Avon gets approval to resume China direct sales

By Simon Pitman

- Last updated on GMT

Related tags Direct sales Cosmetics

Avon received a big boost this week after the China Commerce
Ministry approved its application to resume door-to-door sales in
the country's booming cosmetics and toiletries market.

The move could go a long way towards helping Avon out of a lull in its global sales that has affected all of its developed markets and is pinning back profits.

But with Avon CEO Andrea Jung estimating that the move could eventually add $1bn a year to the company's bottom line, direct sales in China could be the company saving grace.

Since 1998 China had outlawed direct sales due to a series of high level scams that swept the country, cheating hundreds of thousands of consumers. However, the government decided to reintroduce direct sales, with a new law passed last December undertaking a stricter regulation of the sector.

Evidently all the major western direct sales cosmetic players are hoping to get a footing in the market and have consequently made applications for licenses, but Avon has been the first to receive approval.

Currently Amway, NuSkin and Oriflame are all believed to have applied to the Commerce Ministry for licenses but are still awaiting responses.

Avon's licensing arrangement allows it to hire independent promoters to sell products directly to consumers as well as allowing seven of Avon's employees to train door-to-door sales staff for the company.

Until now Avon has had to rely on retail outlets in China, a method that does not work so well with its product lines, its business model or the physical make up of China's vast and sprawling urban areas.

The company's is hoping that once it has received full licensing from the China authorities it will be able to employ a workforce on the same level as some of its other leading global markets.

Currently in Brazil, for example, the Avon sales workforce represents a total of five people for every 1,000 Brazilians. If the China business reaches anywhere near that level, it could see the company's workforce stretching well into the millions.

But China is a big country and there is likely to still be plenty of red tape to get through before those sort of figures are reached. As well as getting approval on a federal level, Avon and the other direct sales companies will have to seek approval on a county level.

And with around 2,300 individual counties in the country, that should prove to be no easy task.

Avon has been experiencing a steady decline in its China boutique sales during the course of 2005, as the company gears up to start its door-to-door sales, but with China consumers hungry for all things cosmetic and toiletry, growth is likely to be rapid from day one.

In line with a GDP growth rate that has consistently been hovering around the 10 per cent mark, sales of cosmetic and toiletry products have been exploding at an even higher rate, as China consumers race to spend their new-found wealth on products that to pamper themselves with and enhance their appearance.

According to research firm Kline & Company, the cosmetic and toiletries market in China increased 13 per cent from 2003 to 2004, with the country's share of the $147.4 billion global market coming in at $7.1 billion at the manufacturers' level, accounting for nearly 5 per cent of total sales.

"China's share of the global cosmetic and toiletries market may seem small compared to huge markets like the US and Japan, but with a population of over a billion people, the growth potential there is staggering,"​ said Lenka Contreras, vice president and head of the Consumer Products practice for Kline's research division.

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