Avon Products Inc. AVP and leading technology firm – Hewlett Packard Enterprise Company HPE inked a deal to enhance the former’s international IT infrastructure. However, Avon’s shares plunged 7% as sources revealed that the company will slash its global headcount as part of the IT infrastructure outsourcing efforts.
While Avon is a global beauty retailer, Hewlett Packard Enterprise Company was spun off from the Hewlett-Packard Company in Nov 2015, and it now operates in four segments: Enterprise Services, Enterprise Group, Software and Financial Services.
Per the deal, Avon will leverage Hewlett Packard’s integrated structure in order to standardize its IT processes. This will ultimately help Avon offer superior quality services of global standards. Also, the company will set up a Security Operation Center at Hewlett Packard’s international delivery hub.
Apart from this, the agreement allows Avon to establish a Global Service Desk, by using remote support, data analytics and self-service mechanisms, in an attempt to improve consumer experience. Moreover, the tech giant’s Global Network Operating Center can be used by Avon to offer network data services.
Finally, Avon will use Hewlett Packard’s tools to supervise and operate various management services like HPE Server Automation, HPE Operations Manager and HPE Operations Orchestration.
As mentioned above, Avon intends to curtail its global headcount as part of this program and anticipates incurring pre-tax charges of $30 million, of which $20 million is expected to be realized in the fourth quarter of 2015 itself.
However, per the partnership, Hewlett Packard will enhance Avon’s cost structure by identifying the latter’s cost efficiencies and lending it tools to work in a more consistent manner. This will help Avon to seamlessly transform itself according to the ever-changing business needs.
In fact, sources revealed that this program, which is anticipated to close by the end of 2016, will likely generate pre-tax savings of nearly $10–$15 million annually, beginning 2019. Prior to this, the company was expecting its other restructuring actions to realize approximately $400 million in annualized savings (before tax).
Avon has been working on its long-term target of bringing down costs for quite some time. Apart from reducing its global headcount, the company has shut down operations in some underperforming markets like South Korea, Vietnam and Ireland. Moreover, the door-to-door cosmetics seller discontinued the global roll-out of the software supplied by SAP under its SMT project in Dec 2014, after it failed to impress sales representatives in Canada.
We believe these actions will help Avon to streamline operations by focusing more on high-priority markets and activities, and also in increasing efficiencies. With such stringent cost-containment measures underway, this deal with Hewlett Packard is clearly a deemed fit for Avon, as it is likely to further enhance its cost structure, boost its digital growth and improve customer experience.
Both Avon and Hewlett Packard carry a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include CST Brands, Inc. CST, with a Zacks Rank #1 (Strong Buy) and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, carrying a Zacks Rank #2 (Buy).
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