MOSCOW, Russia — Avon Products Inc. boosted sales in Russia, increasing its ranks by tens of thousands in the second half of last year as the plunging ruble prompted more people to seek additional income selling goods door-to-door. “Our sales have been growing both in volume and value,” Avon country chief Elena Starkova said in an interview in Moscow. “December was magnificent, exceeding our forecasts.” The additions swelled New York-based Avon’s labor pool in Russia by more than 10 percent, Starkova said, declining to give the exact number. Smaller competitors Oriflame Cosmetics SA and Herbalife Ltd. said they also added representatives in the country in 2014, without being specific.
The ruble weakened 43 percent against the U.S. dollar last year as falling prices for oil, Russia’s biggest export, compounded the effects of U.S. and European sanctions over President Vladimir Putin’s incursion into Ukraine. The economy contracted for the first time in five years in November, heralding a recession, while real incomes dropped 4.7 percent, according to the latest government data. “We are being joined by all the categories of people seeking additional income — state employees whose living conditions have soured, students, pensioners,” Starkova said. “It was similar during the 1998 and 2009 economic crises.” About 4.3 million Russians are now involved in direct sales, a number that will keep growing as long as the economy and ruble remain weak, according to Tamara Shokareva, who heads an industry lobby group.
“During economic crises, more people usually get involved in direct sales to earn additional money or buy consumer goods at lower prices,” Shokareva said. Direct-sales companies, which avoid the costs of running retail stores, generated the equivalent of about $4.4 billion in sales in Russia in 2013, led by Avon and Amway Corp., according to Shokareva’s group.
Starkova said Avon started noticing problems in the economy in the first half of 2014 and reacted with an “anti-crisis consumer basket.” The product includes items women “can’t do without” at the cheapest possible price, such as shampoo for 59 rubles (89 cents) and skin cream for 79 rubles, she said. Avon produces about half of the cosmetics it sells in Russia at a factory near Moscow, which helps keep prices low even after the ruble’s decline, Starkova said.
The company limited price increases on imported items to no more than 10 percent last year and may do the same this year, she said. While that doesn’t cover the ruble depreciation in full, it helps the company maintain market share, she said. Oriflame plans to “significantly speed up the pace and level of price increases” in Russia to account for the weaker ruble, the company said in e-mailed response to questions.
Oriflame in November opened a 150 million-euro factory in Russia, its largest market, where it produces shampoos, shower gels, creams and deodorants. “We don’t expect that Russian women will decrease consumption of good-quality cosmetics, although a significant number of people may look for more affordable prices instead of premium,” Oriflame said.
By: Ilya Khrennikov; editors: Kenneth Wong, Brad Cook and Torrey Clark