year, it bought UK skincare brand Liz Earle Beauty and Silpada designs (for $650 million). Also, there were talks of L’Oreal wanting to acquire Avon for $18.8 billion last year. Two questions – in India, are you scouting for any potential takeover target? And how about a possible sell-out?
HS: In India at least, we are not looking at any acquisition. As far as a sell-out is concerned, we are a company whose topline is growing at a CAGR of 50%-plus, and I don’t think Avon as a corporation is about selling out! We are growing faster each year. A sell-out is out of the question.

B&E: You came on board in 2009 when recovery had started. Do you at Avon India have a protection plan in place in case a slowdown was to occur?
HS: A slowdown will never have an equivalent impact on our company. There are two aspects of the business – consumption and employment opportunity. When people lose jobs, people look out for direct-selling jobs which Avon provides. So going forward, even if there was a slowdown in India, consumption might go down but there will be more looking forward to employment opportunities. So to say that our revenues would fall if slowdown would occur, would be a false assumption.

B&E: You proud talk about your R&D facilities in US and China. How critical is R&D for Avon?
HS: R&D is our lifeline. For instance, this year alone, we plan to introduce another 600 products. And if we are going to do that, where will they all come from? If you are looking at innovation – all our products are about R&D. If we are to outsource our innovation, buy new products from the market, and not rely on our in-house potential to innovate, then our USP is lost. Even our competitors can buy products from the market! Yes, R&D demands a lead time, but then, as a corporation, you plan for it. R&D is also important from the point of view of pricing.

B&E: When you entered India, you chose to go to the mass market. This is unlike what L’Oreal did. It priced its offerings at brackets higher than what competing firms were offering. How do you justify your choice?
HS: Look. We price our products at the right price points. So we have skincare which is expensive and also which is not expensive. That is because we never wanted to be a niche player and wanted to offer these products across a wide audience. We have never underpriced ourselves, but at the same time, we also never overpriced. That is important.

B&E: You claim that you have grown much faster than the industry. While last year the industry grew by 24%, you grew by 56%. Isn’t it all a matter of talking about growth on a smaller base for Avon, than compare to the industry which would be a much larger volume to talk about?
HS: See the industry is not all that big as you say. So if you are talking about a smaller base for Avon, after growing so much faster than the industry last year, this year again, we are growing at 65%. The industry on the other hand will not grow beyond 25%. Last year, the industry in India was about $1 billion.

          

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