Everyone seems to know who the Avon lady is—except for

Avon.

The company is struggling with its identity. It remains heavily

entrenched in the U.S., even though most of its business is

abroad. It is one of the biggest direct sellers of beauty products

and relies heavily on personal relationships, but it lagged behind

in developing an online strategy and hasn’t capitalized on the

opportunities of social media. And while its focus is beauty, its

representatives are busy selling a wide assortment of

housewares and other products, a sort of human Amazon.com.

“That taco warmer we had recently sold really well,” said

Yesenia Frias, a 44-year-old Avon representative in Bogota, N.J.

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Avon CEO Sherilyn McCoy has pushed the beauty-product company to add more housewares and gift items to its traditional cosmetics. PHOTO: AGATON STROM FOR THE WALL STREET JOURNAL

The contradictions have proven to be too much. After years of

strategic missteps, dismal financial results and a steady exodus

of representatives willing to peddle Avon Products Inc. ’s

cosmetics door-to-door, the company has decided to explore

more fundamental change, including possibly a sale of the

company or an exit from its long struggling U.S. business,

according to people familiar with the matter.

The move, first reported earlier this month by The Wall Street

Journal, casts doubt on the likelihood that Avon’s current efforts

are enough to revive the 129-year-old beauty empire.Advertisement

Avon’s share price has lost about 40% of its value over the past

year and was removed from the S&P 500 last month. In the

U.S., the company’s sales force has shrunk for the past 19

quarters, according to research by Deutsche Bank. A costly

bribery scandal centered in China wiped out much of the

company’s top ranks and cost the company nearly half a billion

dollars in legal fees and penalties.

“I’m not one to shy away from challenges,” Chief Executive

Sherilyn McCoy said in an interview last month, “and Avon

certainly hasn’t disappointed me on that front.”

Ms. McCoy was recruited three years ago from Johnson &

Johnson to lead a turnaround of Avon. Her appointment was

announced just days after Avon declined to embrace what in

hindsight seems like a rich offer from Coty Inc. to buy the

company for as much as $24.75 a share. Avon’s shares now

trade around $9.

Andrea Jung, the company’s chief executive at the time, wanted

to engage more seriously in deal talks with Coty, according to

people familiar with the matter. But publicly, Avon blasted its

rival’s approach, calling it “opportunistic” and substantially

undervaluing the company. Instead, Avon said it remained

confident in its stand-alone prospects.

Three years later, investors are unconvinced. Since 2011,

Avon’s annual sales have sunk 20% to $8.85 billion; its losses

have deepened, including $389 million in red ink last year; and

the company’s fix-it plans have become unclear. Avon skipped

presenting at a widely attended, closely watched industry

conference in February, promising instead it would offer

investors a detailed strategy presentation in May. Earlier this

month,Avon abruptly announced it would postpone the

discussion until an unnamed date this fall.

“The key strategic issue is precisely the lack of a strategy,”

Javier Escalante, an analyst with Consumer Edge Research,

wrote this month.

“We’re making good progress…[in] strengthening and

leveraging our direct-selling core, maximizing our geographic

portfolio and expanding our brands,” an Avon spokeswoman

said Monday.

Leisure timeMost Americans know the Avon Lady as the woman who sells

lipstick, lotion and bubble bath around the neighborhood. But

inside, the company has wrestled for years with getting a grip on

a changed world.

Avon was founded in the U.S. in 1886 by David McConnell, a

traveling book salesman who found women were more

interested in the free perfume samples he carried than books.

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The company flourished for generations as American women

with more leisure time and money to spend welcomed Avon

Ladies into their homes to teach them how to wear makeup. As

the U.S. business matured, Avon poured resources into

developing countries, capitalizing on the mismatch between

their growing wealth and a lack of modern beauty stores. Profits

nearly tripled from 1999 to 2004.

Avon’s early jump on developing markets meant that its brand

got established early on in crucial markets like Brazil, where it

still holds an edge over much bigger companies like L’Oréal and

Procter & Gamble Co. Investments in research and development

helped keep Avon’s skin care line, Anew, on the cutting edge,

and its cosmetics and fragrances often won industry honors.

By 2005, however, sales began to sputter. Costly restructuring

programs and the bribery investigation hit Avon’s bottom line

and distracted managers. Avon reached a settlement with U.S.

regulators in 2014 and said a subsidiary in China would plead

guilty to charges related to the Foreign Corrupt Practices Act.

Meanwhile, computer system upgrades in Brazil and Canada

went disastrously wrong, and droves of Avon’s six million sales

representatives world-wide are quitting. Active representatives

fell by 5% last year, an ominous reading from an important

barometer of future sales.

The results are turning a harsh light on the company’s

operations in the U.S. Sales in North America fell 17% to $1.2

billion last year, giving further weight to analysts’ calls for an

exit, something people familiar with the matter said is now

under review.

American women long ago stopped being home as often to open

the door to a saleswoman—the vast majority of representatives

continue to be women. The booming—and fiercely competitive

—beauty industry responded by giving them ample alternatives

for buying cosmetics, including websites, doctors’ offices and

vending machines, as well as drugstores and department stores.

Meanwhile, Avon’s leaders were mired in debates about

whether the path to future growth lay in selling its beauty

products through new retail channels or by pushing a wider

range of goods through its door-to-door sales force.

Ms. Jung, who stepped down as chief executive in 2012 amid

dismal results, had helped the company look for sales space at

retailers and introduce an Avon line of apparel as she was

coming up through management. But she became a back-to-

fundamentals CEO who pushed the company to focus on its

well-regarded skin care and makeup, feeling the fashion and

gifts that Avon sold in the past decade were often poor quality.

She liked wearing red Avon lipstick so much that colleagues

nicknamed her favorite shade “President’s Red,” one person

familiar with the company said.

Ms. McCoy, a chemical engineer by training, doesn’t have a

shade of lipstick nicknamed for her and she is swinging the

company the other way.

The new CEO has pushed Avon to think more broadly about

beauty. In her view that has meant selling items that make a

woman or her home more attractive, including jewelry, clothes

and shoes—but also more colorful vegetable peelers.

Ms. McCoy wants nonbeauty products like an all-in-one

strawberry slicer and huller and a “chocolate-shimmer

collection” of costume jewelry to account for up to 50% of

Avon’s sales in the U.S., up from about 40% in recent years.

The approach takes advantage of how consumers world-wide

still enjoy lingering over Avon’s catalogs, which appear once or

twice a month depending on the country. It also is aimed at

helping retain representatives by giving them something to sell

when customers don’t need more makeup, as well as to help

Avon cash in on big retail periods like the holidays.

“If you haven’t run out of Anew skin care, the representative

can say, ‘Well, here’s a beautiful thing,’ a holiday candle or

something you can use,” Ms. McCoy said.

Added complexityThe risk is that expanding the range of products will add

complexity to outdated back office operations and expose the

company to unpredictable trends. Avon paid $650 million for

jewelry company Silpada in 2010—then dumped it for $85

million three years later after its designs didn’t sell.

Snowman toys seem particularly vexing. In 2003, Avon missed

its quarterly sales targets largely because of problems fulfilling

orders for a singing Frosty the Snowman doll. Last Christmas,

Avon had so much success selling a glowing Olaf doll, the

humorous snowman in Disney’s “Frozen” movie, that

executives fretted about how they will match its sales during this

year’s holiday season.

“Selling these kinds of things isn’t a strategy, it’s a one-off

gain,” a former Avon executive said. “How are you going repeat

that success year to year?”

Avon says it is equally excited for its holiday plans this year.

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For decades, ‘Avon Ladies’ have sold the company’s products directly. PHOTO: DENVER POST/GETTY IMAGES

Daryn DeZengotita, a former Avon representative from Dallas

who appeared in the company’s 2009 Super Bowl ad, said one

of the first lessons she taught the 160 or so representatives she

recruited was how to apologize to customers for items that were

out of stock. She even encouraged them to avoid selling

products like dolls, because the items would probably never

arrive.

“It is so embarrassing when products don’t come,” she said.

“You’re letting down your friends and family.”

Avon’s attempt to get a grip on its inventory problems backfired

when a new order management system failed with the

company’s representatives. Avon tested the system in Canada in

2013, but the disruption was so great it scrapped it and

ultimately swallowed a $117 million charge.

“We did too much too fast,” Ms. McCoy said in a late March

speech. “We alienated a portion of our representatives.”

The broader direct-selling industry remains lucrative, rising

3.2% to $142.6 billion in global sales last year. Avon had been

the world’s biggest direct seller by sales until 2014, when it was

unseated by Amway, according to data from consumer industry

tracker Euromonitor International.

Avon competitors like Mary Kay Inc. appear to be faring better,

analysts say, in part because their cosmetics cost more. “With

Mary Kay, the demographic of the representative and the

customer are more affluent,” says Bill Schmitz, a Deutsche

Bank analyst.

During the recession, Avon’s sales ranks swelled as

unemployment rose. But now they are shrinking. Ms.

DeZengotita sold Avon for 10 years in Dallas, ultimately setting

up two Avon retail outlets, and often reached around $1 million

in annual sales with her team. She won vacations, cash and

accolades for her achievements. But she quit five years ago

mostly out of frustration with the company’s poor

compensation.

“Do you know how many $1.99 lip glosses you have to sell to

reach $1 million?” Ms. DeZengotita said. After leaving Avon,

she sold the 10-seat pontoon boat she had bought with her Avon

earnings and named “Lots of Lipstick.”

To turn around Avon’s North American business, Ms. McCoy

hired Pablo Muñoz, a 20-year veteran of rival Tupperware

Brands Corp. Early in his nearly two-year tenure, Mr. Muñoz

tried signing up as a representative at Avon and seven of its

competitors. It took him 2½ days to wade through Avon’s

lengthy registration process and website kinks, compared with

an average of 15 minutes to sign up with competitors.

Would-be Avon representatives had to complete a lengthy

questionnaire, often re-entering basic information like their

name and contact information. Then, candidates had to wait for

an Avon employee to contact them to complete the registration.

“We make it very hard for representatives to join Avon, and we

make it way too easy for them to leave,” Mr. Muñoz said in an

interview last month. “We’re in the process of turning all of that

around.”

His team simplified the online forms that a prospective

representative has to complete. Today, Avon promises the

process takes less than five minutes.

“We caught up very quickly online and are now highly engaged

on social media,” the Avon spokeswoman said.

Mr. Muñoz also decided that raising the price of joining Avon

would help with retention, too, by ensuring only committed

candidates sign up. Today’s base registration price is $15, up

from the longtime fee of $10. He also added higher membership

price tiers, including a $100 deluxe kit that includes more than

$300 worth of products to sell right away.

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It isn’t a new idea. About a decade ago, Avon created a new

classification of sales representative called beauty advisers. In

exchange for buying more samples, they got more extensive

sign-up kits and training. Their ranks grew to several thousand

but never hit critical mass, in part because the company didn’t

want higher sign-up costs to shut out aspiring applicants, a

person familiar with the matter said.

The company says the average order size in North America in

the most recent quarter is up 5% over the year before and claims

the North American business is on track to be profitable this

year for the first time since 2011. Yet U.S. representative ranks

are still declining, a trend that Ms. McCoy warned would

continue this year, though at a slower rate.

Ms. Frias, the Avon representative from Bogota, N.J., has built a

selling team of about 155 sales representatives over her 11 years

with the company. In a good year, the team sells close to $1

million, which has brought Ms. Frias earnings and honors from

Avon, including a $2,500 bonus that served as the down

payment for her car. Ms. Frias wouldn’t share details of her

income but said she earns about as much with Avon as she

would as an administrative assistant, but with a more flexible

schedule.

Ms. Frias says the most lucrative recruiting ground to expand

her business is her local unemployment office. Every month,

Ms. Frias offers job interview fashion and beauty advice,

including how to achieve a full face of makeup using less than

$10 worth of Avon products. Her demonstration includes how a

$4.99, four-color palette of eye shadow can enhance eyes and

serve as eyeliner and brow color. A $2.99 blush offers shimmer

for the face and can lend color to Avon’s 89-cent mini lip gloss.

For $7.99 more, Ms. Frias offers a coordinated Avon set of

earrings, bracelet and a necklace. She also tells her audience,

mostly unemployed mothers, about the earnings opportunity she

found in Avon.

“When they see me, they can relate—I tell them ‘I’m a mom just

like you, I’m a wife, I have bills, and yet I can do this within my

time,’ ” Ms. Frias said. “That motivates them to think, ‘If she

could do it, I could do it.’ ”

Ms. McCoy, and Ms. Jung before her, have a strong emotional

attachment to those women, which has made it hard for the

company to consider the U.S. exit advocated by some Wall

Street analysts even as its performance floundered. The new

strategic review could force some hard choices.

Avon’s repeated quarterly losses have prompted Ms. McCoy to

issue frank apologies on earnings calls for falling short of Wall

Street’s expectations and her own projections. Avon’s next

earnings update comes on Thursday. To keep herself going

through such difficulties, Ms. McCoy says she remembers the

many women around the world who rely on Avon for their

livelihood.

“If I’m having a bad day, I think about the voice of one of the

representatives whom I’ve met with and how they tell me what

Avon has done for them,” Ms. McCoy says. “I feel extremely

responsible.”