Avon Products Inc. filed for bankruptcy in mid-August. One reason is the inability of the former giant to cope in the modern market, and the other is multi-million lawsuits. All because of carcinogenic asbestos in the talc it sells. Avon is going bankrupt, but most likely it won’t go bankrupt completely. The shares are to be bought by the parent company, the Brazilian company Natura & Co.
Avon is going bankrupt, but the brand’s future is assured for now
The collapse of a brand known almost all over the world with a history of over a century is always a bit of a shock. This was also the case in mid-August, when it turned out that the American company Avon Products Inc. had filed for bankruptcy. This concerns the application of Chapter 11 of the local bankruptcy code. The company can continue to operate, but on condition that it conducts reorganization under the management of the court. Avon Products Inc. currently owns the brand’s operations in Europe, Great Britain and Latin America.
Why is Avon going bankrupt? There are basically two reasons. The first is prosaic. Avon has been doing very poorly in today’s market realities for some time now. Yes, years ago the business model conducted in the formula of so-called multi-level marketing was an interesting innovation.
MLM may not have a very good reputation due to its natural similarity to financial pyramids, but in the case of Avon we were dealing with an honest form of business. The main source of income for sellers was after all the sale of the company’s products, not the construction of the broadest feudal structure.
Today, however, experts agree that Avon, with its dispersed sales structure, was not able to fully exploit the potential of social media. Forbes, for example, wonders whether this is a matter of lack of vision or simply neglect. On the other hand, the potential of famous Avon consultants was not able to replace organized advertising of the brand and products on a large scale. Especially since it is also burdened by the second reason for bankruptcy, which Forbes, mentioned above, draws attention to.
The move was largely due to a flood of talc-related lawsuits that have plagued the company in recent years, culminating in a financial and reputational crisis.
One of the reasons for Avon’s bankruptcy is the massive lawsuits related to the use of talc contaminated with asbestos.
What exactly is it about? Liabilities related to lawsuits caused by Avon’s talc are $78 million. It must be admitted that this is a relatively small amount compared to the $1.2 billion in total debt of Avon Products Inc. At the same time, however, it is impossible to ignore the burden on the brand as such. The aforementioned talc was carcinogenic.
In 2022, a California jury ordered Avon to pay 76-year-old Rita Chapman $52 million. The woman suffers from malignant pleural mesothelioma. It turned out that the talc was contaminated with asbestos. As if that were not enough, Cipriano Ramirez, who worked at an Avon factory in the 1980s, also developed mesothelioma. In 2024, he received $24 million in compensation. There are almost 400 such cases. Talc products have been withdrawn in the United States. However, they can still be purchased in the rest of the world.
Avon is going under, but the bankruptcy process most likely won’t end with the brand’s demise. Natura & Co bought Avon Products Inc. in 2020 and has been trying to get the company back on track ever since, without much success. Natura has already offered to buy Avon’s shares outside the United States for $125 million, after the bankruptcy proceedings are over, of course. In theory, this should allow not only for the brand to regain full control of its international operations, but also to get rid of some of its financial liabilities.
Looking at the matter from a Polish perspective, it seems that Avon consultants will not disappear from the market in the foreseeable future. Especially since we have not had to deal with high-profile lawsuits over talc in Poland. Avon Cosmetics Polska Sp. z o. o. is also involved in our country. However, this does not mean that even a fully successful bankruptcy proceeding will save the brand in the long term. The problem with the poor ability to meet consumer expectations and respond to the challenges of modern times will not disappear at all. Perhaps Avon is going bankrupt in installments.
