Welcome to CosmeticsDesign’s newest column, a monthly deep dive into the financial trends, challenges, and strategies shaping the beauty and personal care sector. With the high stakes in a fast-evolving market, financial health often differentiates between industry leadership and insolvency.
This column will unpack the key lessons from recent financial headlines, providing insights to help manufacturers, suppliers, and other stakeholders navigate this complex landscape.
For our inaugural piece, we turn our focus to a story as cautionary as it is instructive: the downfall of Avon Products Inc. Once a household name synonymous with direct-to-consumer innovation, Avon’s 2024 bankruptcy filing tells a tale of mismanagement, mounting debt, and an evolving competitive landscape.
CosmeticsDesign guest author Ragini Bhalla, Head of Brand for Creditsafe North America, examines the underlying issues that led to this iconic brand’s unraveling—and what others in the industry can learn to avoid a similar fate.
This column is not just about examining failures; it’s about recognizing patterns, leveraging data, and taking proactive steps to build resilient, future-proof businesses. Whether you want to improve your financial strategies or understand the dynamics behind industry disruptions, this space will offer actionable insights and forward-looking perspectives every month.
Setting the stage
Some names in beauty are timeless— Lancôme, Revlon, and Maybelline, to name a few. Another classic brand that comes to mind is Avon Products Inc., once known for its iconic catalogs and door-to-door sales.
But this summer, Avon made headlines for different reasons. In August 2024, the company filed for Chapter 11 bankruptcy, spotlighting its recent financial struggles.
I’ve seen quite a few bankruptcies make the headlines this year. The one thing that stood out—and was common among most—was that the struggling companies had a shoddy track record of paying their suppliers.
We can see this when we analyze a company’s Days Beyond Terms (DBT), which indicates how many days late a company pays its bills. Avon’s journey from a trusted household brand to bankruptcy is a prime example of the importance of strategic financial management. It also offers valuable lessons, which I’ll share here.
“Avon’s journey from a trusted household brand to bankruptcy is a prime example of the importance of strategic financial management.”
Ragini Bhalla, Head of Brand for Creditsafe North America
Avon’s financial troubles didn’t happen overnight
I say this all the time – but I’ll repeat it. It’s never one thing that pushes a company to bankruptcy.
It’s usually the combination of multiple things going wrong for a considerable period of time – all of which are exacerbated by poor financial management practices. Those things can include declining sales for multiple quarters in a row (or even years), lawsuits being filed (costing a pretty penny), increasing long-term debt, poor cash flow forecasting, and increasing competition, among other things.
In Avon’s case, the historic cosmetics brand had accumulated more than $1 billion in debts. But what made things more complicated and worse is that Avon was embroiled in hundreds of lawsuits.
According to reports from Retail Dive and Bloomberg, Avon faced over 380 lawsuits alleging its products were contaminated with asbestos and caused cancer. In Arizona, for example, an Arizona woman was awarded $52.1 million after developing mesothelioma from using Avon products.
Why am I bringing up lawsuits in the same breath as debt? These lawsuits added to an already heavy debt load from its acquisition by Natura & Co. in 2020.
Revenue had been on the decline for quite some time
Revenue is one of the most important aspects of growing a business. It depends on various factors – including market demand, pricing, inflation, competition, macroeconomic conditions, customer retention, and global events.
However, Avon’s revenue had been declining for some time. In Q4 2023, for example, Avon reported a 6.1% decline, compared to a “generally stable top-line delivered in the last couple of quarters.”
Unfortunately, things didn’t improve this year. In the first quarter of 2024, Avon’s parent company reported that revenue fell 11.3% year over year, while its revenue dropped by 8.4% year over year in the second quarter of 2024.
While I’ve already discussed Avon’s high debt load and legal troubles, senior executives have also attributed the company’s downfall to fewer available representatives and weaker promotional execution. The supply chain’s increased costs of materials and labor also contributed to the brand’s financial distress.
Excessively late payments were more of the norm than the exception
When a company struggles with declining revenue, mounting debt, and lawsuits, you can usually see the effects on its payment behaviors. One metric we look at to get a sense of how reliable a company is and how long it takes to pay its bills is Days Beyond Terms (DBT).
Essentially, DBT indicates how many days past payment terms a company takes to pay its bills (i.e., how late it pays).
DBT can clearly show how financially healthy or stressed a company is. But to do that, you can’t just look at their average DBT.
You need to see if the DBT rises consistently over the course of 12 months or spikes and dips repeatedly every few months throughout the year. When we looked at Avon’s DBT, we could see how its high debt load, lawsuits, and declining revenue had put a strain on its cash flow.
In November 2023, for example, Avon had a DBT of 47 – meaning it paid its suppliers 47 days late. For context, the industry average DBT on November 23 was around 12 – so Avon’s DBT was nearly four times higher than the industry average.
At the start of this year, Avon’s DBT dropped slightly (ranging between 32 and 29). But it soon began to rise after that—increasing from 32 in April 2024 to 36 in May 2024, to 41 in June 2024, and to 46 in July 2024. Although it dropped slightly (36) in August 2024, it quickly jumped to 44 in September 2024.
I’m sharing this information to help you recognize these types of patterns. I can’t tell you how often I’ve seen a similar pattern to Avon’s fluctuating DBT in other companies that have gone bankrupt.
Can Avon survive?
While Avon’s Chapter 11 filing addresses some immediate debt obligations, the company’s long-term recovery depends on its willingness to overhaul its operational and financial management practices. I say this not with judgment but with the hope that Avon learns from its mistakes and doesn’t emerge from bankruptcy only to file again in a few years.
I’ve seen that scenario happen more times than I can count.
So, what should Avon do to emerge and thrive post-bankruptcy? First, the cosmetics giant will need to shrug off any notions that it can continue doing what it has always done. That clearly didn’t work.
Everyone in the company—from the top down—needs to be open to changing how things are done and using a data-driven approach. Otherwise, shifting consumers’ perceptions and driving long-term revenue growth will be difficult.
Beyond building a mindset of change in the business, Avon will need to be much more stringent in managing its finances. This means doing the necessary cash flow forecasting, examining macroeconomic conditions and previous sales patterns, accounting for seasonal variations, and more.
This also means Avon will need to set up internal controls and processes within the finance function so that it doesn’t experience poor liquidity and cannot handle its short-term and long-term liabilities.
Of course, Avon will need to invest in product development to ensure that its products containing talc don’t cause cancer (leading to multi-million-dollar legal judgments). This won’t happen overnight.
It’ll take time, money, and buy-in from senior leadership, but it will be key to minimizing future financial losses and rebuilding Avon’s brand reputation.
This isn’t a unique story—companies go bankrupt every month. But it’s about recognizing certain patterns and how multiple factors can affect a company’s financial health.
Other brands should remember this: It doesn’t matter how popular or well-known your brand is, how long you’ve been in business, or how big your company is. Every company is susceptible to financial failure.
Questions or comments? Contact Ragini at Ragini.Bhalla@creditsafe.com.
