Iconic beauty brand files for Chapter 11 bankruptcy

According to The Street, In recent years, the multilevel-marketing (MLM) business model has faced mounting criticism. This model involves individuals paying to become representatives of a company, earning commissions through direct sales and recruitment. The real financial benefit often comes from recruiting new sales reps, who contribute to the earnings of their recruiters.

The MLM Controversy

MLM companies frequently target stay-at-home moms and women seeking flexible income sources. However, many MLMs have come under scrutiny for veering into pyramid-scheme territory. In a notable 2016 episode of HBO’s “Last Week Tonight,” John Oliver criticized the MLM industry harshly. He highlighted how MLMs present themselves as promising opportunities while statistically offering slim chances of success. Oliver even created a parody MLM, #ThisIsaPyramindScheme, to illustrate the industry’s tactics.

Also read: Another key healthcare chain files Chapter 11 bankruptcy

Avon: An Iconic Brand Struggles

Avon, an iconic beauty brand synonymous with the MLM model, has now filed for Chapter 11 bankruptcy protection. Avon promotes itself as a pioneer in social selling and female entrepreneurship, allowing representatives to work either part-time or full-time and from various locations. However, the company has faced challenges from low-priced beauty competitors like Ulta and Sephora, and its products are now less essential with the availability of affordable beauty items at retailers like CVS, Target, and Kohl’s.

Bankruptcy Filing Details

On August 19, Avon Products, Inc. (API), the U.S.-based holding company for the Avon brand, initiated voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware. The filing aims to address debt and legacy talc liabilities. Importantly, this bankruptcy does not include the company’s U.S. operations, which are owned by LG Household & Health Care Ltd.

The filing comes after Avon spent $225 million on personal injury lawsuits and settlements related to talc products. API Chief Restructuring Officer Philip Gund stated that the company lacked the liquidity to continue litigating or settling these cases and anticipated an increase in lawsuits without a permanent solution.

Also read: Essential retailer closes more stores in Chapter 11 bankruptcy

Sale and Future Plans

Brazil-based Natura & Co., which acquired Avon in 2020, has agreed to purchase Avon’s non-U.S. operations for $125 million in a credit bid, pending a court-supervised auction process. Natura has also committed up to $43 million in debtor-in-possession financing to support API during the sale process.

Despite its struggles, the Avon brand remains significant globally. CEO Kristof Neirynck emphasized the company’s commitment to modernizing its direct selling model and reigniting the brand’s growth. “We remain focused on advancing our business strategy internationally,” Neirynck said, highlighting the support from nearly 2 million representatives worldwide.

Avon, also known as Avon International Operations, reported debts and assets between $100 million and $1 billion, reflecting both the scale of its financial challenges and its ongoing global presence.