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Ding-dong…AVON-skaya Calling

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Even though the US pioneer of direct selling has done very well in some other emerging markets, it has struggled in Russia to cope with tough competition, logistical difficulties and the big swings in the roller-coaster economy.

When Avon arrived in the early 1990s Russia seemed like a dream market for the US group which takes credit for inventing the direct selling of cosmetics more than a century ago.

Russian women were desperate not just to try out foreign beauty products for the first time but also to find gainful employment selling lipsticks and creams.

However Avon almost immediately faced strong competition from Oriflame, a Swedish upstart in direct selling, that offered Russians sharply-priced beauty products and good employment terms.

The two companies now race neck and neck for leadership in the increasingly competitive Russian market where about Rbs 87bn ($3bn) worth of cosmetics were sold door to door in 2010.

Younger and perhaps hungrier than Avon, Oriflame led the way in tailoring a business strategy for Russia, forcing Avon to race to catch up, says Tamara Shokareva, president of the Russian Direct Sales Association, a lobby group that the two groups helped found.

Oriflame was the first to grasp the importance of television advertising both to flag the benefits of imported beauty products in the largely uninformed Russian mass market and recruit sales representatives.

In a move that took Avon by surprise, Oriflame even sponsored a TV soap opera where one of the heroines digs herself out of economic difficulties by peddling cosmetics door to door.

Avon has gained support in Russia by positioning as a “company for women” supporting breast cancer screening programs and campaigning against domestic violence.

Oriflame has again acted in pioneer fashion, attracting more men into the direct sales network that is traditionally dominated by women.

Like all segments of the retail industry, the Russian door-to- door sales market is sensitive to the country’s violent economic swings. But while conventional bricks-and-mortar shopping outlets suffer during recessions, direct sales businesses offering cut-price products tends to flourish – and the sales forces tend to work even harder.

In the 2009 crisis the total direct sales market in Russia surged by 42 per cent. Once the economic recovery was well underway,  growth in direct sales slowed – to just 3.8 per cent in 2010.  Cosmetics sales account for about one third of direct sales in Russia, and direct sales are about a third of the cosmetics market, according to the Russian Direct Sales Association.

Euromonitor, the UK-based market research group, has somewhat different figures, partly because of the difficulties in definingg beauty products eg include men’s grooming? Children’s? Pets’?

Here is Euromonitor’s view of the market:

 

Avon’s year-to-year performance largely reflects the swings in the market:  its beauty products sales slowed in the post-crisis recovery: they fell by 1.5 per cent year-on-year to total Rbs 27.059bn in 2011.

Shokareva says Avon can maintain a leading role in Russia, but competition both for sales and representatives will become tougher.

New players have entered the market including Amway and Mary Kay of the US and Faberlic, a new Russian direct sales company.

But both Avon and Oriflame have shown their commitment to Russia by opening  plants in the Moscow region in 2003. Oriflame is currently  investing €125m to -€175m in a second Russian manufacturing facility that will open in 2013.

A bigger problem than production is sales, with a declining number of Russians seeking opportunities as door-to-door representatives.

At the height of the financial crisis an army of 5m Russians engaged in door-to-door sales to top up their falling incomes or replace lost jobs, but by 2011 their ranks had shrunk back to 3.7m.

It is not unusual for sales representatives to two-time employers working for several direct sales companies at once to top up  earnings.

As conventional retailers extend their sales networks across Russia consumers, in general, will no longer need to rely on direct sales companies to provide them with products.

But door-to-door cosmetics sales representatives will continue to thrive says Shokareva because Russians like buying beauty products and taking advice on their appearance from their friends.

So if Coty is going to make out in Russia it will need to nurture Avon’s ladies.

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