April 15, 2024

Avon Tries a New Turnaround Plan, and Wall St. Is Anxious

Ms. Jung ran Avon Products for 13 years and, by the time she left as chairwoman in December, this venerable beauty products company didn’t just need a makeover — it needed a full-body lift. One problem after another, from earnings disappointments to a snubbed takeover offer, earned her a reputation as one of the nation’s worst chief executives.

Now her successor, Sherilyn S. McCoy, is hurrying to clean up the mess and win back investors’ trust. It won’t be easy. Since being named C.E.O. in April, Ms. McCoy, who is 54, has embarked on an ambitious turnaround plan that includes wringing out $400 million in costs, sharply increasing sales and almost doubling operating margins within three years. And Wall Street is growing impatient. Ms. McCoy, who joined Avon after a 30-year career at Johnson Johnson, has yet to explain in detail how she intends to achieve those goals. Analysts hope she will do so next month at an industry conference.

“Avon seems to be the perennial turnaround story,” says Jason Gere, a managing director at RBC Capital Markets.

It has been a remarkable comedown for Avon, which traces its history to 1886, when David H. McConnell, a door-to-door book salesman, discovered that women were more interested in his fragrance samples than his books. And, Mr. McConnell concluded, who better than women to sell to women? And so the Avon Lady was born, and success followed success. Avon eventually went public, and its stock soared. It later pushed into fast-growing markets like China and Russia ahead of many of its peers. Today, the company, which is based in New York, operates in more than 100 countries and has more than six million sales representatives.

But financially, the Avon empire is a shadow of its former self. As growth faltered and other problems arose, Avon’s share price plummeted; it is now at $17.15, down from a high of more than $46 in mid-2004. After years of disappointing earnings, Ms. McCoy has cut its quarterly dividend by 70 percent and announced plans to lay off 1,500 employees and exit two weak markets, South Korea and Vietnam. These cuts account for only 20 percent of her proposed cost savings, and analysts want to know where the rest will come from.

Ms. McCoy, along with other executives and Ms. Jung, who remains a senior adviser at Avon, declined to comment ahead of an earnings report scheduled for Feb. 12.

THE question, of course, is what Avon will do next. During the last three months of 2012, sales were virtually flat.

“The challenges that Avon faces developed over time, not overnight, and it will take time to implement the solutions as well,” Ms. McCoy said when she unveiled her goals in November.

But this is the third turnaround plan that Avon has announced since 2005, and stockholders are skeptical.

“I need to see a little more fleshing out of the strategic plan that gets her to these targets because she has given very aggressive targets,” says Linda Bolton Weiser, senior analyst at B. Riley Caris.

Mark Astrachan, an analyst at Stifel Nicolaus, says: “I have a ‘show me’ attitude.”

Ms. McCoy has made some strides, notably renegotiating the terms of the company’s debt in late December to give Avon some breathing room.

“It’s an encouraging sign — the lenders were willing to work with Avon,” says Lisa Quateman, managing partner in the Los Angeles office of Polsinelli Shughart, a law firm, who works with companies that do business internationally.

If the business continues to deteriorate, however, Avon’s debt could become an issue again. Avon has about $3.3 billion in debt, although it had $1.1 billion in cash as of September, providing some cushion.

“It’s hanging over Avon’s head,” Ms. Quateman says of the debt burden.

How did so much go so wrong? The story really starts around 2005, when Ms. Jung was in her sixth year as C.E.O. Rising competition, an outdated electronic supply system in Brazil, missteps in Russia and China, bloated management, misdirected marketing — all combined to choke off profits. By 2009, Liz Smith, the company’s highly regarded president, had left. A flurry of regional managers exited as well. Even after Ms. Jung cut $1 billion in costs in the latest of two restructurings, profitability kept dwindling. As the share price sank, the company began to look like takeover bait. Rumors circulated that L’Oréal might swoop in.

Critics say Ms. Jung simply made bad decisions. For instance, they say, Avon spent $3 million on a Super Bowl ad in 2009 to recruit sales representatives but didn’t invest enough to train the new employees. It spent $650 million in 2010 to acquire Silpada, a direct seller of silver jewelry, only to write down the investment the next year largely because of a rise in silver prices.

Article source: http://www.nytimes.com/2013/02/03/business/avon-tries-a-new-turnaround-plan-and-wall-st-is-anxious.html?partner=rss&emc=rss

Media Decoder Blog: Digital Notes: Amazon ‘Rips’ CDs Into the Cloud

Amazon is turning to an unlikely old friend to step up its competition in digital music: CD’s.

Digital Notes

Daily updates on the business of digital music.

Almost two years ago Amazon introduced its Cloud Player, which lets customers back up their digital music files and stream them on any device; Google and Apple soon followed with their versions.

On Thursday, Amazon introduced an enhancement to the service called AutoRip, which expands Cloud Player libraries to include everything its customers have bought on CD, stretching back all the way to 1998. That Baha Men album you bought from Amazon 13 years ago, in other words, can now be listened to instantly through a phone or tablet.

“What we’re doing with AutoRip is bringing the cloud to physical music, eliminating that distinction,” said Steve Boom, Amazon’s vice president for digital music.

Variations on this have existed before, but they have often met with resistance — if not litigation — from music companies. MP3.com, for example, let customers gain access to their music online after a CD was inserted into a computer to verify ownership, but it was sued for copyright infringement and eventually shut down; AnywhereCD, by the same entrepreneur, Michael Robertson, was introduced in 2005, but again ran into problems with labels.

Amazon has gotten around these problems by striking licensing deals with music companies.

Catching Up at (Or Around) the Consumer Electronics Show: The annual International Consumer Electronics Show in Las Vegas is well known as an opportunity for manufacturers to show off their latest “unuseless” gadgets, like a tablet that doubles as a coffee-table surface and a fork that warns you if you’re eating too fast.

For digital music services — whether they are participating in the conference or not — the show is also an opportunity to update statistics and introduce new features. Here are a few notable announcements this week.

  • Muve Music, a subscription service connected to Cricket Wireless phones, said it finished 2012 with 1.1 million subscribers. Muve is often left out of discussions of hot tech products, perhaps because it focuses on low-income customers and has a relatively simple interface for downloading songs. But in two years it has attracted at least as many subscribers as Spotify and Rhapsody, whose last reported numbers in the United States were both 1 million.
  • Internet radio services are pushing hard for a place in new cars, often in the dashboard. Pandora said it was available in 85 models of cars, including its latest addition, Chrysler. In all, Pandora is integrated into more than 1,000 devices, including cars, televisions and various other kinds of consumer electronics.
  • Sirius XM Radio said that it ended 2012 with 23.9 million subscribers, up two million for the year, and that it expected to add another 1.4 million in 2013. Sirius’s biggest shareholder, Liberty Media, also said it had received approval from the Federal Communications Commission to take over the company.
  • Pitchfork, the online bible of alternative music, introduced a service to stream new albums in advance; its name, appropriately enough, is Pitchfork Advance. It should compete with NPR Music, whose advance album streams have proved an effective draw for NPR and provided valuable promotion for artists and record companies.

Ben Sisario writes about the music industry. Follow @sisario on Twitter.

Article source: http://mediadecoder.blogs.nytimes.com/2013/01/10/digital-notes-amazon-rips-cds-into-the-cloud/?partner=rss&emc=rss

Olympus Board Hints at Quitting Over Fraud

At a news conference on Wednesday, Olympus said one director had resigned, others may follow and the entire board could go once the company submitted its second-quarter earnings, due by Dec. 14.

An external investigative panel report, released on Tuesday, concluded that several former executives spent 13 years running a complex scheme to hide huge investment losses. “Our corporate governance was severely criticized,” Shuichi Takayama, the president of Olympus, told reporters. “As the representative of the company, I apologize sincerely.”

The former chief executive, Michael C. Woodford, who was fired in October after questioning murky merger deals, is campaigning to return to lead Olympus, a 92-year-old Japanese maker of cameras and endoscopes. He has called for an extraordinary shareholders’ meeting to pick a new board.

Mr. Takayama, who took over after the scandal became public, said the earliest such a meeting could be held was late February, and the management would not resign before then — after picking its own slate of candidates.

“We don’t know what Mr. Woodford is thinking, but he has said he will pursue a proxy fight, so we think there will certainly be a proposal,” Mr. Takayama said.

“We will have the shareholders meeting decide,” he said. But he did praise Mr. Woodford for “pointing out problems that the current board failed to do.”

Olympus also set up an outside committee to advise whether to file criminal complaints or sue those responsible for the scandal, which has halved the value of the firm’s shares and fanned fears about Japan’s corporate governance generally.

Announcing the new committee, which is to report its recommendations by Jan. 8, the once-proud firm also said that a senior executive director, Makoto Nakatsuka, had quit the board, the third to do so since the scandal erupted.

Mr. Nakatsuka was found on Tuesday to have helped the two main architects of the cover-up — a former auditor and a former executive — to manage Olympus’s financial assets in the late 1980s, when it embarked on risky investments that led to the losses.

Olympus, which still risks being delisted from the Tokyo stock market and forced into a humiliating sale of core assets, said it would form a second external panel to examine the responsibility of the company’s auditors.

A report released Tuesday, prepared by outside legal and accounting specialists, said Olympus management was “rotten to the core,” ruled by a culture of absolute corporate loyalty and a desire to flatter financial performance.

Article source: http://feeds.nytimes.com/click.phdo?i=71fcfe27701b7bb8256c75408f04daf3

Start-Up Chronicle: Talking Restaurants and Closings, One Owner to Another

JoEllen Schilke: I am done done done done done.Elise Schreiner PhotographyJoEllen Schilke: “I am done done done done done.”

Start-Up Chronicle

Getting a restaurant off the ground.

Southfork Kitchen is closed for the season. It took weeks to complete the physical task, what with inventory, cleaning, canceling vendors and preserving whatever foods we could. It’s taking much longer to shut down internally. I miss the hustle and bustle. I miss the staff. Change was never my friend, especially unscheduled change, a change that brought unexpected sadness, a sense of failure and an empty freedom.

We knew the odds against off-season success, but we were supposed to be so good, so appetizing, that even logic and arithmetic would succumb to our charms. Shame may be the flip side of pride. When it became obvious that we would lose much less money being closed rather than open, we decided to close the doors until May. The decision was sad, laced with guilt, and — as explained in my last post — sent us to Brooklyn in search of a second restaurant. (More about that next time.)

One poignant comment on that post came from Josie in St. Petersburg, Fla., who has been a long-time reader and frequent commenter. She owns a place called The Globe Coffee Lounge. She wrote, in part:

“You should open in St. Pete during the winter. It is gorgeous here, very artsy, good places to eat but not a really good seafood place downtown. And you know what? You can take my space! That’s right. Because after almost 13 years of being open, I am done done done done done. Done in by patrons, done in by staff, done in by government. Done in by ennui.

“I have gotten the job of my dreams, and that lets me finally put the end to this once-dream. …the raves don’t come near balancing out the million little stabs. So think about St. Pete. It was 75 degrees and sunny this morning. Southwest flies from here to Islip-McArthur, and lord knows, there are some delicious fish, a growing local food movement, and a restaurant-loving population.”

Tired of my own voice, bereft of answers, hoping for mutual commiseration, I reached out to Josie, whose real name is JoEllen Schilke. Here’s a condensed version of our e-mailed conversation.

When did you start and why?

My partner and I started working on the idea in July, 1998. I was at a party, at a crossroads in my life, when a friend’s husband asked me to open a nightclub. I asked if I could open a coffee shop first. He put up the majority of the money, ultimately about $70,000.

What was your background?

I worked as a therapist for years, mainly working with adolescents, which included grief therapy. I then ran a speakers bureau for a nonprofit. Then back to school for a journalism degree, more nonprofit work, and worked in restaurants and bartended on and off throughout that whole period. I also started doing a radio show on the arts in 1992, and still do.

How long was it before you knew what you were doing?

Haha. Hahahahahahaha! Hahahahahahahahahahahaha!

No, really.

It was just a year or so in. I usually think I know now, on a day-to-day basis, though it’s more a ‘what-am-I-doing?’ feeling these days …

If you knew then what you know now …

I wouldn’t do it in such an underfunded way. Not at all. I would have gotten about $30,000 more. It has been financially stressful from Day 1 — until my first paycheck at the new job.

What’s the new job?

I have gotten my dream job as volunteer and outreach coordinator at WMNF, 88.5 FM, the community radio station in St. Pete. This will give me a bigger venue for creating community and making the world a better place! Plus there will be sleeping, much sleeping.

How many years did the Globe turn a profit?

If I didn’t pay myself much, for the last 10.

But the financial stress was constant?

I pay myself a barely living wage, delaying gratification. We can pay our bills. We can invest a little money into new equipment, re-covering the chairs, etc. But there is always something around the corner. Water heaters, cappuccino machines, refrigeration, windows, being robbed, new taxes, more fees, my vehicle breaks, and the constant fear of getting hurt. No insurance. What happens if I cut my thumb really badly? No time or money for stitches or the doctor.

How many people work for you?

Six plus me. Two staff members have been here over seven years.

What’s your most popular dish?

The Sloppy JoEllen. When I named it, I didn’t realize there were connotations. Ahem. It is a spicy red eye barbecue shredded chicken sandwich, with pepper-jack cheese, roasted red peppers and jalepeños, grilled on foccacia. It unites the Southern, Italian and Cuban cultures of this area.

How has your menu changed over the years?

Many more vegan choices now, and more seasonal produce. Our savories have always been pretty healthy, and the desserts not. Of course, there has to be gluten-free, because there is a militant anti-gluten movement! We try to prove you can be a gluten-free-no-carb vegan and still eat well and cheaply.

Did your vision and reality match up?

The vision was to make a place that felt grounded, that could have manifested only in downtown St. Pete, where all sorts of people felt at home. I dreamt we would be more successful.

Describe success.

I try not to base success on just financial numbers. We are very successful in being a good member of the community, and at having people love us, and at making good things. I think a better business person would charge more money, and perhaps would have moved more quickly on doing things that are good business practices.

What else turned out differently from the plan?

I thought The Globe would be able to thrive without me there every day, or at all. While many people have contributed to what the place has grown into, how we look, it is my eye that keeps the consistency. I want plates decorated before desserts are on them, things straightened, this up, that down. People know me here as that guiding force.

You must enjoy that.

That has a lot to do with why I want out. It doesn’t interest me to keep that up anymore.

Are you closing the restaurant or selling it?

I was ready to close, but now people want to buy it. I won’t own it after this year ends, unless whomever buys it defaults on their payments.

What is your first rule for would-be restaurateurs?

Don’t do it alone. EVER. Have enough money at the beginning, because it is hard to catch up. Don’t think you know anything.

What was the best part of owning a restaurant?

Sitting back at my desk and hearing the place humming along, people talking and laughing and working. People coming in and loving the place.

Do you like people more or less after all of these years?

When we started, my motto was, “try to see the face of the Buddha in everyone.” Having worked as a therapist for years, I understood why people sometimes behave the way they did. But I have grown more protective of my time and energy over the years, especially with certain demographics. And my tolerance of egotistical customers has almost vanished. I like people just as much, I just can’t tolerate them anymore!

Ever had a crush on a customer?

Oh, yes. Way more than one. You?

This is a good place to stop. Thanks and all the best.

The Globe is different in so many ways from Southfork Kitchen, but I think the impulse to feed, to create a space, to tilt the world a little our way, blooms in a lot of restaurant owners. I appreciate that you put your learning curve out there for all to see.

Bruce Buschel owns Southfork Kitchen, a restaurant in Bridgehampton, N.Y.

Article source: http://feeds.nytimes.com/click.phdo?i=6528da236c346fe0f20cfee24a61cafe