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With the growth in new direct to consumer and social selling models, it’s no surprise that two legacy players are clubbing together to fight off increasing fragmentation and monumental change in the industry. Whilst in Latin America the traditional direct selling model has been less affected by the growing threat of digital-first concepts, the same can’t be said for Avon’s other territories.
Given the experience Natura has with building a physical presence through Aesop, The Body Shop and even with the Natura brand’s own increasing physical presence throughout Brazil, it’s a possibility that Avon could eventually again explore bricks and mortar to offset some of its losses from the slowdown in the direct selling channel.
Considering that accessible natural and ethical products is at the core of Natura’s company ethos, Avon can only benefit from these expertise and association with Natura to bring it in line with competitors and to the baseline of what today’s beauty consumer expects from the formulation of their beauty products.
Natura to gain global presence
With the acquisition of Avon Products, Brazilian company Natura&Co will consolidate itself as a global player within the Beauty and Personal care industry. Natura&Co currently ranks as the 13th largest beauty and personal care company, while Avon Products Inc ranks 14th. This transaction will position Natura&Co in the 9th place, closely following Beiersdorf AG.
The acquisition will also help improve Natura&Co´s position in territories where it is currently not so strong. Avon has a strong presence in Russia, a market where Natura&Co´s presence is minimal. Russia is the 11th largest beauty and personal care market worldwide and represents a significant opportunity for Natura&Co. As for Middle East and Africa, despite the region representing only 6% of total beauty sales globally in 2018, represents 11% of the total fragrance sales worldwide. Natura&Co could leverage Avon´s presence in the region to further increase fragrance innovations and, consequently, its sales in the region.
Although Avon doesn´t have a strong presence in China, Natura&Co may leverage it´s know how in the country to print a more relevant position in the second largest beauty market in the world. Natura&Co will also be able to access other Asia Pacific markets, such as Philippines, a relevant market for direct selling.
Natura consolidates its position in Brazil and gains strength in Mexico
Natura&Co´s acquisition of Avon Products Inc will consolidate the company´s position in Brazil and significantly increase the gap between Natura&Co and Grupo Boticário. For Natura, this move represents a further step in decreasing the concentration of its global sales in Brazil and present a more diversified structure of revenues by geography. Today, Brazil represents 53% of the company´s total sales.
The transaction will also strengthen Natura&Co´s position in Latin America, particularly in Mexico. Natura&Co has been facing a tough competitive environment, with strong competition of other direct sellers such as Mary Kay Inc and Vorwerk & Co KG. By acquiring Avon, Natura&Co will become the leading beauty and personal care direct seller in the country and the fifth largest beauty player in Mexico.
Colour cosmetics, skin care and fragrances to see the largest impact
Amongst the company´s product categories, Natura&Co´s acquisition of Avon will impact colour cosmetics the most as Avon sales more than double Natura´s. Avon is widely known as a colour cosmetics company, even if fragrances are its leading category. Avon enjoys high brand-awareness in colour cosmetics and continues to innovate in the segment. It´s strong presence in the category may help Natura increase its sales through a more assertive brand strategy.
Natura&Co already has strong skin care brands, such as Natura Chronos in Latin America and Aesop, a global growing premium brand. Despite counting with expertise in such segment, the company lacks a global brand that could further push sales in the category. The inclusion of the Anew/Renew line can help Natura&Co to increase sales of such category, given the strong brand awareness, it counts in several markets.
Fragrances will remain the backbone of the combined entity. Despite having a strong presence under fragrances, both Avon and Natura&Co compete in different price tiers, a fact that could help the new company to better position the brands targeting specific audiences.