BIG UPDATE: Iconic beauty brand files for Chapter 11 bankruptcy
In recent years, the multilevel marketing (MLM) business model has come under significant scrutiny. This model allows individuals to pay for the opportunity to become sales representatives for a company, earning commissions on product sales. However, the real profit often lies in recruiting new representatives, which can lead to practices resembling pyramid schemes.
The Appeal and Controversy of MLMs
MLMs typically attract stay-at-home moms and others seeking flexible income sources. Unfortunately, many of these companies blur the line between legitimate sales and pyramid schemes. HBO’s John Oliver famously dedicated a 2016 episode of “Last Week Tonight” to critiquing these businesses, stating, “The point is MLMs may present themselves as a great opportunity, but your chance of success is actually remote.” Oliver even created a mock MLM, #ThisIsaPyramindScheme, to highlight the industry’s tactics.
Avon’s Iconic Legacy and Current Challenges
As the multilevel marketing landscape faces challenges, iconic brands like Avon have also struggled. Known for its long-standing commitment to social selling and female entrepreneurship, Avon promotes the idea of empowering women to run their businesses on their terms. “At Avon, beauty is more than skin deep,” the company emphasizes on its website.
However, Avon has faced increasing competition from low-priced beauty retailers like Ulta and Sephora, as well as from big-box stores like CVS, Target, and Kohl’s, which offer more affordable beauty products. This shift has diminished Avon’s relevance among the many women who once relied on its offerings.
Chapter 11 Bankruptcy Filing
Recently, Avon Products, Inc. (API) announced it had initiated voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware. This filing is aimed at addressing its debts and legacy talc liabilities, but it does not affect the U.S. operations of the Avon brand, which is currently owned by LG Household & Health Care Ltd.
The filing follows a staggering $225 million spent on defending personal injury lawsuits and settlements, with the Chief Restructuring Officer Philip Gund noting that the company lacks “sufficient liquidity to litigate and/or settle” these cases. He warned that the lawsuit count is expected to rise without a permanent solution.
Acquisition by Natura & Co.
Brazil-based Natura & Co., which acquired Avon in 2020, has agreed to purchase the equity interests in Avon’s non-U.S. operations for $125 million through a credit bid, pending a court-supervised auction process. Natura has also pledged up to $43 million in debtor-in-possession financing, subject to court approval, to ensure API can meet its obligations during the sale process.
Despite these financial difficulties, the Avon brand remains strong on a global scale. CEO Kristof Neirynck stated, “We remain focused on advancing our business strategy internationally, including modernizing our direct selling model and reigniting the brand to accelerate growth.” Since taking the helm earlier this year, Neirynck has expressed optimism about the company’s strengths and the opportunities ahead, supported by nearly 2 million representatives worldwide.
With debts and assets estimated between $100 million and $1 billion, Avon’s journey through bankruptcy illustrates the ongoing challenges faced by multilevel marketing companies in a rapidly evolving retail landscape.
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