'Now Is the time to invest'
How Avon will put big money to work.
(Fortune Magazine) -- We're in the middle of a turn-around. We've eliminated 10% of our workforce, cut almost 30% of our management, and reduced 15 layers to eight. This brings us closer to the market. It also helps us cut costs by almost $200 million annually. Now I have to decide, how do we invest those savings?
We're increasing ad spending more than 50% this year and will double it by 2008. Beyond that, we're investing in innovation: The game in beauty is changing so much, if your product isn't high tech or can't make a unique performance claim - plump your lips, reduce your lines, look glossy, and stay on for 24 hours - you can't go to market today. I'm not just talking about a $20 lipstick, but a $5 lipstick! We've spent $100 million on a new R&D center.
We also need to invest in the Internet. In the U.S. more than 70% of our representatives are online. But outside the U.S. the numbers are significantly lower. I was recently in Turkey, where only 10% of the population has Internet access at home. Yet almost 95% of our sales in Turkey are submitted online -our representatives go to Internet cafés. So I believe we can move a lot faster to get all our representatives online. Our IT team has developed a global Internet platform, and I've put one of our top strategists full-time on the case.
We're also increasing investments in key geographies, like China, where we've rapidly built a sales force of 188,000 since we received our national direct-selling license in March. India is the other top priority. Right now we have about 60,000 representatives in India, which sounds like a lot but translates to only 0.04 per thousand population. India has more than 300 million women between ages 15 and 64, and a rising middle class. In developed markets, annual per capita spending on beauty is between $100 and $200, compared with $40 in Russia and Brazil and $5 in China. But it's only $1 in India. Does that sum define a small market or does it define market creation waiting to happen? I say it's the latter.