strategic-management

EXHIBIT 5 Avon’s Balance Sheets (all numbers in thousands)—continued
Avon, to meet the 2008 downturn in the economy, began cutting jobs, closing
unprofitable operations, simplifying its product line, and moving work to countries
with low labor costs. The company also raised prices to help offset rising costs for commodities
such as oil (“Sales Abroad Lift Profit for Avon,” New York Times, October 31,
2008).
The Cosmetic Industry
The cosmetics industry is one in which products tend to be countercyclical. Demand for
such products normally remains constant and unaffected by economic distress.
In terms of color cosmetics, Euromonitor International, Inc. predicts that many of these
markets will see a slowdown in volume demand. However, they also believe that the compound
annual growth rate for eye makeup will be 1.31 percent compared to -0.26 percent for
overall color cosmetics for the period 2009 to 2113.
A growing trend in the cosmetics industry is the introduction of “green” products.
In fact, more than one in seven (16 percent) of global beauty products launched in 2008
were certified organic, ethical, or all natural. There are concerns, however, that the global
economic climate will stifle new product development, innovation, and sustainability programs
in 2009. An economic slowdown usually curbs companies from investing in
research and development, and it is that research that has brought forth a wealth of green
cosmetics. However, retailers such as Wal-Mart are increasingly requiring more ecofriendly
supply chains. In addition, Amarjit Sahota of Organic Monitor forecasts that
consumers are unlikely to give up their commitments to organic products just to save a
CASE 22 • AVON PRODUCTS INC. — 2009 217
PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
Liabilities
Current Liabilities
Accounts Payable 1,880,800 1,901,600 1,524,300
Short/Current Long Term Debt 1,031,400 929,500 615,600
Other Current Liabilities — 222,300 410,200
Total Current Liabilities 2,912,200 3,053,400 2,550,100
Long Term Debt 1,456,200 1,167,900 1,170,700
Deferred Long Term Liability Charges — — 30,100
Minority Interest — 38,200 37,000
Negative Goodwill — — —
Total Liabilities 5,399,100 5,004,600 4,447,800
Stockholders’ Equity
Misc Stocks Options Warrants — — —
Redeemable Preferred Stock — — —
Preferred Stock — — —
Common Stock 185,600 184,700 183,500
Retained Earnings 4,118,900 3,586,500 3,397,100
Treasury Stock (4,537,800) (4,367,200) (3,683,400)
Capital Surplus 1,874,100 1,724,600 1,549,800
Other Stockholders’ Equity (965,900) (417,000) (656,600)
Total Stockholders’ Equity 674,900 711,600 790,400
Total Liabilities and SE $ 6,074,000 $ 5,716,200 $ 5,238,200