Avon Calling: Buying Jewelry Company Silpada Is a Smart, If Understated, Move
Ding dong, Avon's (AVP) calling. And this time, the company itself is doing the buying -- of privately-held Silpada Designs for $650 million in cash. Helming Avon's third acquisition in the past few months (after an acquisitions hiatus of over a decade) is CEO Andrea Jung who's been making a series of bold moves to give the brand a makeover recently.
In February, Avon took its first ever turn on the football field by advertising during the Super Bowl. What seems on the surface to be counterintuitive was actually a calculated strategy to capture an audience with a carefully crafted call to action.
The 30-second spot featured real-life Avon reps talking about how selling cosmetics saved them during a tough economy. The message touting the power of female entrepreneurship was broadcast to an enormous number of women. Nielsen estimated four of every 10 viewers (in excess of 38 million) were women over 18, more than any sporting event since the 1994 Winter Olympics women's figure-skating competition.
The deal to scarf up Silpada seems similar: not obvious on the surface, but definitely smart on a second or third look. Jewelry is a smallish segment for Avon (around 17 percent of the total business) and most of the products it carries retail for under $25. But Jung is bent on growth and diversification, hence the acquisition of Liz Earle (natural skincare products) and Tiny Tillia (baby care) earlier this year which the company admitted were "immaterial" because of their small size.
Growing the jewelry business is another matter. And instead of investing millions on R&D, sourcing materials and suppliers (read: reinventing the wheel) Avon simply snagged Silpada. With operations in the U.S., Canada and the U.K., and a sales force 32,000 strong, the 13-year old company is the largest and fastest-growing direct seller of sterling silver jewelry with an estimated $230 million in annual sales.
Sure, it's just a fraction of Avon's $10 billion+ revenue stream and 6.2 million independent sales reps, yet Silpada's got a distinct footprint that isn't going to get swallowed up soon. Avon says it's going to let Silpada operate independently however, Jung told WWD, "We'll be more intense on our growth drive for jewelry and accessories," and that the company is particularly interested in areas to expand globally.
If Jung continues on the wise management path she's currently on, there's no doubt that there will be crossover between the two companies. Especially because Silpada's party-style selling encourages just the kind of social spending ripe for impulse buys. Discretionary spending may still be down, but next to makeup, moderately-priced jewelry is a purchase that fits all sizes and doesn't come with the guilt of buying budget-busting "investment" bijoux. (Avon learned that the hard way when it bought Tiffany & Co. (TIF) in 1979 and subsequently dumped it in 1984.) Silpada is certain to make Avon's balance sheet sparkle even more.
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