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Avon Calling…In China

Friday, 15 Dec 2006 | 2:31 PM ET
Avon
CNBC.com
Avon

After an eight-year ban on direct sales, China is allowing beauty-products maker Avon to return to its trademark door-to-door selling. Fred Alger Management economist Zachary Karabell says 300,000 Avon ladies – and men – are making their way back to Asia to bring Shine Supreme lip color and Daring Curves mascara to the masses.

Avon Calling...In China
Avon, Mary Kay and other direct-sales companies get permission from the Chinese government to sell door to door. Zachary Karabell, Fred Alger Management Chief Economist, and CNBC's Bill Griffeth discuss the topic.

Karabell is also the portfolio manager of Fred Alger's China U.S. Growth Fund. Direct sales were legal at one time in China, the analyst tells us, but there were fraud concerns. How could buyers trust they were getting legitimate Avon products? The government put a stop to home selling, and Avon was forced into an upscale boutique business there.

Trust is the make-or-break issue for Avon going forward, Karabell says. He wonders if the strategy will work well in an entirely different culture. While Avon started home sales a few months ago, it’s too early to tell if this will work out, he says.

The change in heart in the Chinese government has more to do with the World Trade Organization than anything else. Membership requires open competition. Beauty sellers Amway and Mary Kay were granted licenses for direct sales this week.

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