It's the sellers, not the buyers, that drive
) stock value. What differentiates Avon from other beauty and
personal care players such as
), Procter & Gamble (
), Estee Lauder (
) is not
it sells but
it sells. Avon is the largest direct selling organization in the
world, with over 6.2 million sales representative generating annual
revenues of nearly $11 billion in 2010.
Avon sells everything from shower-gels to watches to nutritional
supplements. While others sell their products through third party
establishments like drugstores or mass volume retailers (think
Wal-Mart), Avon sells its products directly to the final consumer.
Avon's sales representatives are independent contractors that pitch
Avon's products to consumers and, upon receiving an order, buy the
product from Avon at a discount and earn the difference.
Direct selling brings Avon closer to the consumer. When a sales
representative visits a household, he gets access to the consumer's
other personal and home-related requirements. This explains why
Avon has such a diverse portfolio of unrelated products, as it
allows the company to generate more sales per consumer visit. Since
a higher number of sales representatives leads to higher sales
totals, it is actually the number of sales representatives that
drives Avon's stock value.
How Does Avon's Seller-Driven Model Shape its
Resistance to Economic Downturns
During the economic downturn in 2007-08, year-on-year growth in
the number of sale representatives increased from 2% in 2007 to 7%
in 2008 as people looked for alternative source of earnings amidst
rising unemployment levels. Thus, when the global economy was
heading for a recession, Avon posted a 13% rise in revenues in 2007
and 8% in 2008.
Impact of the Size of its Sales Force
We currently estimate a moderate 2% annual rise in the number of
Avon sales representatives through our forecast period (from about
6 million in 2010), and our $36.60 price estimate for Avon stock
remains notably sensitive to this metric. If, for example, Avon's
sales representative total were to instead rise by 3% annually, it
would imply 6% upside to our price estimate. As it stands, our
$36.60 price estimate is already about 30% above the stock's market
You can test your own assumptions for Avon's sales
representatives total, and see how various scenarios affect the
company's stock value, by dragging the trend line in the
interactive chart above.
See our full analysis and $36.60 price estimate for