Avon distribution restructuring leads to closures

By Simon Pitman

- Last updated on GMT

Related tags Distribution center Supply chain management Investment

Avon Products says that as parts of major global restructuring
plans it is to build a state-of-the-art distribution facility in
the Midwest, leading to the consolidation and closure of two
distribution centres in Delaware and Illinois.

The new distribution centre is scheduled to be opened by 2009, employing around 500 people and shipping approximately 50 per cent of sales volume for the US market once it is fully operational.

The plans also include an investment in its Altanta-based distribution center, which will be upgraded and modernized. The company also said that it is mulling plans to invest in a new warehouse management system for its Pasadena site.

The total investment is expected to carry a $150m price tag to build the new distribution centre and upgrade existing facilities, on top of considerable expenses to close the two distribution centers.

However, the company says that this investment should see considerable returns from increased efficiencies. Indeed, once the new centre is up and running it is expected to achieve approximate cost savings of between $35m and $45m.

The new cfacility will see the two old distribution centers gradually phased out, with the Newark, Delaware, operation due to be closed by mid-2009 and the Glenview, Illinois, operation mooted for a mid-2010 closure.

The closure of the two sites will lead to the loss of 620 jobs, with the sale of the properties expected to fetch around $25m.

"With these actions, we are transforming our US distribution network, cost structuring and operating effectiveness as we continue to lay the foundation for Avon's return to sustainable growth,"​ said Elizabeth Smith, president of Global Marketing.

"Our decision to restructure US distribution will deliver a step-change in technology support for operations and also will enable a significant improvement in service to our US representatives,"​ she added.

The company added that it was expected to record approximately $20m in charges associated with restructuring of its distribution channels in the fourth quarter, mainly attributable to employee-related costs.

Looking ahead to the next few years, further charges of approximately $65m are also expected, a figure that includes transition costs and accelerated depreciation on equipment.

When the company first announced its restructuring program at the end of 2005, costs were approximated to come in at between $300m - $500m - a figure that is now creeping up towards the upper end of these expectations.

Avon shares rose slightly after the announcement, on the back of a steady rise in recent weeks. Currently share prices stand at $34.47, against a year low of $26.16.

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