Avon Products Inc. is undergoing significant changes as the historic cosmetics brand navigates its Chapter 11 bankruptcy process while modernizing its sales ambassador commission structure. Together, these developments reflect the company’s efforts to stabilize its financial standing and reposition itself for future growth in the competitive beauty industry.
Financial missteps leading to bankruptcy
Once a household name in beauty, Avon filed for Chapter 11 bankruptcy in August 2024, burdened by over $1 billion in debt and more than 380 lawsuits related to its talc-containing products. In last month’s CosmeticsDesign Financial Focus column, guest writer Ragini Bhalla, Head of Brand for North America at Creditsafe, observed, “Avon’s journey from trusted household brand to bankruptcy is a prime example of the importance of strategic financial management.”
Bhalla highlighted that Avon’s financial troubles stemmed from a combination of factors, including fluctuating revenue and late supplier payments, which accumulated over time rather than resulting from a single misstep.
“Declining sales, lawsuits, increasing long-term debt, poor cash flow forecasting, and competition” contributed to Avon’s struggles, Bhalla explained. This financial strain was evident in the company’s Days Beyond Terms (DBT) — a measure of how late a company pays its bills — which significantly exceeded industry averages, underscoring Avon’s cash flow challenges.
Avon has since reached a settlement with its parent company, Natura & Co., to address its mounting liabilities, which U.S. Bankruptcy Judge Craig T. Goldblatt approved. According to Law360, the agreement increased cash proceeds for Avon’s bankruptcy estate by $42 million, while Natura waived $631.7 million in secured claims and over $400 million in unsecured claims.
Additionally, Avon will receive $97.6 million in cash, a portion designated for settling talc-related claims.
Judge Goldblatt praised the settlement, stating it offered “material compensation to victims in an amount they’ve concluded is fair” while providing “finality and closure to the debtors and Natura.”
This agreement followed months of scrutiny over Avon’s pre-bankruptcy transactions, as a creditors’ committee questioned 54 transactions allegedly structured to shield Natura from liability and expedite Avon’s bankruptcy filing. Despite these concerns, the court concluded that the settlement represented the “highest and best offer” for Avon’s assets, enabling Natura to guide the company toward recovery, Law360 reported.
Revamping commission structure to support sales ambassadors
While resolving its financial challenges, Avon has introduced a revamped commission plan for its North American Ambassadors, effective January 1, 2025, according to a company press release. The new structure replaces the fixed commission model with a variable system tied to campaign sales, offering rates of up to 50% per two-week cycle.
These changes aim to simplify the sales process and accelerate earning potential for ambassadors. In a media statement, Liza Maldonado, Head of Sales at Avon North America, explained, “These changes to our commission structure reaffirm our commitment to supporting our Avon Ambassadors and the direct selling business. This innovative and rewarding new framework sets a clear pathway for recognition and advancement.”
This modernization aligns with Bhalla’s advice that Avon must adopt a “data-driven approach” and rework its operational strategies to prevent repeating past financial missteps. Avon seeks to rebuild consumer trust and empower its sales network for long-term success by prioritizing internal process improvements and product innovation.
Lessons for the industry
Avon’s dual challenges are a cautionary tale for cosmetics and personal care companies. “It doesn’t matter how popular or well-known your brand is… Every company is susceptible to financial failure,” Bhalla remarked.
Avon’s ongoing transformations present a crucial opportunity for the brand to emerge stronger, provided it applies disciplined financial and operational management in the years ahead.
