Founder: David H. McConnell, CEO: Sheri McCoy
Price: $15 to become an independent distributor + Upsells
Overall: (1.3 / 5)
Date when it started: 1886
Verdict: Product-Based Pyramid Scheme
You may have heard about the company Avon, that sells mostly beauty products to approximately 6.4 million independent distributors worldwide, it’s a huge business, but it has also created a huge controversy between high profile supporters and detractors. Recently, Avon has struggled with the global sales falling for 5 straight years and North American revenues falling 18% in 2014. Avon was founded back in September 15, 1886 by David H. McConnell and it’s now the fifth-largest beauty company and second largest direct selling enterprise in the world.
In the past, Avon used to shower credibility upon MLM, however, now MLM is corrupting Avon. Now, Avon is far from it’s traditional direct selling model on which it built a renowned brand with a loyal customer base and its newer multi-level marketing model, championed by the likes of Amway and Herbalife. The new model is based upon hyping an “income opportunity” for salespeople. It shapes its marketing message less on its consumer product or service and more on its “financial product” that is akin to a speculative security, a pay day loan or a sub-prime mortgage. Recessionary high unemployment has become Avon’s marketing focus, not beauty and health needs.
Avon planned its shift toward recruiting in 2005 as part of a large restructuring program to boost sales and cut costs. In its 2005 report to the Securities & Exchange Commission Avon announced plans for “expanding our Sales Leadership program and improving the attractiveness of our Representative earnings opportunity.” The Sales Leadership program was described as “a multi-level compensation program which gives Representatives the opportunity to obtain earnings from commissions based on sales made by Representatives they have recruited and trained, as well as from their own resales of Avon products.”
This shift since 2005 lead to Avon now having major, negative consequences:
1) Avon is increasingly called a pyramid scheme by Internet critics and some ex-salespeople. –
2) “Channel stuffing” – basing “sales” on increasing the number of salespeople who are induced to buy company products – appears to be an official strategy to offset declining consumer demand for the Avon brand and a recessionary economy.
The drive to constantly add salespeople even as sales decline and as salespeople sell less on average, has led Avon to the unseemly practice of info-mercials that hype an illusory “income opportunity” to desperate and unemployed people.
In a 2009 article in USA Today, Avon appeared to officially confirm that it saw no problem in adding new salespeople and selling inventory to the increased ranks, while the overall market for its goods was shrinking. As the article recounted:
“Right now, our direct-selling opportunity is really the No. 1 product that we have to sell,” says Geralyn Breig, president of Avon North America. With that in mind, Avon this year launched its most ambitious recruitment campaign and saw its U.S. sales force grow to more than 680,000 through March, its largest ever, Breig says.”
While Avon was trumpeting to the newspapers (and unemployed people) a great new opportunity to become an Avon sales representative, it reported sales drops to the SEC in its Q-1’09 filing, “During the first quarter of 2009, sales of Beauty, Fashion and Home declined 8%, 13% and 24% respectively. Given the economic environment, we expect these trends to continue… our North America business experienced a significant increase in new Representative additions… It is our goal to transform these new Representatives into Active Representatives.”
3) Avon’s stock is non-performing.
“We rate AVON PRODUCTS (AVP) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. ” – www.thestreet.com
4) Avon is reportedly also being investigated in China for violating China’s anti-pyramid scheme law and for possible violations of the Foreign Corrupt Practices Act, i.e., corrupting officials of foreign governments with bribes.
It is in China where Avon’s new efforts at marketing an income opportunity over a branded product may be coming back to haunt it. After embracing capitalism, China was seen as the the greatest opportunity on earth for all direct selling companies. But in 2005, just as Avon adopted its MLM-type recruiment strategy, China outlawed multi-level markeing as inherently fraudulent. Though other MLM companies are operating in China under the new anti-MLM restrictions, Avon appears to be not faring well at all. Sales, in fact, dropped precipitously from 2009 to 2010 from $353 million to $229 million, 36% down. Active sales representatives in China also delined by 39% in the year. At this level of sales, and after five years of investment in that once promising and vast new territory, China represents only about 2% of Avon’s global revenue, and falling.
Avon appears to have run afoul of China’s anti-pyramid laws as well as America’s Foreign Corrupt Practices Act. Bloomberg News reported in May, 2011, “Avon is probing possible corruption in other countries after firing four executives over bribes to officials in China. The company suspended the four in April 2010 as part of an internal investigation into its compliance with the U.S. Foreign Corrupt Practices Act. The executives included the general manager and finance chief of the company’s China unit…” The costs of two-year “internal investigation” that Avon is conducting into corrupt practices in Chian and elsewhere have reportedly topped $150 million.
In China, Avon may also face prosecution from that country’s government. Chinese media have reported Avon may face financial penalties and possibly take “criminal responsibility if it is found to be involved in multi-level marketing.” Under China’s Regulations on Forbidding Pyramid Selling, parties who introduce, lure or force others to join in multi-level marketing shall have the relevant assets and illegal income confiscated and fined. Serious violators can be punished by law.
In September 12, 2014, Avon resigned from the Direct Selling Association, citing ethics concerns. The company says that the DSA does not protect consumers enough, and that Avon does protect consumers by:
- Not encouraging the sale of inventory or business support materials to distributors
- Having reasonable return polices, so distributors are not left with excess inventory
- Limiting commissions paid to three generations, rather than infinite
Sounds great, doesn’t it? Except Avon is really no different than any other multi-level marketing company…. they just don’t do MLM very well. Robert FitzPatrick analyzed Avon in an article on Seeking Alpha. He says that Avon is really no different than Herbalife, an MLM that has been heavily criticized over the last two years.
Source – sequenceinc.com/fraudfiles
Now, What is the Avon “business opportunity” about?
This is how they promote their “business opportunity” on their site. “Independence. Following your passion. Money in your pocket. Whatever your reason, we’ve all got a why that has us looking for more. See how these women like you made theirs happen with Avon.” – www2.youravon.com
- “Build on your success by inviting people into the Avon business and earn on recruiting efforts and team sales.”
- “Simply by launching their business to family and friends, start-up costs are covered – plus earnings.”
What does that sound like you already? A Pyramid Scheme.
So how can you earn from this “business opportunity with Avon?
The compensation plan of Avon
First you have to pay $15 to get started and it will make you an official Avon Independent Sales Representative. After that, there are three ways you can earn with Avon.
1. Retail Sales
You can earn retail commissions by selling products to anyone from 20-50% depending on how much you product you sell. The more you sell, the more commission you will get. So to make the most amount of commissions, you have to buy a large amount of products. ($1,575 and above to get the 50$ commissions)
2. Team Building.
You can also earn commissions based on what your downline is doing every “campaign’” period (2 weeks) anywhere from 1-11% depending on where you are ranked within the company.
At “Unit Leader” level (the most basic level) you can earn 1-5% on your directly sponsored rep depending on how much sales they did that campaign period and 1% on your second and third levels.
You can also earn bonuses when you reach and maintain your level within the company and when you help others to do so. This varies across the board.
So , is this business model really sustainable? Well, I don’t really think so. Why? Because for the retail sales the more product you buy, the more commissions you earn, but what if you can’t manage to sell the products? You’ll be finding an inventory of products sitting at your home collecting dust. And as for the team building and bonus, is all about recruiting people and teaching them to do the same, just like another typical MLM business model.
Here are some Consumer Complaints & Reviews from www.consumeraffairs.com by Avon representatives and customers. This is the overall satisfaction rating based on the site.
There are many more complaints and reviews these are just some that I picked.
Finale Verdict: Avon is a Product-Based Pyramid Scheme
Similar to MLM companies like Amway and Herbalife, Avon is just another company that runs their business in a fraudulent and ethical way. Although, it is the one of very few MLM companies that offers you only $15 to become an independent distributor, the fraudulent business model and the lack of customer satisfaction proves that the company is indeed a multi-billon dollar scam. I would avoid associating with such a company.
After reading my post, I would appreciate if you share this with anyone you know who is going through the Avon. You will be saving more lives from this scam. This is our fight. To prevent anyone else from being victims and to shut down this fraud. If you have lost money to this scam, you can file a complain with the FTC here www.ftccomplaintassistant.gov and tell them your experience with the company.
Lastly, if you have gone through the Avon, you can share your experience with me down below! I would be happy to talk to you. 🙂