In recent years the multilevel-marketing business model has fallen under intense scrutiny.
Under this system, people pay to become representatives of a company, essentially salespeople, and they make commissions when they sell products.
The real money, however, comes from recruiting new sales reps to join your team. If you do that, you get commissions not just from your own sales but from the sales of the people you recruited.
Related: Struggling Home Depot rival files for Chapter 11 bankruptcy
The model specifically appeals to stay-at-home moms and other women looking for flexible sources of income. The problem is that in most cases multilevel-marketing companies veer into pyramid-scheme territory.
HBO's John Oliver dedicated an entire 2016 episode of his "Last Week Tonight" program to these companies and he was not kind.
"The point is MLMs may present themselves as a great opportunity, but your chance of success is actually remote," he said.
Oliver closed the show by creating his own multilevel-marketing company, #ThisIsaPyramindScheme, in an effort to use the industry's tactics against it.
"I wanna tell you about a fantastic product for you to share with friends and families. This product is this entire video about why MLMs are f**king awful.
"Let me break it down for you. By sharing this, you can be an independent distributor for a leading web video about the dangers of MLMs. You could do this full-time or part-time and give your family the lifestyle that they deserve, which is frankly not getting caught up in this bulls***."
Now, in a year where industry pioneer Tupperware has been fighting for survival, another legendary name in the space has filed for Chapter 11 bankruptcy protection.
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Avon is an iconic beauty brand
Like Tupperware, Avon has an iconic brand name. The company celebrates its use of the multilevel-marketing model.
"Avon invented social selling and promotes female entrepreneurship. Part-time or full-time, online or in-person, Avon lets you work your business your way," it said on its website.
The company leans heavily into the idea that it's providing opportunities for women.
"At Avon, beauty is more than skin deep," it said. "We are inspired by our community of passionate women — yesterday, today, and tomorrow. Whether you can’t get enough of our lipsticks, you’ve liked our social posts, or love sharing our amazing products with friends, YOU are a part of the Avon family. Welcome to our community — we toast the big (and small!) successes in life, in love, and at work."
In addition to its controversial business model, Avon has struggled with the growth of low-priced beauty brands like Ulta and Sephora. In addition, CVS, Target and Kohl's have all made lower-priced beauty products more accessible, making Avon a less necessary company for the many women who once used it.
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Avon International files Chapter 11 bankruptcy
"Avon Products, Inc. (API), a U.S.-based non-operational holding company of the Avon beauty brand, today announced that it has initiated voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware to address its debt and legacy talc liabilities," the company said in a news release.
It's important to note that this filing does not cover the company's US operations.
"Note that The Avon Company, which is the Avon brand in the U.S. currently owned by LG Household & Health Care Ltd., is not affiliated with any other Avon entity and is not part of the Chapter 11 proceedings," API said in the release.
The filing comes after the company has spent $225 million defending itself in personal injury lawsuits and settlements. The company does not have "sufficient liquidity to litigate and/or settle” the cases, Chief Restructuring Officer Philip Gund said in court filings. API expects its lawsuit count "will only continue to increase absent a permanent solution.”
Brazil-based Natura & Co., which acquired Avon in 2020, has entered an agreement to purchase the equity interests in Avon's non-U.S. operations for $125 million in the form of a credit bid, subject to a court-supervised auction process.
Natura has also committed as much as $43 million in debtor-in-possession financing that, subject to court approval, will provide sufficient liquidity to fund API's obligations during the sale.
More bankruptcy:
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- Distressed grocery brand files for Chapter 11 bankruptcy
The Avon brand, while it's struggling globally, remains a huge brand worldwide.
"We remain focused on advancing our business strategy internationally, including modernizing our direct selling model and reigniting the brand to accelerate growth," CEO Kristof Neirynck said in a statement. "Since becoming CEO earlier this year, I am increasingly energized by our strengths and opportunities, supported by our valued Associates and nearly 2 million Representatives around the world."
The company, which is also known as Avon International Operations, reported both debts and assets of between $100 million and $1 billion.
