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Avon Products, Inc. (NYSE:AVP)
Q3 2009 Earnings Call Transcript
October 29, 2009 8:30 am ET
Andrea Jung – Chairman and CEO
Charles Herington – EVP, Latin America and Central & Eastern Europe
Geralyn Breig – SVP and President, North America
John Owen – SVP, Global Supply Chain
Charles Cramb – Vice Chairman, Chief Finance & Strategy Officer
Mark Astrachan – Stifel Nicolaus
Connie Maneaty – BMO Capital Markets
Bill Schmitz -- Deutsche Bank Securities
Linda Weiser – Caris & Company
Chris Ferrara – BofA
Doug Lane – Jefferies
Andrea Jung
Good morning everybody. Welcome. I know today is a pretty busy day, and you saw our third quarter results posted this morning. We feel we had a great quarter and Chuck is going to share that with you in a second. Our agenda today is a little bit different, and obviously we are going to share details of our third-quarter performance. So we will begin with that.
And then I'm going to share with you a little bit of a more strategic perspective. I think the last time we had a company update and a meeting was in February 2007. So it has been some time. So we look forward to sharing the longer-term perspective with you, and then I think we have a great opportunity as we come back from break to hear from three of our great leaders, Charles Herington, on how we're going to sustain leadership in Latin America in our emerging markets; Geralyn Breig, who's going to talk about the great plans we have in place to drive sustainable recovery in North America; and then take one of our global business units, our supply chain and have John Owen, our head of the Supply Chain really talk about how the structure, the process and the technology is driving true transformation, and tremendous growth as well as cost opportunities for the corporation.
Chuck will then sort of end with how to look at this going forward from a financial perspective, and then we will have some time to take questions and answers, and we promise we will be done around 12:30.
So with that I will just let Chuck take you through a quarter. Thanks.
Charles Herington
Thank you Andrea. Well, I'm going to give a quick overview of the third quarter financial results, and I can tell you it is a pleasure to be here to share these with you. We are very pleased with how we have been managing through what has been a challenging 2009. And it really is I think showing in our overall financial results and our performance.
Think about it in terms of key results first. Our local currency revenues were up 7% in the quarter, US down 4% in reported dollars. There is 11% exchange drag still impacting our results, but local currency up 7. Units, the driver for the local currency growth, were up 5%, and Beauty is up 8% in local currency. That is the mainstay of our business. That is the focus of it, and we have got 8% growth within the Beauty category.
Active representatives, our lifeline, our heart up 10%, another quarter of double-digit growth with active representatives. And our major transformational initiatives are working. We are on target on all of them, whether it is strategic sourcing, product line simplification, zero overhead growth or the 2005 and then the 2009 restructuring programs. Thinking about our revenue in terms of the local currency growth, it has been relatively broad based.
This chart shows on the top the local currency growth and then the dollars on the bottom side as we look at it certainly this year's results for the second and third quarter. Importantly here is you can see impact of the global recession when it really hit in the last half of 2008, and our progress since we adjusted our playbook for it coming to accelerated growth, 3%, 5% and now 7% quarter by quarter by quarter this year.
And it is very broad-based, Latin America up 18%, continuing to be a major growth driver, but importantly WEMEA, Western Europe, Middle East and Africa is up 7% and Central and Eastern Europe is also up 7% in the quarter. Important to me as I think about the business is the quality of the sales, and I think you should think about coming out of the end of last year, we got a little bit out of balance in terms of unit growth versus what we are achieving from price and mix, and we worked through the playbook that we shared with you to get some rebalance in there between price mix and volume, and it is really coming through now, and you can see in the last three quarters, unit growth has accelerated.
In fact, unit growth outperformed price mix in this third quarter. In terms of our Beauty categories, we have got local currency revenue growth in all four categories. It is led by color, it is up 17%; fragrance and personal care 9% and 7%; and then skin care is up about 1%. Just a quick flash on that, color cosmetics the launch of style too really a major driver in that 17% currency growth. Skin care up at 1%, less than the rest of the Beauty categories and that really ties in with the match of our promotional programs in terms of new product introductions as opposed to anything else.
So heavier new product introductions in the third quarter last year versus third-quarter this year. Strong response to our recruiting effort, you all know that one of the key elements that we have invested in is representative recruiting. We had another double-digit quarter, up 10% in terms of our active representative growth.
Now in terms of our initiatives, the benefits that we are seeing from restructuring, strategic sourcing, product line simplification. They're all on track, they are all showing results. 2009, we targeted and discussed with you about $620 million of benefit. We are on track to deliver that. In fact, there is a small amount of delivery as well from the 2009 restructuring that doesn't show in the chart. Just to give the scale, but we are right on target to deliver that $1.8 billion when we are fully completed with those programs in the 2012, 2013 time period.
Important as well is the attitude within the company. The constant turnaround mentality that really is driving what we call ZOG or NOG, zero overhead growth or negative overhead growth, and we touch all parts of the business, and we will talk latter about some of the productivity areas particularly on supply chain, but in terms of labor costs and some of the things we do to hold the labor costs down. Some of the hard decisions we have had to make in terms of payroll costs and employment.
Travel and entertainment, we came into this year and said you know, we ought to be able to operate significantly less from a T&E point of view, if we are judicious in how we use it. And we targeted a third reduction in our expenditure here, and well on target to deliver it. Benefit programs, what is the right value to the employee versus the cost to the employer in terms of the benefit programs and to make sure the selections that we are giving have appropriate value, and the net result has been employees winning versus the employer.
Conference formats. What should we do for conferencing, can we do a teleconference, can we do a video conference, if we have to do and in person conference, can we have a representative? Every one of our conferences, non-field conferences we have attacked diligently in terms of making sure that the value is there. Take up the low value parts of it, create higher value, and going paperless, part of our green program, paperless sure. There is an environmental element, but there is also a cost savings element for the company. Just a few of the things we are doing.
But we are going to continue. We will take aggressive actions on all of our fronts to further strengthen both our top line performance, our revenue growth, as well as our bottom line or profit. Now, I would like to just switch over to geographies for a minute, our top line I said is still impacted by currency. That pressure is starting to lift a bit, although this as we see in the last couple of days there is continued volatility in terms of currency rates against the dollar.
But in the quarter 7% local currency, negative 4% in US dollars. If I were to try to make a prediction in the fourth quarter that should swing around, and we might get mid-single digit lift relative to exchange quarter-to-quarter.
Latin America, to start with that, 18% local currency growth. Latin America continues to develop to deliver what we have seen this year, which are record results. This is the 10th consecutive quarter of local currency double-digit revenue growth in that region. And it is broad-based, the strength is across every market within Latin America, and to just call out a few, Brazil, local currency revenue up 22%.
Strong results from all of our key performance indicators and the format of these charts relaying out what I would call KPI just to help guide you through and think about our geographic businesses. But Brazil and all of these areas has hit strongly. In Mexico, local currency revenue up 7%, significant increases in active representatives in Mexico is really driving that. Yes, we're starting to see a little bit of economic difficulty trailing the US in Mexico, but still we delivered 7% growth in the quarter.
And Venezuela, which we have been roughly flat last quarter, revenue up 24%. We really came out on the merchandising side, strong merchandising support for the business. So when you think about this, Latin America, active rep growth plus 13%. It is very strong double-digit growth.
Our average order is up 5%. That means the value to the representative has improved. That is our average order. That is the value and her earnings opportunity in the improvement that she's seeing in her business, and it is driven by unit growth, which is up 10% as well as gains on price and mix.
Moving to North America, we had 8% reduction in value. More significantly is the pressure of the economy, and we all know the economic story in the US and the recession that we are embedded in. It is impacting us most significantly in the fashion and the home categories. Therefore the average order size is dampened because of the reduction in fashion and home.
As we are thinking about it, the economic recovery is yet to come, and when it comes I would expect it will be slow, but we will be ready and we will benefit from the continued strong active representative growth that we are delivering today in this geography, along with a renewed focused on our Beauty business as we look to manage the mix of the portfolio, the category mix of our business.
So thinking about the KPIs down below, I think the most critical one here given the economic crutches [ph] is active representatives, up 4%. Central and Eastern Europe plus 7% local currency growth. That is a strong performance because Central and Eastern Europe still is in recession. If you think about Russia and Ukraine, two of our large markets, recessionary pressures do continue there. But our playbook is working and improved execution against that playbook is really taking hold and helping us to deliver these kinds of results, and we're starting to see price against devaluation [ph].
Remember our philosophy is when there is significant devaluation, we know inflation follows. We will trail that inflation in terms of our own pricing really to continue to strengthen our foundation, and to try to build market share. We are now in a position where we are starting to take some of the prices against those early devaluations. And our investments in RVP, representative value proposition, are paying off. We are really starting to see some good traction here.
Great example is Russia, where we had 18%, 18% growth in local currency this quarter, and it is due to the growth in active representatives. Remember, the back half of last year we introduced sales leadership, we changed the commission structures in Russia, and we are now starting to really see the traction of those changes. So active representatives in the quarter up 8%, average order and units roughly flat, for Central and Eastern Europe.
Western Europe, Middle East and Africa we know it as WEMEA, a strong performance 7% local currency growth. It is a tough economy. The UK is part of this market. In fact, it is the biggest market in this region, and the UK is often compared to the US and said, "Hey, it is even worse." Why? What is happening? Really tremendous execution of our Smart Value program, and it is impacting price mix without hurting gross margin. That is an important thing. That is the thing that we have talked about, but if you look at the bottom, our units were up 22%, but our price mix is down 15%.
That is really the Smart Value strategy playing through the emphasis on the lower tier, the $5 and under price tier that we have and it is lead by support for the personal care business. Despite that change in overall mix, those higher units and the loss in the price mix side, our gross mix was not negatively impacted. It was just marginally down. So the playbook is working and it is not integrating gross margin performance.
Local currency growth in the UK was up 2%, great execution. In Turkey, up 10% and here is where the roll-out of sales leadership and the support through the RVP is paying dividends. Asia-Pacific 2% local currency growth and we have been kind of in the negative territories for a while. The story here is the same as it has been, very strong performance in our lead market in Asia-Pacific, which is the Philippines, constant currency and local currency growth up 16% and it is really built up on strong active representative growth, which you see is up for -- for the region is up 6% in total.
There is continued softness in our Japanese market, as we continue to evaluate how we are going to attack some of the problems that have been chronic in that business. In China, it is 11% reduction in local currency growth in this quarter, and really what is happening here is a reflection of the other hybrid model is working as we change our emphasis away from beauty boutiques and really build the direct selling business within China.
The net result was beauty boutique revenues were down over 40% in the quarter, and that complex evolution how we're merchandising, how we are working with our sales promoters versus the beauty boutiques and how they fit into the calendar. It has really impacted the BBs as they think about their business.
Our direct selling revenues were up 7% at the same time. However, it feels a little bit soft and the reason really is timing. Timing of our incentive programs that we used to build the sales particularly for new product launches and the big one is Retroactive Anew, which comes in the second half of the fourth quarter. We announced it early in the third quarter, and it has impacted representative order activity. They are holding back waiting for that new product launch.
So overall from a recruiting point of view, it is still consistently strong. We still have the same intake, 50,000 plus and in terms of activity and active representative growth it is 7% overall. In terms of the sizes, and when you think about average order that is heavily impacted by the beauty boutique business.
Now moving to the income statement. There you see our revenue just under $2.6 billion, gross margin at 62.6%, is off 50 basis points from a year ago. It is really pressured by currency and the impacts of currency in our business, and let us just bridge it from last year to this year. 2008 gross margin was 63.1%. The supply chain savings, the productivity improvements that were running through supply chain, particularly in manufacturing as well as distribution, but within gross margin the manufacturing area adds 50 basis points of improvement to our business, all other things equal.
Price and mix adds about 40 basis points. So those operational items added about 90 basis points, however, they are offset by transaction exchange, which in the quarter still impacted us a negative 140 basis points. And remember transaction exchange works on a lag basis. So currency for a quarter in terms of transaction exchange because of inventory is at three months plus doesn't actually flow into the P&L until the subsequent quarter.
Net-net though it is a 62.6% gross margin. SG&A $1.3 billion, down a little bit in dollar terms from last year. As a percent of revenue up a little bit at 50 basis points. And let us take a look at that again, we're going to see that currency is a big piece, but also the cost to implement our various restructuring programs is another significant element that is impacting SG&A. Of the 50 basis points then, higher costs to implement the restructuring programs, the impact of foreign exchange and here what really is happening is we have dollar costs embedded throughout our business. So where those dollars or dollar index cost exists in a foreign currency or in a foreign country foreign exchange drives down the sales number, but the dollar cost element of the P&L doesn't change. Therefore the percent of those costs to revenue goes up. And that is what we are really talking about, when we talk about the foreign exchange impact.
And then we do have some increased labor costs, these are where we had a high labor cost increases. It is primarily in Latin America, where we made the conscious decision not to execute totally the labor freeze that we put in place at the beginning of the year. This is our growth market. This is our investment market, and we felt we had to stay with the market in terms of the wages.
Now let us move through in terms of first the investment expense that is in SG&A. Our advertising in reported dollars is down $22 million, significantly impacted again by currency. However, there are some other things that are driving that number, one is improved buying productivity, what we buy, when we buy it, how we buy it, how we use it? In terms of the analytics they are actually giving us bigger bang for the buck in terms of our advertising investments.
We also did take advantage of media softness. There has been media deflation and that certainly has worked into the advertising cost. But importantly as we looked at advertising, we have held roughly the same way measured in terms of GRPs, roughly the same way as we had one year ago.
In terms of the Rep Value Proposition, it is incremental investment, another $7 million. As we continue to implement and roll out sales leadership as well as investments in the commission and commission structure changes. Further to enable the representative to further build her business, to give her the tools to create a better earnings opportunity at less difficulty, included in here are some incremental expenditures for web enablement, a significant tool for the representative.
In terms of overhead, I feel we continue to be successful in executing our SOG program. We are vigorously controlling and reducing overhead costs. We are taking out low value-added activities, and where we intend we are substituting higher value-added activities there, but it is a constant turnaround mentality as we pack all of those expenses.
That brings us down to operating profit, 259 million versus just under 300 million a year ago, and the operating margin down just under one percentage point. Taking a look at it from a high perspective, what is the bridge between the 11.2 margin and the 10.1 margin. All of those operational things that we have talked about actually added 240 basis points. By themselves, the operational elements added 240 basis points. However, exchange between translation and transaction offset it, actually more than offset it at 270 basis points, and then we had about 80 basis points of incremental costs to implement our restructuring programs third quarter this year versus third quarter last year coming up with a 10.1%.
Moving to net income, net income is down more sharply year-on-year than the operating profit is resulting in the earnings per share of $0.36 versus $0.52, including all of the cost implement restructuring. The big change here, remember last year we had a significant tax adjustment, a settlement in terms of outstanding tax issues and that generated incremental income as we had to recover against the tax line.
Seeing it from a bridge point of view, then the operating -- $0.52 last year, the operating performance I described added $0.12 of earnings per share in the quarter, the tax adjustment loan was $0.09. That was the income we had last year that we didn't match this year. Currency, transaction and translation about $0.15 and then the restructuring cost to implement about $0.04 incrementally. The absolute number was $0.06 in the quarter, $0.02 last year, net $0.04 incremental to the $0.36.
Balance sheet and cash flow, first in terms of cash, our cash increased almost $200 million from the end of the year. However, our cash from operations is down about $15 million, and it is driven by the lower net income offset by payment timing, really on the restructuring costs and we have talked about that a little bit, but remember when we make a decision in one of the programs within restructuring we book accrue many of the costs. The cash that goes along with those accruals only goes out of the company at the point that we are actually implementing or executing those programs.
Accounts receivable, somewhat higher than a year ago at this time. It is really due to the timing of sales and it is well below 30 days outstanding. We feel really good about the continued performance on our accounts receivable. Inventories are down $45 million versus a year ago. Again we are starting to see some traction now in the programs, and this means operationally about a three-days improvement versus a year ago, and John Owen will talk to you a little bit later more about some of the things we are doing in this area.
Capital expenditures, we have been diligent in looking at setting priorities to capital expenditures during these economic times of uncertainty. We have looked at when it is appropriate to differ, how do we set priorities in the business. Net result is our spending year-to-date is about $170 million. It is almost $70 million we were spending year-to-date this time last year.
As a result of that work, and the result of some of the deferrals as well as some of the eliminations of capital requests, we are now giving new guidance. We are resetting the total year estimate for capital to be about 300 to 325. I think last quarter we said 325 to 350. But it has been a continuous process of can we defer it, is that absolutely essential capital.
And then total debt, it is up $270 million from the year end level. And that is really reflecting the program that will put in place in March, where we decided to take advantage of market conditions and we went long term for $850 million worth of notes, and we used that money subsequently to repay our commercial paper.
So when I think about the performance we have had in the quarter, and it is a story that I think continues, and it is a story that says, "Hey, this strategy remains intact." It is working. It is driven by analytics and we're going to continue to build on the gains that we have managed over the last three years, which I think are quite impressive. We're going to focus on those things that we can control, on those things that we can manage, and we're going to remain pro-active in running this business.
But we told you at the end of last year and again reminded you in the beginning of this year that 2009 will be a very tough year, and this does continue to be reflected in our dollar reported results. However, we are very pleased because we are seeing the benefits of those actions, those specific actions that we put in place to counter the economic climate, things that we call the playbook. And this is most evident in the unit growth and the local currency sales growth that we are reporting, but even more importantly is the success we are showing in terms of increasing our number of active representatives, because the number of active representatives and the growth in that number is an indicator of how we are going to perform in the future.
So our actions are not only responding to the current environment, but we are strengthening our foundation for future growth. Our game plan, to navigate the recession is playing out as we anticipated. We are attracting a record number of representatives. We are reaching new consumers, new customers, and we're controlling our costs at the same time. And it is showing in our financial results.
So that ends really the overview of our financial performance for the third quarter. Andrea will now come up and start to put in the context of what we're thinking about strategically and how we are moving strategically with the business forward. So Andrea?
Andrea Jung
Okay. So that is the wrap up of the quarter and we feel really very good about the quarter, and I just wanted take a moment to put the quarter in perspective going back as well as going forward. So I had sort of three major messages for you this morning. The first is that we entered 2009 and this turbulent time with stronger fundamentals after three really very strong years of progress building a platform for sustainable growth.
We are executing the 2009 playbook that Chuck talked about with stand out results. We believe sort of three quarters into this year, very, very pleased with how the playbook is working, and I will show you in a minute really outrunning GDP amidst the economic downturn. And then my third message is that based on this foundation built from 2006 to 2008, how we feel we are managing this company in 2009, which is arguably the biggest headwind any of us has faced. We now feel extremely confident that we have laid the roadmap for sustainable market share and earnings growth in 2010 and beyond.
We are a significantly stronger company than we were when we came out of 2005. I hope that is clear to everybody. We are first and foremost a much stronger brand. We have spent a lot of time working on this, and as you know sort of the tenants have been sustained investment, which has significantly improved our brand equity. You know these numbers for our advertising is up almost 3 times our 2005 level, and we continue to show strong paybacks against these advertising investments across each and every commercial business unit.
In addition to advertising, we have stepped up our product innovation in the company. 65% of our R&D spend is focused on innovation, up from 49% in 2006, and we've had over 15 real first to market innovations in this time period. And then for me, I've been with the company for really 16 years and 10 years as the CEO, I think one of the greatest things that I've seen in this company over the last three years has been our ability to price, our ability to have elevated the pricing power of the brand with all of these investments and these innovations.
We took strategic pricing actions against over 40% of our Beauty portfolio and have been able to have over 10% price increase in two years. So again I think that is testament that this is all working. The growth is up against all categories. So the grey bar is our 2005 growth in constant dollars by category. So negative in skin care, up 4 in color, up 9 in fragrance and up 3. And you see the pink bar is the compounded growth rate 2006 to 2008 with this investment the innovation and the pricing power.
And this took our Beauty sales, which was 3% in constant dollars in 2005 growing below market to almost triple that growth rate in the last three years ahead of market growth rate. So, obviously in our minds a much stronger brand now gaining market share.
We are also a far stronger direct selling channel in the last three years. Our channel investment is up over $250 million since 2005 that is incremental investment against the channels. You all know about RVP or the representative value proposition, and this is where we have really stepped up the tipping the scale, if you would, to make simply her earnings go up and her effort go down in the equation. That is the goal here.
And if I look over the last several years, sales leadership has been rolled out to over 30 markets, commission changes have been implemented in over 20 markets, and again what supports representative earnings obviously is the company's effort and support on brand and recruiting advertising. So those three things have really driven earnings up and from an effort point of view several things. One is that we have a very global standardized training program, PATD, prospecting, appointing, training and development.
And this is the language. It doesn't matter, it is in 50 languages, 100 languages. PATD everyone knows it around the Avon world and these are the fundamentals that have been rolled out since 2006. I will talk a little bit more about this, but technology is the key enabler to reducing effort, and the representative Internet platform has been launched now in 44 markets as of today.
And service, very important product availability and service is at record levels in the company. It has been a major focus of the supply chain in the commercial units, and service is at record levels up 12 points since 2006. We are a company today with much stronger cost management in the last three years and you have heard Chuck talk about this consistently, we have embedded this constant turnaround mentality in the corporation, and we have got very strong cost discipline, supported by rigorous analytics, processes and tracking tools, zero overhead growth and negative overhead growth are embedded in the planning process in every business unit, and I think importantly and you will hear more about this from Charles, even where our business is very strong, we're "fixing the roof while the sun is shining" and that is a philosophy that creates, if you would, that constant turnaround mentality even when sales and margins are quite strong, and I think that to me is really I think the -- as I look into the next few years what we have learnt and what we have embedded in the organization.
We also laid out bold plans as you know back at the end of 2005 and then 2006, and 2007 to really change the cost structure of the company. We said we would delayer the organization, we did. We said we would secure global supply chain efficiencies, we have. We said we would streamline transactional services, we are, and we said we would execute SSI and PLS, we are. And we're exceeding if I look at what we originally said when we announced the 2005 restructuring program, and originally when we talked about the SSI opportunity for benefits as well as PLS it was approximately $700 million was our original target. And as you know, as Chuck said on those programs, before you get to the 2009 program we announced in February the benefit stream is projected to be $880 million plus. So $180 million exceeding our original target as the organization has really learnt and began to understand the power of revaluing the cost chain.
Also and very importantly and probably most importantly for me we are a stronger organization. If you think about it from me and the progress on the people front in three years we moved the management layers. We really expanded management capability and capacity. We have invested heavily in training, and we have a new operating model. Not easy for any company, but we have truly wired and are now very effective in operating as a global matrix.
You know the story about delayering. This was done in early 2006, but again 14 layers reduced to 8. Post delayering, the organization continues to remain flatter and closer to market this many years later. In terms of capability and capacity, we have a very high functioning, well-balanced senior executive team. I like to say that again on my top leaders have got 146 years of Avon experience, of true direct selling experience as well as some terrific world-class CPG experience, 151 years of CPG experience. So I think that blend as we really look forward in terms of grasping real world-class practices, processes and commercial excellence. This is really led by a very well-balanced senior team.
We are also really actively developing the next generation of leaders at the company, again balancing external talent acquisition with internal pipeline. 19% of our vice presidents are new to Avon, 31% have been promoted up in the last three years. We believe very much in moving key talent across geographies and functions to give them great experience. There is no better global experience than working for Avon.
And we are stepping up investment in people, in development programs. And what do I mean by that? In 2007, we had 43 weeks of leadership and functional training in the company. That went to 74 weeks in 2008, and this year we will have 83 weeks of leadership and functional training dedicated to our people as we expand and have functional excellence.
This is a busy chart, but essentially it is the fact that we have a matrix organization now. If you talked to us before 2005, it was really just the verticals. We had operating business units, geographically P&Ls. Today we have commercial business units, who run the geographies and we have global business units, really centers of excellence in marketing, sales and supply chain and you will hear again from John Owen, who leads our supply chain so you can understand since the inception of this matrix organization we really have been able to add value and incremental benefit to the corporation.
One example that I have talked about, but I just want to recap here is the focus and the introduction of significant analytics to the corporation. The (inaudible) is pretty amazing. It is the example of a step up in a functional area, which we did not have in this corporation before 2006. So the funding has nearly tripled. Since 2006, we have over 70 full-time equivalent people in our analytics department up from less than 20 people when we started. And most importantly for me it is fully embedded, analytics are fully embedded in every business and resourcing decision that we make, whether it is against a brand or against the channel.
And how do we look at this. We look at this -- early years, when we put this in we were just doing I think the basics, but very important as it related to the brand and categories. So we didn't marketing mix, we did media optimization, we looked at market structures and category opportunities. We input a robust concept screen process for new products, and then very importantly to kind of really fuel and help us with the PLS initiative. We did price modeling and assortment optimization. So that was really the focus of our marketing analytics and insights team in the early first part of the functions existence.
And then in 2007 through this year, very excitingly we're really putting those analytics to work in addition to against the brand and category, against our representative insights and really understanding the direct selling levers of growth. So, real specifics by country on appointment, activity and average order drivers and the ability to understand now in multiple markets and it is different by market what the representative segmentation models tell us. And going forward we really believe that analytics can truly drive competitive advantage because from a direct selling point of view now that we have this customer, new normal customer and all these representatives coming into this business, what are the shopper insights specific to direct sales, what is the channel market structure if you would, the shopping experience and more and more details and understanding about our store or our brochure, the flow and optimizing that as well.
So traditional sort of brand category moving to really the proprietary understanding of a direct selling business, and how analytics and insight can take us to the next level. So if I just had to sum up the last three years I would say, we made major inroads against building sustainable growth, we significantly improved the fundamentals and the execution capabilities of the organization, we added the management capabilities and capacity to take on new growth opportunities and position the company for sustainable growth. And if I look at the results and again these are compounded growth rates, constant dollars and revenues up 6% over that three-year period, Beauty sales up 8%, active representatives up 8%, gross margin 210 basis points, operating margin 380 basis points. So that was the '06 to '08 period.
And then the world changed as we came into 2009, a year ago. And we entered 2009 facing severe macroeconomic headwinds like all companies in the sector and in the world with major GDP declines being forecast across top markets, substantial consumer contraction, and as you know, particularly for us here at Avon, significant currency pressure, with the currency meltdown, with the dollar representing a potential billion-dollar revenue drag for Avon as the dollar strengthened. So that is what we faced as we came into 2009, and we were not immune as Chuck mentioned, as we exited 2008. So certainly we started to see the consumer contraction and the pressure on our revenues in our units.
So again, local currency sales started to slow a little bit and then we obviously had the pressure of the devaluation. Then we had unit growth starting to go negative as we exited the year. But I think the whole story of this year and hopefully we have been consistent on this is that we have this extraordinary foundation. We were extremely proud of what we had accomplished from 2006 to 2008, and we couldn't have predicted the economic headwinds in 2009, but we were just going to do everything we could to manage what was in our control in 2009.
So we went on the offensive as a company and a team, early as we came out of January we said we were going to gain market share in this year. We updated our playbook for 2009 and you know it, but it is focusing on Smart Value products, being just all out on our focus of recruiting, taking very aggressive cost actions in this environment, and then most importantly staying the course on the turnaround, not losing the progress and going 180 degrees on the progress that we had made since 2006.
And I just have two words, I mean, its working. I've hope your opinion of our third quarter results as we continue to see a pretty good year prove that it is working. In a highly challenging year, Avon is delivering strong constant dollar growth. So from the 2% in the fourth quarter it was 3% in the first quarter, it was 5% in the second quarter, and it is 7% in the quarter that we announced this morning.
We've shifted the trend line on active representative growth. We took that disruptive move, so again you saw active representative growth at 5% and then 4% in the third and fourth quarters of 2008. The trend line may have shown that if we did nothing it looked like it could possibly go lower than that. And the disruption is the following, the focus on recruiting in the playbook gross active representative growth to 7%, really starting in that February-March period, 11% in the second quarter and another double-digit quarter again in today's report.
Very impressively for us is the ability that we have had to focus on smart value and change the unit growth trend line, minus 1 in the third quarter of '08, minus 3 in the fourth quarter of '08, our focus on making sure that we really flowed the units in the lower tiers appropriately. So we got back to flat in the first quarter. We started to see some momentum in March, 2% in the second quarter and 5% in volume growth reported today.
I thought it would be helpful to just kind of understand the playbook. So yes, it is working, you understand the four elements, but we have done a lot to kind of go underneath the playbook to understand why A, it is working and B, it is sustainable. So let me just give you a little bit more granular understanding and let us just start with Smart Value. So in February we talked to you about the fact that consumers were shifting to value. And this is the percent of color and facial skin care buyers in the United States who agree or strongly agree that they will not resume old spending patterns when the economy recovers.
And I think that is important. Won't -- not just what they are doing now, but they won't resume their spending habits when the economy recovers and in February in the midst of all this turmoil 87% of facial skin care and color users were saying, I'm not going back to brands I used before.
So that was February. Life is getting a little better hopefully, and so we wanted to understand some of this research. And this is a McKinsey study that was just completed at the end of August. So months later at the end of the summer coming into this fall, this recent research from McKinsey shows that you new value brands are exceeding consumer's expectations, but first of all that 38% of consumers are trading down still, but this is the important point. Now that they have started to trade down, as of the end of this summer 46% of those that have traded down are having experiences that exceed their expectations.
So they have gone to some value brands, but the innovation is there, the technology is there and the experience is good. 46% of them are saying that that is a good thing that is exceeding their expectations and again, this was presented more for some CPG companies who would say that the risk then would be that if you had people trade out of your brand, and they like the value experience, nearly 20% perhaps of consumers are at risk of never coming back.
And few consumers reported desire to go back. So only 25% of consumers and this is all categories, the average across all categories are saying that they will go back to higher priced brands. In our mind that is a great thing for Avon. This is Avon's opportunity structurally going forward.
So you saw the total units grow. This is the Beauty unit growth, which we love, minus 2% in 4Q08, 2%, 3% in second quarter, 6% in this quarter. What were we saying we were going to do, we wanted to increase the flow in the value tier or the US five dollars and under, and this is about flow. We have had a lot of products always in our line that really appeal to that value consumer. It was about making sure that we showcased them enough, reminded people that we were extremely affordable.
But for me personally, if you were in our management meetings, we said to the team if we start to lose all of our focus, we know we can sell under $5 units. We have killed ourselves for three years to be able to be move up in terms of strategic pricing. We cannot lose ground, and so we are going to have to be able to walk and chew gum. We have to do both. We also have to keep focused on that $5 to $10 and over $10 tier, where we have had so much progress. So that was really the mandate to the team.
And again in this, if there is any chart you should take away in this section is this one that we basically have been able to do it all. The units are up across all price tiers. The growth is split between value and mass. So you see the pink bar is under $5, the grey bar is $5 to $10, extraordinary growth in that segment in this third quarter, and the blue bar is over $10 and (inaudible) if you would, or even some of the celebrity products growth in each segment this year. So we feel like this was truly the good report card in terms of how we got that unit growth.
Second question I know many of you had of us and we had of ourselves is can we do this without hurting gross margin. You heard Chuck say no, but here it is. I mean this is three quarters to date in the year pricing makes up 50 basis points. You know that FX drag et cetera, but with all of the focus on the under $5 products, our price mix is up 50 basis points in a year. So we have been able to do this without hurting gross margin. So we're reigniting volume in the company without sacrificing the long-term. That was really important to me.
We are positioning the brand importantly to capture the new normal consumer. We think there is a structural change in consumers or we certainly hope and our strategies are designed to really keep that going, going forward. So that is really in my mind how I look at Smart Value and how it worked and why it worked as I sit here, as I go into the fourth quarter and 2010.
Now as it relates to recruiting, let us understand this. Our history, and I will probably be repetitive on this year after year, the history shows that active representatives and sales growth, they are highly correlated. If you go back 10 years before this, it would probably show you two lines, the pink is active reps, the blue is revenue. They are very, very highly correlated.
And because of that obviously, we unleashed as you know the boldest recruiting campaign in the company's history at the end of the first quarter to drive active representatives. This time it wasn't just recruiting advertising, which is also new, traditional media recruiting advertising, very powerful message, but major online recruiting, major online effort which is new for us and really for all the time I have been in the company the most extraordinary effort on PR and awareness in a campaign as you saw the Diane Sawyer, but multiply Diane by every country we are in business in, the story that Avon is an opportunity to be the economic solution right now for women was worldwide, and just millions and millions of impressions.
And so this obviously has driven a lion's share of the appointments. We doubled our recruiting advertising spend as a percent to the advertising mix. So it was 10% of our total mix before, it was 20% this year. And we had 19 markets last year with representative recruiting advertising, this year 43. Our actions are generating record appointment growth in the company, up 24% in Q1, 17% in Q2 and another 15% in this quarter. And just a reminder, because yes, we've removals and there is inactivity that has driven from mix as well as consumer contraction, but appointments are the lifeblood of direct selling.
It is the first part of the engine, and that is why again we feel so good about the strategy. This is the sort of the second shot I want you to really remember because you might say to yourself before I show this, but of course unemployment is driving all these people into Avon, and then when employment comes back sort of a windfall from just the macros will that stop. There is a grey bar. That grey bar is sort of the uncontrollable or the gift to us if you would of unemployment, but I can tell you that grey bar is a lot smaller than any of us thought. In other words, the pink is what appointments are coming in from the controllable factors, our investments, the advertising, the sales, leadership incentives, the PR, Brazil it is 100% to give you an idea but it is 78% in the UK.
The appointments are coming in by what we are doing versus what the economy is giving us and this is why we believe there is huge sustainability in this model. This is important. The new representatives who are they? So we have done research. We are bringing in younger representatives. In the United States, last year in 2008, 6% were under 25 years old, 2009 18% under 25 years old. UK 14% last year, 26% this year. Brazil higher as you get to some of our emerging markets, 21% but that has gone up to 27%. And Russia, which has been one of our highest 35% last year under 25, 46% this year under 25 years old. A lot of this as you can imagine is being driven by technology and the Internet and who we are attracting.
Psychologically 2008 product discount was cited most frequently as the reason to join Avon. This is a US example. So again for why did you join Avon, getting the products at the discount was the number one reason in 2008. This is very important. In 2009, number one tide really is income. For my income and my career and getting products at a discount has moved to the third reason cited. This also is I think a very important change.
These new representatives appear to be committed to staying with Avon, so when we talk about sustainability it is the words in pink. The percent of new representatives who say they will be with Avon one year from now, even if their financial situation improves. They are not just coming in until they find something hopefully in the next month. Even if their financial situation improves they are saying 82% in the US, 76% in the UK, 90% in Brazil, and basically 90% of Russia. These new representatives are saying we see ourselves being with this company, hopefully the economy will improve, but we see ourselves being with Avon one year from now.
To assess quality, I wanted to understand quality, are we diminishing quality if the numbers are so high? We conducted a comprehensive analysis of new representatives. So we analyzed representatives who were appointed in the first quarter of 2009 and we tracked their performance through the end of the summer, and we compared their performance metrics across two groups, representatives who were appointed a year ago in the first quarter and existing representatives who have been with Avon for more than a year, and we did this in the US, the UK, Brazil and Russia.
And what did we learn? We learnt that the analytics demonstrate that we have not sacrificed quality for quantity. We have not sacrificed quality for quantity. New representative activity is on par, so there has not been a change there. So this was activity rate in Brazil and US 2008, almost exactly the same line in 2009. So we have not lost on the activity rate with all these new representatives. And retention levels, the same thing, they remain largely unchanged. So again Brazil US 2008 you know we were looking for that line to change dramatically, almost exactly the same in 2009.
Year-over-year average order growth trends are actually in line with established representatives, a little bit higher in fact in Brazil. So new reps, who joined this year versus last year and the average order growth higher in Brazil, actually then established in the US, no different from established representatives. And when I look at new representatives, just this is consistent with historical norms. You have to look at average order taking some time to play itself out. New representatives on the left, they have depending upon the country, somewhere between 60% to 75% of an established representative's average order. That is pretty intuitive, but it is lower by about that amount indexed.
And the average order size by month, it is approximately within 6 to 12 months. I mean it does take time, but within 6 to 12 months depending on the market, again you really see parity for closing of that gap. So we believe quality, we know quality is intact. Our recruiting focus is paying off, and we are driving the numbers say the story. We are driving strong active representative growth across all of our commercial business units, and importantly for us we believe active representative growth is fuelling an upswing in revenues. So the 7%, 11%, and 10% active rep growth we believe is the large driver between the 3% going to the 5% going to the 7% constant dollar sales growth across this year.
So this bold decision that we made in January to significantly step up this recruiting engine, in my mind has changed the game for us in 2009 and is proving key to the company's revenue acceleration. Let me just go a little bit further into the cost actions that we are taking this year. So again on top of what we believe has been this very, very successful original restructuring PLS and SSI set of initiatives, we announced a new restructuring program at Cagney in February, which added another $200 million of benefit opportunity and Chuck talked about $1.8 billion benefit commitment.
And this again this is a cost to implement a 300 to 400 on this last program we announced, and we said it would impact 2,500 to 3,000 positions globally, including vacancies over the next four years. My only headline here is we've made strong progress already three quarters into this year against that early February announced program. So the expected cost to implement on the whole program, $300 million to $400 million, the announced programs to date are already 184 million. The annualized savings stream $200 million and announced programs to date, again two-thirds of that already announced in terms of the benefit opportunity, and then from a headcount reduction point of view, the announced initiatives to date, affect 2700 FTEs and that was already at, if you would, the original number that we said of 2,500 to 3,000.
So going forward we are going to continue to deliver on these bold initiatives to free up funds for growth and drive margin expansion. I mean that is really what this has been all about. And lastly, just we are staying the course. I mean the playbook is working. It is working because we reignited unit growth across price tiers, I mean, our volumes were very proud of them. This year we reignited that without hurting our gross margin. We accelerated our representative growth without diluting quality. We held the line on non-strategic expenses and we have freed up funds for growth and we kept investing this year.
And counter to retail trends, we opened significantly more doors, positioning us for future share gains. We are outrunning our competition, you know, again I know results are just coming out in 3Q. For 3Q now, but if you look at some of the big beauty players, grey bars first quarter local currency sales in Beauty, blue bar is second quarter. This was Avon Beauty sales, 5% and then you will tell me but our 8% in Beauty in this quarter we think is pretty standout in share gain.
And then this is a great chart for us. We are significantly outrunning GDP in 8 of our top ten markets. So this is GDP year-to-date and this is Avon, and so in the markets that we are outrunning GDP it is anywhere from 15 to 20 points of an outrun of GDP.
So with that I think we enter 2010 in an even stronger market position as a company. We have all this record number of new representatives and customers. So, the focus now is really about retention and productivity. And I think innovation is requisite to achieving the goals of retention and productivity, and we certainly continue to focus on being a growth company and really focus on being innovative and obviously the research has shown us across the years that leaders in innovation of the model of the brand outperform peers 2 to 4 times across all the key metrics, whether it is market cap, income profit sales or total shareholder return.
There is no doubt that this continued focus in investment and innovation does payoff to shareholders. And so our tract forward really is to continue to innovate. Innovate the portfolio, the basket of products that our representatives can sell and earn from and to innovate the channel, the whole business model and take direct sales to a new place.
How are we going to do that? Portfolio innovation obviously is key to productivity and creates a more compelling and more profitable market basket for our representatives. So that is what this is all about to us, and we are aggressively pursuing white space opportunities both in our core existing Beauty categories as well as adjacencies.
So by just starting an existing category, innovation and technology that will continue in the company, it is totally transformed anew, it is a billion-dollar brand. And we will look certainly to how to extend the equity of Anew into other anti-ageing segments be it color, be it personal care anti-ageing, and really stepping up even more so our resource and support on this billion-dollar brand.
Color, color cosmetics we are the number three global player in the world, and we have got innovation in packaging that we think is helping us sustain strong leadership in the color category as well as technology, but this last year was our color Eyeshadow Quad. This year pretty great change, this is our Eyeshadow Quad and so again real innovative packaging for same cost.
So it is a real big step, and we've had great direct selling activation. This is the Brazil brochure on all of the new color packaging and I would just tell you that in the third quarter of this year on this brand of Avon color with the new packaging and innovation sales were up 38%. That category has a 32% share in Brazil already. And our sales were up 38% with the launch of this new packaging and technology.
Our net per unit in color was up 18% in this economy, unit is up 17% in color with this launch in Brazil. Total company though did really well. It has been terrific performance. So, our sales up 12% year-to-date in color, net per unit is up 8% and unit is up 3%. So, we think this is really healthy and we are very proud of it. But there is more opportunity. So let me talk about how we are going to continue to drive and fuel this. We are number three in nail, number three in lip, and number two in eye.
We were not number two in eye a few years ago, but we've had extraordinary success with some great mascara, but face we are number six, foundations et cetera. It is 37% of the category for the industry and only 24% for Avon. So we will focus on this segment very carefully and very strongly going forward as this is new packaging, new technology innovations is important here. We have a first to market light diffusing technology, which has been extraordinarily successful that is MagiX, which has come out recently and will be rolled out around the world, but a real focus on the foundation and the face segment where we are under indexed.
You've all witnessed obviously a big change in our fragrance strategy, which has been to have innovation in partnerships and they fueled exceptional growth. $750 million dollars of sales from celebrity alliances and fragrances since 2006, $750 million and more white space, more opportunities. I mean this strategy (inaudible) will continue. We just signed Fergie. We've turned up the volume, we've got the alliance in Music now, a celebrity fragrance, one of hip-hops hottest acts, and this is women's wears daily, but again adding a new partner to the portfolio and the opportunity to continue alliances like this is I think very important to our growth going forward.
Just turning to personal care, we've really dialed up our focus on personal care in the last few years. So we're now $1.6 billion in this category, but this is a really under indexed category for the corporation. So on the left is the CFT industry 38% of the Beauty industry is done in hair care and personal care and 18% of Avon sales are in the same category.
So we are significantly under indexed and this is a high chart. The whole point is that we have taken a very granular view. So across the top our countries or regions and across the side our just sort of subsegments. Women's deos, hand and body care, sun care, baby care, men's grooming, men's toiletries, oral hygiene. We are just taking a look at every subsegment of personal care. Of the share we have in our other categories and where we just drafted that share what kind of opportunity we could have in personal care and this is a very granular exercise and focus being done by the Beauty teams and the commercial business units.
And in developing markets, we know this is a huge opportunity. Developing markets hair care, for example, is much higher than the rest of the world. Worlds' hair care business 21%, developing markets it's 26%. You all know our strength in developing markets where we've got on average 13% share in color, skin, and fragrance, and only 2% in hair care. So we'll talk a little bit more about this, this morning, but we launched hair colorants in Latin America, strong activation program really combining power of great products with the power of our sales force, 5 million units sold to date of hair colorants in this region.
So we feel we have a lot of white space still within Beauty, and then when we explore some of the Beauty adjacencies beyond the core, one key category opportunity is to really take jewelry and the jewelry opportunity global. It's $100 billion mass-market. The gross margin is on par very importantly with Beauty and the image is enhancing. 70% of our jewelry sales today are from our developed markets particularly the United States. We are very under indexed in the developing world.
So we've just established a new global jewelry organization and we are really harmonizing and rolling out the global jewelry portfolio with a combination of marketing and supply chain excellence, as we go into the back half part of this year and next year, and there are other opportunities that we are pursuing in terms of adjacent space, whether it is men's, whether it is sun care, whether it is again fitness, that fit our brand and consumer profile, and why because I know one of the conversations that we have all had together over the years if you know, how do I look at non-beauty Andrea?
And I think I've been consistent in saying there is a very intricate and complex evolution that has to come from this because of a representatives earning, and that we need new category opportunities to replace the basket that she is earning on, and so if you look at the again axis on the bottom, we are looking at where is their category growth, where are the profitability image supporting categories, axis going up and down would be, where can we have competitive advantage, and it's not in many of our home products and our you know, entertainment leisure products. We understand that.
So this basket of white space that I just spoke to you about is going to allow us and will get much more aggressive on basically doing more category axis and going up into the upper right-hand quadrant and shaping the mix away from many of the home products. So that's really how we are looking at the portfolio going forward and again a lot of white space in some very, very attractive margins.
Technology is the key enabler though. I do want to end here, because I think this is a game changer to comprehensive channel innovation and what do I mean. We've had a technology journey in 2007. We really introduced the core global Internet platform around the world. It started to really start focusing on reducing our effort as I spoke to you about and had major cost advantages. So that was the core global Internet platform that we've essentially rolled out.
We just started to call it to enhance it, if you would, to drive representative productivity which I'll show you in a minute and I think if we really leveraged the power of the web and social networking, we can transform the model and fuel representative and customer acquisition and retention to a new level and really drive not the cost or the e-side of the equation but the growth of representatives and customers in their basket. So if I just start with what is our current -- reminder of our current Internet platform, it has been materially reduced our representatives effort.
It's been about online ordering, pricing, invoices and returns, they get account information, product availability in its early stages, interactive training, bulletin boards and blogs for our representatives and if we sat here exactly one year ago today. We have this capability in four markets, pretty fast roll out 44 markets have the global Internet site. All of our top markets have this global Internet site today as I stand here. So with that core global Internet platform in place we are adding functionality now to enhance productivity.
So productivity is where all the functionality is going. So examples, online performance trackers for all representatives. She can see her sales and earnings versus her goal on our personal dashboard. This has been in place in the United States but nowhere else it will be widely available in all our major markets in 2010. Those of you who may have been aware in the United States a tool that we have given leadership representatives. It is an opportunity for leadership upline representative to track her downline performance metrics daily. She can go on and see her downline and what they are doing every day.
This'll be rolling out to our top 10 sales leadership markets in 2010. Intelligent ordering, huge enabler for productivity. This functionality is going to be widely available in 2010 and this will provide upselling and cross-selling recommendations to representatives when they place their orders online, and then past that let me just say the web, or web 2.0 as we call it represents the next platform in the innovation journey.
So we believe we were the original social network 1886 in her home, women to women. We moved in 70s and 80s with her to the workplace, and now obviously the future of this network is online. I don't have to tell you but again the exponential is the word here, two thirds of the Internet population visited a social networking or blogging site. We all know the numbers of millions of Facebook members that are growing every month. A year ago we wouldn't have been able to talk about 1.6 billion tweets on Twitter and then there is 100 million videos viewed on YouTube alone every month in the United States.
So we understand the exponential growth of this and so how does it play into Avon. What's its applications to Avon and we've always talked about high touch, we will always be high touch, but how does high-tech marry high touch to vastly expand her recruiting reach, to widely allow her to reach customers and market to customers and to stickier relationship with the webs role in retention of customers and representatives. So just a couple of thoughts here, because I think again we be talking much more over the next several years, but leveraging the power of the web to multiply her recruiting reach and the word here is multiply.
So it enables a representative to build and publish her own recruiting website. It will be fully integrated with her social networking sites like Facebook and create hundreds of thousands of online points of presence. So it is the one who you saw on the video post what the companies' generated recruiting ad on her Facebook page, and she has 100 friends. I mean I guess that's the average. She's got 100 friends and they see the feed, and those hundred friends obviously we all know the power of this math have hundred friends.
You end up with again 10,000 views from the same company commercial. That certainly gets the traditional media coverage, but that's the power of the web on recruiting or a recruiting tool. Same thing is true to consumers. So I think the power of the web can also virally market the consumers in a different way, allow her to do so. So it will provide education, best practice in tools from marketing online, but it will allow representatives to share personalized marketing content on her online network, and explode again the point of presence of a beauty commercial or a new product to acquire new customers, and we really believe that the web can help us drive retention of both customers and representatives.
It can offer content that is tailored. I mean it is the key to segmentation here beneath a specific representatives or consumer groups. It'll encourage and assures connectivity across a lot of different populations and enable lifelong connections. So you're not stranded as a representative, stranded as the consumer between the company and our community, and our post restructured P&L will enable us to invest in innovation at appropriate levels.
So if I just talk about the portfolio, we are committing an incremental approximately $300 million against R&D, advertising, commercial activation, and challenge and some of these new segments over the next five years and from the channels point of view and more to come, but just the web 2.0 for example, another $50 million approximately of capital expense against really driving the power of the Internet and social networking, how it can really play out into productivity and retention for the company. And we believe these things will continue to help us drive sustainable market share, that you see we've had a pretty good year in terms of gaining share and we think that this is very sustainable going forward as well as earnings growth as we go beyond.
So just a few closing thoughts before we take a break and then we'll come back and hear some specific strategies by region and function. You know, these are unprecedented times for sure. This is all year that none of us could have predicted, but we at the company have really taken this view that this presents a really huge outsized opportunity for outsized share gains for us. I've always been fascinated by the fact that in economic turmoil, in the worst economic times there are more shifts in industry leadership than in any other time in history.
So if you go back to the worst recessions [ph] there are more casualties and more heroes or more companies that change quartile or share points, which is harder to do in normal times or stable group periods and we certainly intend to be on the right-hand side of this chart. So we think it is a unique window of opportunity for the company. Now is the time really to take advantage of all these things. We think we are well capitalized, well positioned to capitalize on this moment, we've got a sustainable growth plan that we think has really built a very strong foundation for us to go forward, but channel and the portfolio continue to offer strategic advantage.
We've always loved direct sales. We love it even more so now. Direct selling has taken -- just a minute here -- direct selling has taken channels here in every single region since 1997. These are 11 years. We can all argue that the most investment by the modern retail format in all regions of the world has been spent. Am I right in the last 10 years or last 5 years, and in 11 years with all that investment in other channels, direct selling including in developed markets has gained share of channel, 13 points in Central Eastern Europe, 7 in Latin America, 3 in North America, and even WEMEA and Asia. So direct sales has not lost share in 11 years with all of the focus on the modern retail format.
So I think that sort of point number one and point number two is in terms of the category recession or no recession Beauty obviously grew 6% compounded between '03 and '08. It's projected by 2013 to grow 7%. So it's a great category. The growth in the category is expected to come from developing markets. 83% of the growth in CFT between now and 2013 is projected to come from developing markets.
You all know that where we index in developing markets, 63% of our sales versus 38% average in CFT industry, and we are market leaders. We are number one in terms of developing markets CFT share. So kind of building on that foundational strength we've got a bold and very aggressive plan to innovate across every dimension of the business. We've got a restructured P&L that allows us to aggressively seize the moment through appropriate affordable levels of investment against this innovation.
Over the past four years, we've proven to you. I hope that we know how to execute that we are prepared to fully unleash our capabilities against the opportunities ahead and sustainable growth as Chuck said, it remains our destination. We are going to emerge a larger more profitable company as we continue this journey, and, you know, we focused our organization. We've been around for 123 years. We have survived and thrived and our founder said many, many years ago all success lies within oneself and not in external conditions. That's a little bit of DNA obviously of direct sales in Avon and certainly as we came into 2009 when it would have been easier to sort of say, "Hey, lot of external conditions that we could kind of put this on." We said no we are going to manage what we can manage. Our success lies within the belief in our model, the belief in the company. We're going to gain share this year and we have. Thank you very much.
Now I want to just take an opportunity to deep-dive a little bit more into two of our critical geographies, and one very, very important center of excellence in terms of the supply chain, but let me first just introduce Charles Herington. Charles has been with the company since early 2006. He comes with 25 years of extraordinary experience in Latin America from consumer companies early days P&G, spent some time in the beauty business with Revlon, with Pepsi and most recently 9 years with AOL, President and CEO down in Latin America.
Very importantly, he has come in in 2006 and led the Latin American business units to record performance, and really the share gains that we are seeing today. In June, we gave him the additional responsibility for Central and Eastern Europe. So obviously the lion's share of the company's developing and emerging markets. So with no further ado, I think you will see why we are winning in Latin America and soon in Central and Eastern Europe. A lot more to come. So Charles Herington.
Charles Herington
Thank you Andrea and good morning everybody. We are going to be talking over the next 20 minutes or so about sustaining leadership in Latin America, and I'm going to be dividing this into three sections. The first section is going to be to explain to you why we believe that the number one growth opportunity in Avon globally lies in this Beauty market in Latin America.
I'm going to take you in the second section through why it is that we've become the number one beauty company in Latin America, and then third very importantly, why and how are we going to intend to stay to keep that number one position. So let me start with why is this a big opportunity for us, and it all starts with the consumer, with the purchasing decision that the consumer makes, and when you look at that data and you compare the Latin American countries versus other countries globally, you see that in Latin America, Beauty spend as a percent of disposable income is on the high end of the range.
And that translates into a fairly exciting growth in the overall beauty market that is substantially faster than the rest of the globe. Now the beauty market is growing and the purchases in the beauty market happen in different channels and Latin America is also advantaged in terms of the channels. 33% of the sales actually happen in the direct sales channel. Now this is not something that just happened right now. Andrea mentioned to you that over the last 10 years the direct sales channel in Latin America has gained 7 percentage points.
It's now up to 33% of the Beauty sales are happening in the direct sales channel, and when you look at the most important country in Latin America, it happens to be Brazil. Actually 37% in 2008 of the sales of the Beauty sales came through the direct sales channel, and then you move up, fast forward that to the first half of 2009. There is yet another half a point growth in share in the first half at 38.3%.
Now, let me talk about how it is that we got to the number one position in Latin America. What is it that we have done and it actually starts with what Chuck was making reference to, 10 consecutive quarters of double-digit growth. We are particularly proud of 2009. If you look at the numbers in 2009, we were able to sustain double-digit growth despite the fact that the Latin American economy showed a negative 2.7% decline in gross domestic product. Now, this type of performance has led to being market leader and expanding market leadership in the Beauty category in Latin America where we compete with large multinational companies as well as 30 strong regional and local companies.
Now when you go in one deep -- one layer deep into this you see that this leadership puts us in a great position because we have the number one position in skin care in Latin America. We have the number one position in color in Latin America. We have the number two position in fragrance in Latin America. We have the number three position in personal care in Latin America. We have the number five position in hair care. It's a great place to be.
In fact, when you look at the growth of all categories for 2008 and 2009 year-to-date the growth in Latin America is broad-based. It's double digit in every single category. When you look at other consumer metrics, let's just talk first about recall, unaided brand awareness, consumers recall Avon more than any other brand in Latin America. So number one position in every country in Latin America and when you move into image perception, the other metrics that we track is beauty image index, and we are also either number one or number two in Latin America.
So we have worked hard to build this business and win in Latin America. We have been in the region for 54 years. This is not a new business and we used those 54 years very, very productively. We are the only direct selling company that has scale in the region and our team is just wonderful. My team is made up of leaders, you know, the average experience with Avon of my team is 17 years. I have a handful of leaders. If you look at the general manager from Brazil, general manager from Mexico, they have more than 25 years of experience with Avon.
We have built the category investing heavily in our brands. You just saw -- I just shared with you the results of the unaided brand awareness and the beauty brand and image. We have invested to build our brands and build the category and the channel. We have built the channel basically in Latin America. We have invested and represented this and we've grown the category despite the investments that large retailers like Wal-Mart have been making for the last 10 years in Latin America.
So despite those investments into supermarkets, hyper markets, the share of direct sales in the Beauty category has expanded. So 2009 has been you know -- we've continued the hard work and the investment, and if you start looking at advertising, advertising has increased 37% compounded annually. We've gone five years ago from not even hitting the radar in terms of advertising to now being har one of the top five beauty advertisers in the region, and we've advertised products and we also have recruiting advertising.
We've also been investing very aggressively and have represented the value proposition which has seen a growth of 26% compounded annually. These investments have been going first into sales leadership or the transition structure to get the sales leadership, because Latin America just starting the evolution into sales leadership. That benefit is still ahead of us. We've invested in incentives, incentives that drive activity, incentives that drive representative recruiting, and we have also invested in product incentives that drive productivity.
The investment doesn't stop there. We've also invested in capital distribution centers to meet our expanding demand and to keep our promise of delighting representatives with great service. These are some photographs of our new distribution center that we're building in Brazil in the bottom and the top one is just a drawing of the new distribution center that we've started working on and you will hear from John Owen more on that in Colombia.
And we've also been investing in technology. Andrea took you through the web enablement and the Internet solution for representatives. This is how the recently launched website for Avon Colombia looks. So now that we've said enough, this is how we got to number one, now what exactly are we planning to do to stay, to keep that number one position, and we are going to be looking at this in three different stages, three platforms. The first one, maintain a constant turnaround mentality. The second one, leverage the strength of the channel, and third, leverage strong beauty position to further penetrate categories.
So let me talk about the first one. You heard Andrea and Chuck both talk about our constant turnaround mentality, and that's been embedded in the company and that has to start with taking a critical look at what you're doing right and what you're doing wrong, where do your opportunities lie. So we took that look and the opportunity lied in basically becoming a more efficient region. This basically shows, this chart shows the four different executions of the launch of the same product in Latin America.
So we realized we had a big opportunity in building some efficiency into organization structure. So we have undertaken a major restructuring program that will transform our operating model. This by the way is part of what was announced as a corporate restructuring back in July. And it starts with focusing on overhead. The principle of this is basically any task or any initiative that is being done at country level and can be elevated to do less times at market group level is going to be done or anything that can be elevated to do just once regionally, we'll do it, but we will also be leveraging the global matrix, of course.
Now, you know, the question no why do it now, you know, now is a good time but we absolutely believe now is the right time. You know, we identified this opportunity and we are right now in a position of strength. It is the perfect moment to undertake a restructuring of this nature. We also recognize that their competitive environment is aggressive, and we need to stay with the environment. We need to be flexible, find resources to continue to invest in our markets, and the economy is also challenging, and finally you know, as I said we do need the additional resources to be able to invest in our business.
So this is what we call fixing the roof while the sun is shining. You know, we've got to do it now. We can't wait until it starts raining or you know, got forbid until a hurricane comes. So we fix a roof while the sun is shining. Now, from this restructuring, we should be getting a benefit of roughly $100 million of freed resources to be able to reinvest into the business, but those are not the only benefits as I said, very important benefit is unleash the resources of a global leader and speed to market, the speed in which best practices get transferred from one country to the other, the speed of merchandising learnings.
This is going to be a really, really important benefit to this program. The second platform leverage the strength of the channel. We already talked about representative value proposition and what it means for us you know, decreasing representative effort and increasing their earnings, and I want to share with you an example of how we are leveraging the channel, and I chosen a part of the region that is Central America.
Central America is made up of five countries and it is you know, not a small region, not a small subregion. It has revenues approximately $220 million for this calendar year and representatives about 150,000 by the end of the year. So here's what we've done. This is a chart that shows on the vertical axis, it shows the number of orders per campaign that they have on the horizontal axis, I've charted time. So basically what this shows is through 1997 to 2007 what is the progression of orders per campaign that we've had in that region of Central America and then we drew a straight line, and that straight line actually correlated very, very well with the orders.
So with 99% probability, if we didn't change anything you could project that by 2017, we are going to get somewhere north of 130,000 orders per campaign. So that was basically the projection that we have. Now this is, you know, one of the few industries that I know in which you can come and you can have a huge impact. We went ahead. We focused on the right execution, we focused on directing incentives into the metrics that we wanted to move at that time, which was orders, and basically what the Central America team was they advanced the future by almost a decade.
Another initiative that we're planning on is basically the broad expansion of sales leadership, which is a significant opportunity, significant upside for us we believe. We have so far launched sales leadership in Mexico where the full country is under a sales leadership program, about half of Argentina has sales leadership, but in the rest of the countries we just arrived into the transition model.
So we will see over the next couple of years the expansion of sales leadership. So that impact is yet to happen in Latin America. So let me move to the third platform, which is leveraging strong beauty position to further penetrate our categories. I'm going to share with you a couple of charts that you already saw. The first one is Beauty market growing in Latin America faster than any other market in the world. You already saw that. Second is this growth is broad.
As you see all countries in Latin America are projecting healthy growth, almost double-digit, all countries in Latin America, and within Beauty we hold the privileged position. Again I repeat number one in skin care, number one in color, number two in fragrance, number five position hair care, number three in personal care. So it's a good position, but clearly we see an opportunity to improve our position in hair care and personal care. In fact, if we were able to get just one share point in Latin America of these two categories for each share point that would increase our revenue roughly $100 million.
So, this brings me to our example of hair color. If you look at the hair color industry, it is once again growing fastest in Latin America, and because of this we chose to launch Advance Techniques hair color in Latin America. It is a fully harmonized product line, meaning it's exactly the same product in every single country in Latin America, and for the first time we did a simultaneous launch in all major markets. Now we had a great 360 activation plan that started with providing the representative with the right sales tools to be able to communicate what the product does and to be able to sell the products. So color chart and hair swatches were critical.
The second part is a very, very aggressive plan of advertising both in TV and in print, and the third part was trial. The product is absolutely a winner in terms of performance. Consumer perception performance is great. We got the objective of putting as many samples of products in as many hands of customers as we could so that they would try the product. I'm going to share with you the commercial that we used to launch this. Now you're going to see a lady and her name is Ana Paula Arósio.
Ana Paula Arósio is a Brazilian celebrity. She has been partnering with Avon for more than five years now. She is a terrific personality. She has featured in soap operas in Brazil and it is tough for me to drive an analogy. I guess I could tell you that she is like a young and upcoming Julia Roberts, if I can put it in terms that you could understand. So let me show you the advertising.
So, we have worked really hard to get where we are, but I want to recap a little bit what we're doing so that you understand what we are doing to keep our number one position in Latin America. We will optimize our organization structure and in doing that we will free $100 million of resources that will be available for us to invest in our business. We will continue to invest in our channel, fully leveraging the power of sales leadership that is yet to be felt in Latin America, and we are just starting to roll out web enablement in Latin America for our representatives.
We will continue to invest in our brands, and pursue the white space in different categories. You just saw the example of hair color. We will continue to invest in our infrastructure to have great service and meet our capacity requirements, and we will fully leverage investment and innovation of a global leader versus, especially versus our regional competitors. So coming back to the three sections that I wanted to share with you, one, I really believe that we have the largest single opportunity of growth in Avon globally. Is this Beauty market in Latin America, which is advantage because direct sales within that growing market is growing faster.
We have achieved the number one market position, and we do intend to keep this number one position. I wanted to turn around and just share some very, very brief thoughts with you about Central and Eastern Europe. Andrea mentioned that I was appointed by President of Central and Eastern Europe back in June and the thinking behind this was that both developing regions had some similarities, and we would benefit from being able to in both regions, in Latin America and in Central Eastern Europe from having learning and cross you know, cross-feeding between those two regions. And so we have seen some similarities and I'd like to share with you some early thoughts, and these similarities are pretty interesting.
I'm going to use some of the same charts that I used in Latin America so that you can see why we are so excited about this opportunity. So I started in Latin America with a consumer with a pocket, the wallet of the consumer and if we see the same chart that I shared with you in Latin America you will see the Central Eastern European countries also have Beauty spent as a percentage of disposable income in the high-end of the range. And I said in Latin America that this translated to high beauty market growth, while Central and Eastern Europe is also no exception. Double-digit growth, very close to the growth that we had in Latin America and the projection for Beauty growth is actually to stay in that range.
And then probably most interestingly is we saw that within the beauty market in Latin America direct sales was growing faster and represented a big 33%, while the direct sales channel in Central and Eastern Europe is growing even faster than in Latin America, 13 percentage points versus 7 points in Latin America over the last seven years. So Beauty sales growing and within Beauty the direct sales channel is expanding even more.
So the opportunity is really huge. When we looked at this we said okay. So there are a lot of elements that do apply to both regions. You know, focusing on the field execution, investing in the brands. You already saw some many examples investing in brands and investing in representative value proposition. Many of these initiatives, you know, started before I got there but we have started a few after I got there and one example of you know, one reason benefiting from the other is we got one of my most seasoned sales executives and we brought in to help us with the sales execution in Poland, and the early results of everything, all of that is being done in Central and Eastern Europe are giving us some very encouraging trends.
The entire Central and Eastern European market has seen an acceleration in the growth, and this acceleration has been broad-based, but most impressively in Russia that posted an 18% growth in this third quarter. So, let me just close by telling you we do have similar markets and at looking at these similar markets I'm very exited because both markets have the beauty market growing and within beauty market direct sales channel growing disproportionately inside that.
So the opportunity in both regions is actually terrific. Avon does have the number one position in both regions. And we do intend to stay number one in both regions. This is not just good intentions. I already shared with you we have the team, we have the resources, we have the strategies, plans, and initiatives. So this really, really feels like we're just getting started here. Thank you. Thank you very much.
Andrea Jung
Thanks Charles. Now I want to bring up Geralyn Breig. Geralyn heads our North American business units. She joined Avon about four years ago, coming into us from a great career, began in the beauty divisions of P&G, spent nearly a decade as a terrific marketer and operator at Kraft and then more recently at Campbell and Godiva. And she came in running our global brand marketing when we began that functional center of excellence in the beginning of 2006, and I think you've seen the results as I talked about how much stronger the brand is today.
So she really was a driver behind the alliance strategy, a lot of the innovation and category turnaround. She's been in the North American (inaudible) came out of 2008, and I think we've got a really strong story to tell about the focus over the next 18 months in returning this very important market of Avon, Geralyn.
Geralyn Breig
Good morning everyone. I'm going to take you through an update on where we are this year in Avon North America with particular emphasis, I'm talking about the actions that we are taking that we intend to drive a sustainable recovery in Avon North America this year.
So two thoughts to start. First one is we are making steady progress on stabilizing our performance amidst a very challenging macroeconomic environment, and the second thought is that we have an aggressive agenda to drive a sustainable recovery over about the next 18 months. So, let's start with a snapshot of Avon North America performance year-to-date.
We entered 2009 recognizing that with North America being ground zero for the recession, Avon North America had to navigate through a particularly challenging environment. And so we did execute the Avon corporate playbook to respond to that challenge. So focusing on Smart Value, focusing on recruiting, taking aggressive cost actions and staying the course on all of the strategic pillars of the turnaround program.
And we are stabilizing the top line in a tough environment. You saw we just reported another 8% decline on the business, but importantly on our Beauty business quarter-to-quarter making steady progress this most recent quarter, the business down only 4% on Beauty. So steady progress there. How are we doing this? Well, we have more than doubled the number of leads that we are generating in North America this year. That's leads of folks interested in becoming Avon representatives.
Now, it all started back in January with that Super Bowl add, but since then we've kept up steady pressure on 360 degree activation program to generate leads. That includes field incentives, it includes traditional media, but very importantly some innovative things we've done with digital media that are all driving this totally disruptive step change in our ability to generate leads on our business. And what that has done for us is it has restored positive growth in active representatives versus the flat growth that we had in quarter one.
We came out that quarter strong and generated 4% growth in active representatives and another 4% growth in active representatives just this quarter. Importantly, as we brought all these people on we have been improving service. So our service has improved 24 percentage points since the beginning of 2008 and this is what we would call Avon United States perfect order fill rate, which means no shorts, no out of stock. So perfection. And we have made considerable improvement in the kind of service we are delivering to this whole new crop of representatives.
How have we done it? What we have done is to implement a very disciplined highly governed process called sales and operations planning. John Owen will take you through in detail what that process involves, but it is a disciplined approach that involves marketing, supply chain, and sales working together to manage forecasting and control demand. And you can see the results here have been very strong. Now our main challenge remains non-beauty and our non-beauty unit volume does remain in a double-digit decline and again this quarter we experienced another double-digit decline in non-beauty unit growth and as you know, the primary causality here is the macroeconomic environment.
At the same time though, we're very, very encouraged us to see that we are stabilizing our Beauty units down only 2% in the most recent quarter. So we're seeing that recovery coming in Beauty. And importantly, we are seeing a very, very promising up-tick in our high margin skin care business. So this is Avon North America skin care sales growth, which had been down and now in this latest quarter up five points, which is quite impressive growth and we think we are on track to deliver nearly 1.5 share points of growth year-over-year in this quarter.
How did we do it? We had an impressive product innovation with our new Gold Emulsion. We had some pretty creative advertising out there to drive that and some interesting new innovations and how we do merchandising, and it's all added up into a strong performance for our skin care business this quarter, very pleased with that. On the bottom line, we are taking aggressive actions to control our costs. We are controlling the controllables.
Let me give you some examples of that. First one is we absolutely froze our salary and benefits expenses. Second example is we reduced our non-field travel and entertainment by almost 60% versus last year and another good example is we harnessed our analytical power and optimized all of our incentive spending to deliver the highest possible returns on investment. So in summary, we are stabilizing the business and that has to be and is the first step on our road towards recovery.
But macroeconomic headwinds remain, and they remain particularly as we head into this fourth quarter. This slide shows based on our analytics, what we project the macroeconomic impact is on Avon North America revenue. This is not a slide of our North American revenue and it is not a slide that projects what our revenue will be. So it is a slide that gives us our analytics telling us what we believe that headwind is that we need to work against. And what you can see is year-to-date it has ranged in the 6% to 9% range and looking forward we do not see an economic recovery.
So when I have to plan ahead, I have to plan ahead keeping this in mind. Okay. So while we expect to see continued macroeconomic challenges as we move forward into 2010, we are and we have to be squarely focused on driving a sustainable recovery over the next 18 months. Three priorities will drive our sustainable recovery agenda, and at the very top of the list of priorities rightly is our Avon representative. Priority number one, increased active representative growth and her productivity and retention, but priority number two is to take advantage in this moment and reshape our non-beauty business, and at the same time priority number three is to right-size our cost structure to reflect our new reality of our business.
Let's start with number one, but we start in an actually very strong position. Our active representative base is at an all-time record high. We have had tremendous success in this area this year. And as Andrea took you through earlier, our new representatives are really high-quality. So we are bringing in, in Avon United States, more career-focused representatives. This chart shows you how in the past the number one cited reason for joining us was product discounts, and now a higher percentage going towards income and career reasons cited for joining Avon. So more career focused than before, and even in Avon United States they are younger than before.
So now almost 20% of new representatives under 25 old and they are in Avon United States more e-enabled. So the percentage of representatives who sign up now to be what they call an e-rep 50% now versus 30% last year. This is very important because we know that e-representatives have higher activity rates and higher productivity. Two very important factors for us, the activity rate among e-representatives is 10 points higher than non-e-representatives and their average order size is 15 points higher.
So this kind of dynamic bodes very well for the future for us. And as Andrea showed you before it is quantity with quality. So all the assessments she showed you earlier today show that we know activity, retention, average order of this large new group of representatives that is come in, the trend lines for those folks remain unchanged from last year. So we enter 2010 with a larger active representative base and a very, very clear mandate. Make it easier for herself and make it easier for her to stay with us. How are we going to do this?
It starts with delivering more training for more representatives, and very simply we are focused on delivering more training to our representatives in general on how to sell Avon, but very specifically a big step change over the past year as you can see in this chart and specific training on how she can increase her sales. So that training has been out there this year and is already you know, a step change versus last year. Let me show you something next that we are just introducing right now. We are now offering simplified skin care training right at the moment of appointment in order to have our new representatives kick start their sales with our skin care business.
So let me walk you through what this means. This chart is what we call our conversational skin care card and what it does very simply is it tells the representative, why it's important to follow an anti-aging skin care regimen if you want to have better skin. Okay, so if you want to have better skin you buy a regimen and importantly for her a regimen involves buying three products, each of which costs about $30. So we explain to her why that works and then we flip the card over, and the other side of the card we asked her five simple questions.
She goes through the card, she checks off, and what she knows at the end of making this checks is in this particular case this representative's appropriate regimen for her skin is a new ultimate and she knows to use it. And she knows that once she is using it she will be a role model of the effects of this product, but more importantly she has just gone through the process herself, and she can now take her customers through this very simple project, process and enable them to understand what the right regimen is for them, so that they can sell.
In addition, we have a revised new landing page for our representatives to go to when they go to your Avon.com. So we studied the quantity and substance of the questions that we get at our call centers, and what we did was we modified the landing page to get the easy questions right out there so that when they go to their landing page they're answered easily so they can move into their business much more quickly and have a simplified landing page for their first four campaigns.
And we have provided new starter kits. So on the left you see our 4,999 essential kit and on the right the premium kit at 9,999. These are kits that we're selling to new representatives that have samples, which enable them to sample new customers to start selling and to run an open house where they announced that they are in the business of selling Avon to their friends and family and new customers. And finally we have implemented what we call a "Yes We Care" program within our call centers to provide enhanced service to representatives in their early days.
So we've significantly improve the caliber and a breath of our call center customer service for new representatives and most specifically we prioritize calls from new representatives who request extra support, kind of navigating the mechanics of doing business with Avon. And importantly to date we are saving nearly 20% of what we would consider high-risk representatives. These are representatives who would have quit with us a year ago before we had this program in place.
So we are making it easier for her to sell and easier for her to stay with Avon. So now we turn to our portfolio. We are reshaping non-beauty as a key driver of a sustainable recovery. We do have a very clear vision of our desired end-state for our portfolio, and it looks like this. We want to move from non-beauty representing 45% of our portfolio and two, it representing 35% of the portfolio in five years or less. We want to move from having image dilutive items populating our portfolio to having image enhancing items that also support Beauty product sales, and we want to move from having what can only be described as an inconsistent management process that doesn't optimize service or inventory and two, a very disciplined open to buy, close to buy process, which is designed to reduce our working capital.
Now the transition in this from to [ph] does require a very thoughtful migration. You know, that non-beauty is a huge percentage of our portfolio now, and more importantly it is a huge segment of our representative earnings. What this bar shows you is for an average Avon representative in North America, 36% of her earnings are coming from the non-beauty business today, and when you look at a top seller, it's even more. 46% of earnings for a top seller come from the non-beauty business. So this migration to be managed successfully has to be very thoughtful and very well planned out.
But we know we have to have this migration and we know we can do it. We just have to have the right plan for it. So let me take you through some of the steps that we are taking to get on this path. The first one is very actively and very purposefully and guided by analytics deemphasize non-beauty in terms of resourcing an investment we put against it. So what this shows you as an example is the change in the number of pages in our brochure, 2009 versus 2008, and you can see early in the year when we had to get to a bunch of clearance of products that we were long on leftover from 2008, we didn't touch so many pages, but as we migrated into the back half and moved into the back half of the year you can see a reduction in nonproductive, non-beauty pages and we took those pages and reinvested them into higher productive higher-margin Beauty pages.
And so that is a de-resourcing, that is plans guided by analytics and ongoing. The second step is to replace what I would consider to be low-image, low-margin non-beauty with high-image, high-margin non-beauty appropriately. And this is a fun example of that so that before means getting out of products like M&M Coin Banks and Betty Boop figurines and getting to a businesslike (inaudible) hair extensions. So hair extensions are for those of you who need an education, you can look at the girl on the left, very short hair with hair extensions. She can have the hair on the right, the hair she always dreamed about and for us what we get is a high-margin at Beauty margin business that is clearly image supportive. So that's one example of a place where we could do that.
So third step is to selectively leverage high impact non-beauty items in order to drive channel energy with our representatives and to drive beauty sales. These are two examples from this year. In campaign 12, we offered an exclusive only to Avon gold iPod shuffle from Apple, and in campaign 24, we are offering a camcorder branded Sharper Image camcorder and both of these items are only available through Avon, and they are only available with Beauty purchased from Avon.
So in the iPods case it is $29 ring with a $40 skin care or fragrance purchase, and in a camcorder's case $79 for that product with a $20 Beauty purchase. Both of these items have hit the market with a force and have done very good things for these campaigns. And step four is as we go along this past to de-emphasize non-Beauty to expand our Beauty offerings in order to replace the non-beauty sales that we would be exiting.
So first example is to continue to invest in and grow our high-margin skin care category, where we had a lot of success. This shows you our new reversal list launch, which is new this quarter and this is a wonderful innovation. It is a first to market innovation. It's five years in the making, and it is just one example of the really robust pipeline of breakthrough innovations and skin care that our R&D team is completely focused on working on and bringing to market. So these innovations have robust media plans against them in the United States, in North America and the advertising returns as measured by our analytics do have very high returns every time we go on air with these products.
And that's because it is of a high payback category for us and advertising has always been strong, but most recently it's even stronger. So the new advertising that we've just developed for hair has test scores, quantitatively measured test scores that significantly deliver above category norms so they should have even higher impact for us. And I think this will be a good moment to let you take a look at the new Reverlist commercial that's on air right now.
Okay. So beyond our new brands, we will also be innovating in skin care into new segments that were under-penetrated in like acne. And here on the screen what you can see is our Clearskin professional brand launched fairly recently making traction in the marketplace, again expanding our presence in skin care. But beyond skin care we want to expand our presence in other under-leveraged Beauty categories like hair care, which as Andrea and Charles both mentioned is an area of opportunity across Avon.
So this is an example of new products we will bringing to market in the hair care segment. We are very interested in this segment and in particular in the treatment area, which is highly leveragable with technology and has the best margins in the category. So expanding presence in hair care and other under-leveraged Beauty is another way to replace non-beauty volume that we would be exiting.
Now, at the same time we have implemented an open to buy process in order to better manage the non-beauty portfolio. So we started back in January by restructuring our organization to manage our non-beauty buys to targeted inventory levels, and what I want to do is give you an example of how this played out this year.
So for example we entered the year 2009 long on accessory inventory. So accessories are handbags, footwear and things like that. So we knew we were close to buy on accessories and so the decision we had to make was whereas in 2008 we bought 23 new accessory items for the third quarter, for 2009 we only bought four. And so what we did was we re-merchandized the existing inventory that we had in a impactful and compelling way and we took these four items to use them to spice up the merchandising and the truth is as we went through the quarter we actually delivered better results, better trend on our accessory business in the third quarter than we had the rest of the year to date going into that period. So that was a win for us.
And importantly, the results of that was the new process also contributed to a significant working capital reduction in the third quarter. So that is the process that we have in place and that is the work for us right now. Finally, there are aggressive plans in place to right size our overall cost structure. We have several work streams underway, we have a line of sight into all of these buckets. It starts with supply chain and you have already seen some announcements from us this year regarding the closure of our Springdale plant and Geralyn will give you in detail how the North American supply chain fits in with the overall global footprint for Avon. A significant program is underway to reduce cost and supply chain.
In indirect procurement, we have a number of work streams underway. One I would call as specific area of substantial savings is the area of logistics. On overhead functions, we have taken a sharp pencil for streamlining our organizations and particularly in New York, Puerto Rico and in Canada to reduce the amount of overhead that we are carrying. And one project in particular that is significant is we have recently announced projects to go to one kind of brochure between the US, Canada and Puerto Rico, one commercial marketing team designing that brochure with very tight small teams remaining in the countries for translation and pricing reasons, but in general, streamlining our overhead.
And finally we have a vigorous program to look at every other line of expense and control it. In total, we have already committed to about $100 million of cost savings by 2012. This is part of the restructuring that Chuck announced earlier this year but we have as I said a line of sight into delivering all of this and we're well on the way. So in summary, we have clear plans in place to drive a sustainable recovery over the next 18 months. We are making it easier for her to sell and easier for her to stay with Avon and like the rest of the company we are leveraging technology in order to improve her selling productivity.
We are on the path of straightening our portfolio, expanding our smart value, consumer offerings, continuing to invest in growing our high margin Beauty businesses, and thoughtfully managing the shift away from non-beauty. We are right sizing our cost structure in order to both fund growth and to improve our operating margins, and so our destination remains the same. Over time to return Avon North America to at market growth rates and respectable operating margins.
Thank you.
Andrea Jung
I would now like to bring up John Owen. John started at Avon when he was a young boy, he's been with the company nearly 30 years, and really one of our very seasoned direct selling operators and financial executives. He started off in finance, spent many years in North America, actually in the late 90s took on business process transformation and the early days and the early seeds of what today is a robust supply chain agenda. And then before I asked him to take this job on in 2006, he ran our European business unit. We got a very aggressive agenda. I think we have made a tremendous amount of progress both from a people and organizational structure point of view as well as significant progress against our technology and our process improvements and our footprint change.
So, John Owen?
John Owen
Thanks Andrea. Good morning everybody. My name is John Owen, I am leader of the supply chain organization at Avon and what I want to do this take you through really three areas. First, I want to talk about some of the significant progress we have made against our supply chain transformation agenda over the last several years, so kind of what we've actually achieved. But the heart of my presentation really is going to be focused on how we achieved those results, which I believe are results that are underpinned by robust people, structure, technology initiatives. So I will kind of move into that, and then hopefully that will give you the confidence that we really are well positioned to deliver on our path going forward.
So first let's talk about some of the significant progress we have made against our supply chain transformation agenda. Before we do that, a little bit of background about who we are, 14 manufacturing facilities. We have 33 distribution facilities across the world, we distributed about 139 million orders, which is about the 3.5 billion units. The spend that we managed is 5.5 million. The biggest part of that spend is in CFT materials at 1.5 billion, really broken down into three areas. First plastics, which is the majority of our packaging; second raw ingredients, which includes fragrances; and then third category there glass, cartons, labels and other commodities.
The second part of our spend, largest part of our spend is in the area of purchased finished goods, which really deals with the heart of our fashion whole of our non-beauty business. Then quickly logistics 800 million, distribution 600 million, print and paper 500, finished goods conversion which is our manufacturing sites 500 million, and then other commodities and categories 300 million. So total spend of 5.5 billion.
Let us talk about some of the results and I will start with the environment. I think we were focusing on the environment before it was popular to do that. You can see from this chart from really 2002 to 2008, we have made substantial progress in reducing our greenhouse gases, our energy and our water usage. And it was great to be recognized by the international media. Actually Newsweek ranked us 25 of 500 companies that they looked at, but most importantly number one in personal care and number three in consumer products. So we feel good about that.
You have heard it from Geralyn, you've heard it from Charles, we have had really made some great inroads in our service we manage, service or the KPI there is our order fill rates, and for the company we have seen an improvement of 12 points over the planning period. Inventory, a bit of a different story, in 2008, we actually saw inventory days go up by four days, and we actually made some really good progress in the early part of 2008, but when we got into the back half of 2008, the global economic crisis hit. Obviously, we saw softness in North America and in central Eastern Europe on the top line, and that had a negative impact on our inventory dollars and days. 2009, we are forecasting, really to kind of achieve the high end of the three days to five days improvement range, and I will talk about that a little bit further on in the review in terms of how we are doing that.
SSI, just briefly, we are on track to achieving our 200 million by the end of this year and then 250 million by 2010 and again I will hit this a little bit later on in the review. And then in terms of distribution, we have talked about the order growth we have seen from 2006 to 2009, 8% compound annual growth rate. Order growth is a key driver for us in terms of distribution expenses but the good news is we have been able to maintain and actually improve slightly our distribution expenses as a percent of revenue going from 10.8% to 10.7% over the planning period, so feeling very positive about that. So hopefully that is giving you a perspective on kind of what we have achieved. Now I want to kind of get into how we achieved it, and obviously a combination of people, structure, process and technology. But additionally, I want to emphasize that we really have focused and evolved the operating model to be a global operating model which has really been underpinned by functional excellence.
But let's first start with what the scope within the supply chain is because having the right scope is critically important. And our scope goes way back into the development stages of the product in terms of package development and then looks at all the activities that go all the way through the delivery of that order to the Avon representative. So it includes the planning, which includes demand and supply planning, sourcing, whether it be materials of finished goods, make which is manufacturing, distribution which is our pick and pack centers, and then logistics which is all the movement in materials and finished goods, again all the way through delivery to the representative.
So we have this structure in place in every region around the Avon world. With this scope, we were then been able to really evolve through a global operating model. Before 2006 it was about many local priorities at best, a regional operating model. Capital spending really not aligned to our global agenda, and some pockets of functional excellence, and we have been able to move this very different. First globally align priorities, every activity within the supply chain organization is aligned to the global strategy of the company. We are leveraging our scale both in terms of our size and our footprint, taking a portfolio approach to capital spending, so making sure we are spending in the right areas, in the rights geographies and every dollar of capital spend really being financially screened very vigorously, and then stepped up functional capability, really three areas, I would say in sourcing, in supply planning and engineering. So very, very different from where we are.
So if you think about it, we've got was scope right, we have kind of evolved to a global operating model, and the next key piece for us is really identifying those process and those technology initiatives that would give us significant improvement, but most importantly be able to sustain that improvement over time. And we basically developed 60 platforms that we have been driving religiously now for the last several years. First one was strengthening our sales and operations planning process or S&OP. Geralyn mentioned that, I will go into it in a little bit more detail. Driving ERP, our enterprise resource planning technology and process, materials platform standardization, fashion and home lifecycle management, again this whole area of non-beauty, and being more disciplined in how we manage that side of our business. Strategic sourcing and then finally network optimization, which includes both manufacturing and distribution.
So the key was to take these six platforms, and ensure we had a consistent way of rolling these out around the Avon world and integrating them together so that we were actually in a position to drive better service, reduce working capital and higher productivity, simultaneously. And that is the key word there. It wasn't about pushing one of those levers at the expense of the other. The objective was to ensure we were getting improvements across service working capital and productivity all at the same time in the geographies, again underpinned by those six platforms.
So what I want to do now is I want to kind of walk you through at a very high level each of these key 6 platforms to give you a little bit more context about what to roll about. First sales and operations planning. Simply put, this really does just take the commercial organization and the supply chain organization and align those two organizations against the key operating KPIs of a particular unit and geography. Okay. Five steps that really go in to the sales and operations planning process. Firstly, it is about product review with a lot of focus on new; second looking at demand both in their terms of the short, the medium and the longer term; and then third looking at your supply capability to service that demand.
When you are out of balance, when those supply capabilities don't align to the demand we go through, we call an integrated reconciliation. And then the last step, really then talks about the CBU leader hosting the meeting every month religiously with the commercial side and the supply chain side of the business to make those critical trade off decisions to keep the agenda moving forward. What it does, it bridges our short and our longer-term supply requirements very effectively, aligns all the functions against the same KPIs and probably most importantly from my perspective drives speed of decision-making to ensure the agenda is always moving forward.
Okay, let us talk about ERP and when you talk about ERP and look at the scope there, the first kind of part of that scope has to be about process, so sales and operations planning really is the first piece that goes into an effective ERP implementation. The second part is about our demand and our supply planning process and the underlying technology to ensure we're implementing the same technology around the world in the same instance, so we can increase our worldwide visibility. And then the third piece, which is the heart of the ERP is ensuring you have an architecture that captures all your supply chain and finance transactional data within a standard data environment.
The benefits that we expect to come from this is first and foremost driving improvements in service and inventory management, sustaining our sourcing, our manufacturing, our logistics productivity, and then lastly enabling us to take a global approach to how we managed new product launches going forward. Now in terms of where we are in our journey, I would say we're probably in the range of about 60% complete, and what I want to do is critically walk you through where we are region to region. Europe was our first region and probably completed that towards the tail end of 2007, but we have been working the process and technology ever since we completed the formal I guess shut off on the implementation, and I will walk you through some of the results that we have seen in Europe, given it was our first implementation that went live.
Towards the end of I would say last year 2008, we implemented in North America, and we are still tweaking that. I feel very, very positive about the progress we have made in that region. Right now we are in the heart of Latin America, great team on the ground, lot of activity in Brazil, in Mexico and Colombia and the Andean cluster and then Asia-Pacific will be our last region. So let's just talk briefly about Europe because I think again Europe our first region that went live, the work in -- the process and technology and when you really get that combination working positives for you, it really does drive some terrific results in the KPIs.
This is our Beauty fill rate, 2006, 95.7% up to 98.4%. Inventory came down from 132 to 105 in terms of Beauty, and then we have been able to sustain some pretty substantial savings in Europe as well of 40 million to 2009. So from my perspective, I am extremely positive about ERP for the company when you start looking at these results, and again with 60% of the way there, we're still working this, but we are still very positive about this initiative.
Okay. Now let us move to package platform standardization and for those of you that have been following this, think of package platform standardization as kind of the PLS for materials versus finished goods. It is comprehensive in scope, it looks at all Beauty components, plastic bottles and jars, closures, glass jars, we started with tubes. So that is our pilot category. That is the one we are into right now and actually flushing out. The idea is we want to substantially reduce the number of variations we have in a given commodity across the product line. So for tubes, we are looking at size shape, material type, decoration method, and we wanted to get to a place where we had enterprise agreement on a much more simplified menu by price tier, in terms of value, mass and (inaudible).
We really kind of went after this several years ago, really didn't work. And the reason it didn't work was that the supply chain focus, kind of one-size-fits-all, the difference here is that I am really joined at the hip with my marketing colleague, Jeri Finard, who heads our marketing organization to really ensure that between both organizations, supply-chain and marketing, we are coming up with a venue that really works for the company.
Let me just give you a little example of what I mean. This is tubes, kind of where we are right now, took two dimensions, 10 diameters, 70 free lengths, about 252 combinations. This is kind of what the recommendation is starting to look like, 10 diameters to four, 30 lengths, a 100 combinations, 60% less variables. Now think about this from a supplier perspective, obviously much simpler for them, you know which means they're going to reduce their cost. We're going to get our share of that. We're going to also reduce our lead times with those suppliers which will also help us drive our working capital improvement, so something that we feel very, very positive about moving forward is platform standardization.
Okay. Let's talk about fashion and home and home management process. This is a great example again of talent, structure and process. About a year or so ago, we actually brought a guy into the organization named Gary Ross [ph]. Gary is an 18 year veteran, was an 18 year veteran with Liz Claiborne, headed up their sourcing and manufacturing organization. He has 30 years experience in the whole fashion and home area. And obviously we combined him with some very experienced folks that we have in the company and really started bringing some of the best practices in the industry to the Avon model.
To underpin how we are going to implement some of those initiatives, which really dealt with how we're going to be more responsive in working with the vendor base. We actually put in place regional development and sourcing functions across every region. This is actually in the process of being established as we speak. Again, speed of implementation once we have identified those key initiatives.
In terms of process, really now it is more end to end lifecycle management. We start with a very rigorous process that looks at identifying risks early on in the development process and we have products that are high risk, changing some of those sourcing levers, or choosing the product to be quite frank. Secondly we are actually implementing a whole host of new sourcing strategies, which actually includes leveraging consignment as much as we possibly can. This is probably more I would say relevant in the area of Latin America, but clearly pushing this lever, where it makes a lot of sense.
Third working very closely with our commercial marketing organization to ensure that we have the right pacing of flows, number of flows, and that it really is aligned to not only driving the top line as GERALYN said, but just as importantly how we manage our service and how we manage our working capital. And then finally, across every region, every market that has a big presence in fashion and home, implementing the direct selling version of open or closed buy. We believe with all these changes that we are making that we will be able to much more effectively manage obviously the profitability and the working capital implications within the fashion and home and non-beauty area.
Okay, strategic sourcing is next. There is the 200 million with a little bit more context behind it. The biggest part of the 200 million is in CFT materials, but you can see nice savings in PFG, logistics and indirect, so a nice cross-section of how we have actually achieved the savings and the benefit stream. What I want to do now is kind of drill into one aspect of the savings and I would look at packaging materials which was part of the CFT materials bucket, and I will give you a sense of actually how we have achieved those savings, to give you a sense of how sustainable it really is.
First it is about competitive pricing models, getting into the cost model stuff, understanding the drivers, the leverage points for Avon, so really helps us drive the negotiation process much more effectively, introducing auctions, introducing new suppliers into the mix, all of that probably is half of the 60 million. Second is it about volume concentration, reducing the number of suppliers and actually giving them an allocation which they are very good at what their capabilities are, and we have been able to pull out about 10 million from that.
Third, restructuring the relationship, having more strategic suppliers, you know looking at joint process improvements, and we have got about 10 million from that lever. Global sourcing which means more allocation coming out of Asia Pacific, and from that standpoint being very, very close to the quality and the lead time implications, about 5 million there, and then finally 5 million out of specification simplification. So if you think about it, this is much more than just pressuring suppliers on costs. It really is a whole host of levers that we believe is very sustainable as we go forward.
Okay. Now we're going to talk a bit about the network and I will talk first about manufacturing, then they will go into distribution. From a manufacturing perspective, given the recent 2009 restructuring, I think everybody knows as Geralyn mentioned, we are actually closing two sites. We looked closely at the network in North America and Europe with the objective to reduce overhead and improve our conversion costs. So we're closing our facility in Cincinnati Ohio, our Springdale site, and we're closing a site in Germany which is our Munich site, and those will be complete by the end of 2011.
With our remaining assets, we are really going to focus them on what our strategic capabilities are, and we have gone through a pretty rigorous analysis to understand what categories we do and perform best at. (inaudible) has improved, our own asset utilization internally. That is going to also translate into ensuring that contract manufacturing now plays a much larger role in our supply chain. We will move that from about 10% of our unit volumes to 30% of our unit volume over the next three years to five years. That will actually have two benefits for us, one it will reduce our future capital investment in manufacturing, and then secondly it is going to expand our network. We're going to take our internal network and supplement that with some of the contract manufacturers we're going to be selecting and really improve our network and broaden it to help us respond with some of the market volatility we have seen, specifically within the area of currency.
So that gives you a sense of manufacturing. Distribution is just a different view. Here we want to invest to really build our competency in this area. I think some of you are familiar with our Zanesville site, Greenfield site that we have going up right now in Zanesville, Ohio. A little bit of background on this. In the 2005 restructuring plan, we announced that we were going to be closing our Newark, Delaware site, and our Glenview, Illinois site, and migrating those two sites as we close them into Zanesville. Currently we have actually closed our Newark site, so all the volume in Newark now is actually in Zanesville, and in early 2010, we will be doing the same with our site in the Chicago area.
Zanesville, a little profile, state-of-the-art technology, it is on 72 acres, 600,000 ft.². It was designed for environmental certification, which is currently in progress. The business case talked about a 30% improvement in labor productivity and the good news is that we are achieving that. Besides productivity, it is also designed to provide us superior service proposition to our representatives, so I will walk you through a couple of examples. First, we have gone from one carton size to three carton sizes, and we have strengthened the corrugate and designed the box to minimize damage from the actual distribution center to the Avon representative.
In the past, we had one content list for an entire order. So if you had 10 cartons and one order, you still would have one content list that would list everything in the 10 cartons. Now we're moving towards for every carton in an order representative will get a content list for that carton, so obviously much easier for her to prepare for customer orders. And then in terms of how we assembled orders, literature, durable, delicates were all kind of jumbled together in the carton. Now what we do is we put literature on the bottom, put a piece of corrugate on top of that, durables get put on top of that piece of corrugate, delicates are poly bagged and then placed in the order, so a very, very different experience for her.
Many of the design features that we have in Zanesville now are going to our other Greenfield sites, specifically within Latin America. Charles mentioned this before. On the left, you see our Greenfield site in Sao Paulo, it is going to be a very large facility, again state-of-the-art technology, and we're expecting that to be operational by early to mid 2011. And then on the right, there is no building there, land is cleared and that is Colombia (inaudible) and we expect that site to be operational by actually mid-to late 2011. So a lot of work, a lot of investment right now playing out in the area of distribution.
So that kind of gives you a sense of those 6 key platforms and I am really confident that these platforms are designed to provide sustainable results as we go forward. And hopefully, your are confident that we are well positioned to deliver on our path going forward and that path really is segmented into two areas. First, it is about delivering the plan and ensuring minimally that we deliver 3% productivity year after year with a pipeline of ideas that is always generating that kind of minimal improvement to enable a ZOG [ph] environment.
Second, it is about driving that inventory down three days to five days a year for minimally the next three years, so through 2012. And then third, I mean you kind of got a sense of it, we're closing sites, we are building developing new sites, still implementing ERP, lots of activity, so really need to ensure we keep focus on flawless execution of our comprehensive restructuring agenda to ensure we're not disrupting service and we are sustaining all that positive momentum we have right now in the business.
Next, it is about the future, and right now we are actually assembling a small team with the right capabilities, working very closely with the global sales organization, the commercial units to really start focusing on service model enhancements. And these are just a couple of thoughts that we're working on as we speak. Representative turnaround time, we had to reduce that, to even be more competitive. Looking at more flexible delivery options, not only in North America but around the world, looking at improving our product availability commitments at the time she places that order. So when she places that order, at that moment, we could actually tell her whether we have that product in the line, and that is very different than today, her receiving her order and being disappointed when it is actually not physically in her box.
And then looking at segmented service offerings for our top representatives, again this is the future, very early days, but again we're really focused on this side of the equation, to really try to drive service model innovation for the company. So to summarize, hopefully, I have given you, demonstrated that we are doing a lot of work in putting that foundation in place, and that we really have built a model which is very sustainable as we go forward. For us now in the future, it is about how we make supply-chain a competitive advantage for the company, how we really ensure that through service model innovation, we are helping drive the growth side of this business.
Thank you very much.
Charles Cramb
Okay. The next section, I'm going to give you a little bit of a perspective of how you should think about the future taking into account some of the things you have heard this morning, some of the things you have heard about us in the past. Those who know me know, this will not be detailed financial guidance, but what it should do is give you a way to think about the things that we're trying to achieve as we move forward in improving our overall performance and delivery of financial results.
Our destination remains the same. It is all about long-term sustainable profitable growth. And when we think about sustainable growth, we have got to think first about revenue growth. When you have sustainable revenue growth, and you add to that operating margin improvement, the equation says you should be able to deliver strong earnings per share growth and outstanding cash flow, particularly in our business model, which over the long-term is not a capital intensive business model.
So let's start with revenue growth. If you think about it, we have been able to deliver local currency revenue growth since 2005 despite what could have been disruptive impact on our business due to the significant restructuring that have taking place as well as the economic crisis that hit us in the last half of 2008. We have delivered growth and it is that delivery that gives us confidence as we look to the future that we should be able to continue to achieve mid single digit annual revenue growth that excludes foreign exchange as we move forward.
Now how are we going to achieve that revenue growth? Well in emerging and developing markets, we plan to gain share, gain share in the beauty category. And you've seen where Beauty is an advantaged category, it is a higher birth category than most other CPG businesses, and you have also seen how direct selling, particularly in the emerging developed markets is an advantaged business model in terms of delivering Beauty. The growth will be led by Latin America and Central and Eastern Europe.
But longer-term, both China and India will become major contributors. In the developed markets, we're going to hold our Beauty share. Again, Beauty as a category is an advantaged category in the developed markets. It'll be slower growth obviously than in the developing markets but it is still going to grow faster than the average CPG type category. Important in achieving revenue growth is continuing what we do with the representative, continued active representative growth. We're going to increase their productivity by increasing their activity, that is the frequency with which they order, as well as increasing their average order size. That is the value to them in terms of helping them in building their business.
From a product point of view, we're going to have a -- we have a strong new product pipeline and it is focused on Beauty. Pricing continues to be an opportunity, it is strategic, and it is done through analytics, and we're going to continue that program. Product line simplification is all about changing the mix, changing the mix of our business that generate higher revenues and higher process. It is an institutionalized process now in the company. We're going to be able to reshape our portfolio, we have heard about it, we're going to be expanding the Beauty categories, those categories which are under indexed resulting in over the long-term more Beauty, let's home.
In terms of another element of this, it is going to be stabilizing the North American business. There will be an economic recovery, the dampening impact of the economics and the business will update. It may take time but it will happen but we will manage those products of the business we can manage and you heard Geralyn talk about category management and what we are going to do within the categories with North America. She has also talked about how important active representative growth is to here business and then also the improvement of the productivity of the representative and what she can deliver from an average order size and frequency of order.
So that sustainable revenue growth, we have the underpinnings for it. Next part of the equation is how do we improve operating profit margin. While we think operating margin should steadily improve to reach something in the mid teens levels, it'll be driven by revenue growth. This is a growth model, and it will be funded by the delivery of restructuring programs, SSI and PLS, which will create the funding to ensure that we get the top line revenue growth.
Our savings from our programs are on track. We have significant manufacturing initiatives, a lot of infrastructure change, that are yet to come, but in terms of our overall projected benefits, we're going to deliver what we set out to deliver, which is $430 million now on the 2005 program, and $200 million on the one we announced in the first quarter. In terms of SSI, we have exceeded targets, and we continue to exceed targets, but important with strategic sourcing isn't the target we set out and how we measure against that, but it really has become a continuous process within the company.
We are constantly looking for opportunities to either substitute product, change vendors, change vendor relationships, change sourcing conflagrations in terms of how we use SSI in terms of all the things that we look to procure. And the current focus is on a very big piece which is in direct sourcing, so it is more than the direct materials that you saw on John's chart, some of the size of indirect sourcing already, and that is an element we see significant future opportunity. So all the benefits of that 2010 is the $250 million plus.
Here you can see again how that ramps up through the plan period. We haven't shown a number above the 250 but it should continue to grow because it is a continuous process improvement program. In terms of PLS, it is on track. PLS has many components to it, one of which is increasing revenue. Higher opportunity product sales, those are as we look at our portfolio of products and you go through the attributing, what are the products that should stay, what are the products that could should get increased product exposure in our catalogs, that has driven both sales of those products.
Additionally because of that technique, we are getting greater page productivity, greater sales per page within our catalogs. It also helps us in terms of improving our margin, improving our product mix. This is not done just on a revenue basis, it is done on a profitability basis. It enables us to reduce our operating cost. If you had fewer, bigger, better brands, you have a lot less development cost to bring those to market. Lower obsolescence, I think that falls along with the fewer SKUs. But the real value isn't what we came from to where we are. The real value is in embedded process, again constantly looking at our portfolio, how do we define it?
How do we launch a new product, make a determination, an analytical determination of how to place their product into the catalog, coming in, something has to come out, and we're doing that through the science of analytics now. So the benefits for this, we will reach that 200 million benchmark next year. So added in, you can see the stream now, and you can see that the endgame 2013 when we would be able to through with all the programs, will be close to $1.1 billion of delivery.
So how are we going to drive the operating margin improvements in the mid teens, these are kind of the six key elements that I would like to take you through very quickly, gross margin improvements, strategic investments, variable expenses, overhead expenses, then the mix of our business and what is happening with restructuring in the future. First, gross margin, 2005 and 2009 programs included significant manufacturing productivity initiatives. Factor rationalization, we are closing a number of factors, we talked about Springvale. We have also closed a facility in Germany, so that will generate improvement in terms of our cost to deliver goods.
Manufacturing realignment isn't just about closing facilities, it is also being smart about where and how we manufacture products, realigning how we use our footprint of the remaining facilities. And then outsourcing, we will be increasing our outsourcing from about 10% to roughly a third of our goods through this plan period. So in the drivers, delivery of the restructuring programs which tie directly into the manufacturing productivity programs I just mentioned, strategic sourcing, and its impact on direct materials, the cost of our goods, product line simplification, how we're managing our mix, other manufacturing productivity improvements, this has to do with investment in capital, getting rid of manufacturing process efficiency, as we operate our factories, and then both strategic and promotional pricing.
On strategic pricing, we spent a lot of time on that and we really are laser sharp through the analytics. On the promotional pricing, this is all about the discounting, this is the depth and breadth of discounting. We kind of put this a little bit to the side as we went through the economic crisis in 2009, but it does continue to be a significant opportunity to really get the mix right in terms of the depth and the breadth of how we uses discounting to create the catalog energy.
Moving then to strategic investments and how we should think about those, well the two areas when I say strategic investments are advertising and the rep value proposition, and these were expected to increase somewhat faster than the rate of sales growth. First on advertising, we had immediate inflation, I think as the economy rebounds, you're going to see on a global basis media inflation, and we have to take account for that because we do not invest based upon how many dollars, we invest upon what is the advertising rate that we feel that we need to achieve our mission. That's GRTs.
New-product introductions, as you think about that new product pipeline, and you think about significant, bigger, better products coming to market, we're going to invest significantly in the product proposition while still maintaining the investment we have against recruiting. And third as we expand the Beauty categories into those places we are under indexed, that would create a small step up in terms of the advertising against those categories from a new product positioning perspective.
On representative value proposition, we will continue to invest in the rollout of sales leadership. We will continue to invest in the relative earnings. This is about the commissions and the commission structures, making sure that the earnings opportunity is appropriate to the representative based upon the demographics that each of the market in which those service representatives operates. And then the technology investment, things like web enablement, the tools that we're going to give the representatives to help her build her business. Every one of those decisions will be based on analytics and the analytics will be based upon a market by market study.
Variable expenses, variable expense is the big one in here, the big ones in here are warehousing and distribution, they are the primary elements. We have already told you about new facilities. They are to reduce cost or at the same time improving service for our representatives. State-of-the-art equipment will drive overall productivity, equipment that we are putting in. You saw a good picture of some of the equipment we have put in for the Zanesville, Ohio facility, and then lowering our logistics costs, the cost of delivering the project with the SSI initiative. When you put these all together, we believe that overall, our variable expenses will grow somewhat less than the rate of sales growth.
Fixed operating expenses, these are our overheads. We have about 2.5 to $2.6 billion of overhead in our business. We should benefit from the leveraging but we are also going to benefit from the constant turnaround mentality of that ZOG approach we have where we challenge every expense in our business, and it is an institutional way of life, no question about it. It is all about much as taking costs out, it is all about substituting or taking more value-added activities out and replacing them with higher value add activities.
However with the look forward, there will be some investments in overhead, investments that underpin our fund growth, and maybe a great example is zone managers. They are our internal managers that help manage the independent sales force or work with the independent sales force. Where we have tremendous growth, we're going to be looking to increase some of those zone manager complements. Brazil, a wonderful example. But every time we do that, we have to look at it not as, well, that's the cost of doing business, we look at it as an investment, does it have a return? What is the return? Can you measure it? And then in terms of our overhead, many of the programs or initiatives that are in both of 2005 and 2009 restructuring will benefit us on an increasing basis through the end of that planning period of 2021, 2013.
Geographic mix, geographic mix will benefit our operating margin. Our fastest growth is in the higher margin Latin America and Central and Eastern European businesses because of the high growth that we expect to develop there against businesses with the highest margin, the mix will change, and that will help lift our overall operating margin. And then the North American phenomenon has returned to growth, has reduced the cost basis and as we deliver a respectable operating margin, that too will help us with the overall margin of the business.
And no further restructuring plans foreseen. The 2005 and 2009 programs in my opinion marked the end of major programs. I cannot foresee another major program in terms of the future. I don't want to say never ever but in terms of our view forward, we see nothing that would justify us calling it a program. However, there is a constant turnover mentality that will identify future opportunities to take further costs out, but those opportunities will be funded by the business. There is no need to have another restructuring program.
So, sustainable revenue growth plus the operating margin improvement should generate strong earnings per share growth and outstanding cash flow. And thinking just a little bit about earnings per share, it should actually grow a bit ahead of the operating profit growth. Why? Because as we generate our cash flow, our strong cash flow, it actually can be accretive to earnings in terms of either share repurchases which is accretive, or lowering our debt, reducing our financing cost. And on the tax rate, this is kind of an unknown, so just in terms of my thinking about the future, we just assume this is going to stay where it is right now. What happens in the legislative process I think is anybody's guess.
And then talking about the cash flow of this business, it is driven by our net income growth, but it will also benefit from the inventory management improvements that John has talked to you about. Increased level of accounts payable, as we benchmarked some of our peer companies, I think we find that there is an opportunity there to look very hard at the terms with our key suppliers and there may be some -- there is some opportunity really to increase our payables balance, and then a moderation in capital expenditures. We did go through in the early period, in the early 2000s where we didn't invest a lot of capital in the business. We then had a step up in the capital investment, I talked to you about that. We see that although we deferred some from 2009 and 2010, when we look beyond that, we see the capital expenditure requirements of this business again moderating.
However, thinking about cash flow, it is going to continue to be a bit uneven year-to-year, and it is really driven by the timing of the cash outlays on our restructuring programs. Remember, we accrue cash outlays when we execute the decisions that I talked about before, so that would not be an even flow. We will not marry cash flow directly against net income. And then the second thing is in terms of the restructuring, we have lands and buildings and facilities that are being sold towards the end of the planned program that we vacated. That will also create some unevenness in terms of the cash flow.
But overall we see this business improving to over a billion dollars a year of annual cash flow from operations consistently, not in and out, but through that $1 billion barrier and then deliver above that consistently in the future. And this is just to give you a sense for how we're looking at capital expenditure which is not tied to the flow of net income. We under invested in the early part of 2008, we really have stepped up the investments. As you lookout to the future, it's a little hard to see because of the scale, but IT becomes a barrier component of the investment a bit away from the supply chain.
Now what are we going to do with free cash flow? I just remind you we had 19 consecutive years of dividend increases in this company, and it is an important element, and we will continue to commit to a competitive dividend. We tend to look at the our peers and say, gee, 35 to 40, maybe a little bit, maybe up to 45%, that is the kind of range of payout that we would lookout with the business. Acquisitions and strategic investments is another priority here now in terms of looking at them. When I talk about acquisitions and strategic investments, we haven't done one for quite a while. But is this a strategic investment that can accelerate our growth, an acquisition that could accelerate our growth, that fits into the core strategy of our business, that takes advantage of what our real core competence are, then we should not be afraid to have it. We have the management depth, we have the foundation of our business, we I think could look more aggressively in terms of the acquisition front.
And then on strategic investments, this is a little bit different than M&A as I think about it is how do we bring in additional technology, new technology, that maybe isn't core to our competencies right now. Why couldn't we do joint ventures, why couldn't we have technical or technology arrangements with third parties? Third on the list is share repurchase, if it is accretive, and if I have excess cash, why wouldn't I resume the share repurchase program? (inaudible) on happening this year but as we think towards the future and we think about cash balances, certainly is an element of our overall cash planning. And then finally if not accretive and none of the other things are available to us in terms of getting growth, we would look to pay down debt which will reduce our overall interest charge.
So sustainable revenue growth plus the operating margin improvement will generate for this company strong earnings growth and outstanding cash flow. As part of our destination, what we mean by sustainable, profitable growth, that is our commitment. Thank you.
Andrea Jung
Okay. Thanks Chuck for that. That concludes the formal remarks. I just have a couple of quick closing comments before we open up for Q&A.
I hope that we have successfully conveyed to you how good we feel about where we have. The business I think is a great moment as we close out 2009 and we look to 2010 and beyond. We have been probably more granular with you on some of the details but that is at the heart we believe of the sustainability. The recession playbook that we laid out for you last February, it is working, like I said. It is working exactly or better than we had anticipated. Three quarters of the way through one of the most challenging years anybody can remember, we feel that Avon's in a privileged position of talking about continued strong growth even as others are retrenching.
We feel very good about our positive performance coming on top of three successful years of executing a very aggressive but very strong agenda. We have created an exceptionally strong foundation in our minds on which we will build now going forward. We have laid out a pretty aggressive innovation agenda that would be backed by the appropriately resourcing and I think hopefully you'll see that we have got a terrific team in place on the ground and we've proven that we can execute, so that is at the heart of our confidence.
So as we begin to write the next chapter in Avon's success story, I think it is a very, very exciting moment for the company, but it is also very, very actually a personally very exciting time for me. As you know 2009, as a matter of fact, just next week marks my 10th year as the company's CEO, kind of hard to believe. It has been a pretty great privilege to lead the transformation of this company over these years as we have doubled the size of the business and grown from a loosely knit group of local entrepreneurial businesses as all of us have shown you to a true global company today. It is a very different company and I joined with a global operating model.
Over the last 10 years, I feel like I have witnessed the reinvention of this company multiple times and as I said very, very different company than the one I joined. But I think it is even more exciting for me going forward because I think the change that we have already achieved pales in comparison to the sort of cusp of the moment of the change that we cannot really begin to deliver. When you couple the foundation that we have worked so hard to build with the run way and the proof that even in spite of a tough economy, this model has proven not only more resilient but more relevant and more share gaining than any of us could imagine, so we are all extremely reenergized by the possibilities in the business.
You probably recently read or deduced that I have made the decision to stay at the company for the foreseeable future to lead the next phase of this reinvention even after 10 years and 40 fun quarters. It's been a really, really easy decision to make for me. I truly believe that we are in a fortunate position. I can't think of another company that has got this financial flexibility and great business model that will allow us to take on the next set of really bold goals. We're well positioned to drive for market share growth and very strong earnings growth, and we are on our way, as we said, to becoming a much larger and much more profitable company. So we just want to thank everybody for coming. We on behalf of myself and the whole team at Avon, this is an exciting new chapter. We are energized and committed and as we look forward to this next side of the journey, we appreciate so much everybody's support on the way.
So at this point, I'm just going to ask our four presenters to come up and we will start to take your questions and answers. And I think we are pretty much on time. It is five to twelve, so we have about half an hour if needed, if not we can keep going.
Question-and-Answer Session
Unidentified Participant
You discussed the growth and stability of your income statement dollars, could you talk (inaudible) we are seeing the net flow after the effects of foreign currency fluctuations, could you describe what you're doing to, what you could do to dampen these fluctuations which have had a major impact as well as cost structure to try to match those more closely or to reduce those as the translation effect occurs? Thank you.
Andrea Jung
John Owen
Okay, there is a series of -- there is a lot of questions embedded in that one question. I think one of the biggest impacts on our business, I'm going to go the cost side first, and that is what we call transaction where our cost don't move relative to the moment in our revenues. And there, the program really is, what you do to mitigate, how do you handle your sourcing of components, how do you look at material substitutions, how do you write efficiencies in the facilities, it is all, it is things that take time to evolve.
I think when you look at our manufacturing productivity initiatives, and the amount of costs that we have been able to actually substitute the productivity gains that we have seen, we have made good progress in a relatively short period of time. I think it isn't going to be a structural change or it is hard to believe it will be a structural change because we know currencies, they go up and they go down. I am not a big believer in hedging. And the reason I'm not a big believer in hedging on the cost is because when you do hedge, you can pay the premium to hedge, you can take a little bit of the volatility out, but the following year, you not only have to make up for the premium in that hedge, but the further movement the currencies might have, and that is a circle. It could become almost a circle of doom if currencies don't move back in your favor.
I think on the translation side, it really is starts at the top and it is really with the revenue line, and there we know that when we've had significant evaluations, inflation does follow or the pendulum has gone too far and there is a rebalancing of currencies. And I think if you think about Brazil, gosh, the real was at 160 last year, at one point of time, it was all the way up to 240, it is back down now to the high 170s, that is something you can't chase. I think our strategy overall is when there is evaluation that is that significant, there will be inflation opportunity, we will lag it a little bit intentionally. We will lag it because we believe that we can gain market share and be more advantaged as we did take prices. And I think a great example of that is what is happening in Russia and Ukraine right now, where there have been significant evaluations, and we are just now starting to get the pricing.
So it is -- when you have a company that has got 80% of its sales that are international, you love it because of the developed and the emerging side of the market story, you're going to have a bit more volatility if currencies are going to become volatile. But we feel that that is a price roll we are paying in terms of the growth opportunity we have in the business overall.
Mark Astrachan -- Stifel Nicolaus
Thanks. It's Mark Astrachan from Stifel Nicolaus. Could you just talk a bit about the closing of the delta between the active rep growth and volumes this quarter and kind of give us a sense of what that means in terms of potentially some of the new representatives coming on board and what the productivity could look like? And then second question, unrelated is, when you talk about the increased focus on the smart value proposition and the economy eventually begins to improve, how difficult is it in your opinion to transition the consumer back up the value chain?
Andrea Jung
Okay. Just in terms of your first question on I guess the relationship between active rep growth volumes and I guess the longer question of when do you see productivity playing out, I think just to kind of go back on some of the detail that I showed just to reiterate, I mean obviously the first engine is in the active rep growth, we are pleased with the volume growth. I think the volume growth speaks very strongly to as we have now fully embedded the smart value strategy in the year, so our brochures now I think have a very healthy mix of under five dollar products and that is I think an expression of consumers coming into the channel and consumer purchasing. So we feel very good about the 5% volume growth or the 6% Beauty growth in volumes.
The active rep growth continues to be double digits and as I said, it takes time, 6 to 12 months, but I think a combination of things, including hopefully an improving consumer environment as well as just the mix of new coming in, which does depress average order or productivity as it plays through in time, that is when you see more of a parity in terms of productivity. So I think it takes a little bit of time but we feel that the productivity for new representatives, with the strategies we have, the products we have, and hopefully in easing consumer environment in some of the developed markets will bode well for productivity going forward.
And then I'm sorry, your second was on?
Mark Astrachan -- Stifel Nicolaus
Basically trading up through the smart value proposition, so bringing consumers down into lower value products and then trading them back up as the economy gets better, what you see – the ability to do that?
Andrea Jung
I think we control a lot of that meaning we really control the store and I think my most important chart on that subject matter to all of you was the chart that showed that we're getting growth at each priced year. I think that we have shown and demonstrated that balancing very much brochure pages, brochure space, and the offer between all the segments means we have not lost any traction in some of the higher-end product improvements we have. So I think that we can balance as the economy improves, we can give a little bit more page rates to over $5 products or over $10 products and that's something that we have full control of because we have the flexibility and the breadth in the scope of our offering.
Unidentified Participant
Hi. Good morning. My question is about RVP I guess and it is really about rep compensation. I think significant -- you said a significant part of the RVP is that representatives earnings have improved, maybe part of that is just reduced cost per brochure or whatever, and I know there is also a huge variance on how much money that the reps make in different parts of the world, but can you quantify whatever way you can, what the increase in rep compensation has been over this period. Because I am assuming that one of the reasons that sales have improved and then will that increase in compensation continue to go up? I'm looking for quantification.
Charles Cramb
I could not quantify here without, it is so different in every market. I think the one thing that I would encourage you to think about is when we talk about RVP and then we talk about commissions, it isn't necessarily the rate of commissions that is changing, as it is the structure of the commission. Therefore when we take a look and let's chose Russia as the example where we did go in and we basically revamped the whole commission structure. Yes, we did raise the top grade, and we're not talking about 10 or 15 points, we are talking about 5% type increases. But at the same time we also raised the threshold. So that to meet the top rate in terms of commission, the threshold went up. What happens is it becomes an incentive to move reps and their productivity up closer the (inaudible) to move into the top thresholds which results in yes, a slightly higher commission rate, but higher returns for both the representative and the company because she is producing more.
So when you start to think about that and you start to think about that 67 different countries, and everyone of them moves differently, it is awfully hard to quantify it. We have tried to quantify the absolute amount of RVP increase above and beyond what you would normally expect to see, that is what we call RVP, but that is a whole assortment of things. It is not just commissions. It really is our investment in the representative in total.
Unidentified Participant
Also is it fair to think that for incentives the representatives in Latin America on average is making 20% more adjusted for inflation than she was five years ago?
Charles Cramb
John Owen
No, when you look at Latin America and if you look at this most recent quarter, we are very pleased with the balance growth. Basically growth in revenues comes from your absolute number of representatives and this quarter in particular you see your balance would be average size of each order of those representatives. So the growth in Latin America does not come from any structural change in percentages of commission. The growth in the representative earnings in Latin America is coming from the growth in the average order that each representative is experiencing.
Now the really important thing to focus on is we do have important programs to increase that productivity, each order has to be larger. So two examples that I would just bring to your attention. One is hair color. Hair color, it was white space. We had a very negligible hair color business in Latin America, so the launch of hair color is net incremental to the average representative it Latin America, and that in itself raises the average order. So profitable order growth is the way we want to go.
The other initiative that is very, very interesting is the intelligent ordering that Andrea talked about. It is this internet solution in which you get suggested selling, you get cross-selling based on your history, based on how much you sold today, and that we believe is going to have a very important platform on representative productivity.
Unidentified Participant
Okay. I have one another question on a different tack, and that is on translation versus transaction. With currency moving favorable, next year should we assume that transaction cost will be in about the same relation to – about the transaction benefit will be in about the same relationship to translation benefits next year as transaction is hurt this year relative to translation?
John Owen
The answer is no. First in terms of the transaction exchange, it will -- right now, if all the rates were to hold above where they are right now, versus this year, there should be a small benefit. So I would be talking to you a little bit about favorable transaction exchange next year. It would not be directly correlated to what is going to happen if revenue was the translation fees. And the reason is a lot of the cross trade issues that we have are in Europe and there we are not seeing and think about the ruble, you think about Ukraine's currency, which I can never pronounce, the cross rates there are still negative against us.
So that mix of cost structures is going to mean, yes, we will have some recovery, but it'll be nothing like what we are expecting to come out of translation. On translation, based upon the latest rates, we are probably talking somewhere as about a 5% or 6% benefit to the company whereas we have been running negatives up to now. So as we go into next year, it should be positive, but certainly the relative difference between transaction and translation, there will still be pressure on transaction with a net-net small gain.
Unidentified Participant
And that actually feeds into my question which is about operating margin because I'm not sure if you pick sort of the midpoint of whatever mid teens, let us call it 15%, is that margin goal off of the kind of 10 you had in the third quarter, or is it off of the 13 if you add back the drive down effects, you know because if it is off of the currency adjusted, it doesn't really seem like a heroic target, at least given all the restructuring that you have done, even if you do advertise more. And second point of that is whatever the right target is, currency adjusted or not, what is your whatever how important is it to you to have the margin progression between now and 2013 be sequential, or could it be lumpy?
John Owen
Okay. On the first part of it, and I'm not going to give a numbers, it is a US GAAP numbers though, so when I talk margin, I am talking US GAAP. I'm not going to then adjust it for currency movements or anything else. That is what we call mid teens type level is where we think we ought to be operating. On the second part of your question is I have given you our best sight of how we're thinking about the business, how we're thinking about investing in growth opportunities between now and 2013. I will tell you that if we have a wonderful opportunity to invest in further growth, even if it is, even if it interrupts the flow of that margin improvement, then we would be wrong not to take advantage of that opportunity. But right now, as we're looking at our plans, looking at our business, looking at how we thinking we're going to continue to grow, it seems to us that we should have fairly consistent growth in that margin.
Unidentified Participant
Our next question comes from Bob Cowen [ph] who has joined us over the Web. And his question is, how will Avon reposition itself to capture more of the personal care and hair care market share opportunities and what are the cost to capture this market share?
Andrea Jung
Well I think that we detailed that we are taking a very granular look at the personal-care segment which is a combination of many, many different parts as I said. There's sun, deodorants, and we're looking at that by market, and looking at the share we have in the market and the opportunity to capture it. We talked about the incremental $300 million or so over the next five years that we will be putting into R&D, building organization capabilities, so bringing hair care expert team in, bringing in sun, whatever it may be, we're going to put the team in place, which we think we have done very well. The R&D in place and the incremental advertising and commercialization into place to really be able to benefit and grow these categories. So that is baked into our thinking and the kind of margin goals that chuck and I are talking about.
Hi Connie?
Connie Maneaty -- BMO Capital Markets
Hi. Connie Maneaty at BMO Capital. I have a couple of questions. One on acquisitions, are you talking about acquisitions for you, the kind you have done recently, where you buyout joined venture partners and those are easy to fold in? Or are you talking about new product lines to bring in for Avon to sell, or other direct selling companies to buy?
John Owen
I would answer that by saying as we're looking at opportunities, it is all of the above. There aren't many distributors opportunities out there that are left to us, that would be significantly material, but we would love those. We have always been extremely profitable in terms of how we can transform those businesses under more control by Avon. When we think about product lines, if there is something that makes sense within the categories of interest, it make sense in terms of how we would merchandise, which makes sense within the Beauty category, we would certainly be interested. And then if we have a company situation where it can make sense again to help us accelerate our growth to utilize some of our core competencies to help that business, we would be interested. So Connie, it's really all three.
Connie Maneaty -- BMO Capital Markets
I'm trying not to think about Discovery Toys.
John Owen
That is the home category, right?
Connie Maneaty -- BMO Capital Markets
You also give us a one liner that you thought China and India would be good sources of growth but we haven't heard much about India for a couple of years, so could you tell us a little bit about where you are with India?
Andrea Jung
Yes, I think only because I think it represents longer-term just because of the scale and we chose to just sort of focus on Latin America and North America just because of obviously size and importance of understanding how we can sustain those businesses in the sort of I will call it near to medium-term but India is a big opportunity, very small market for us still right now, but I would say we are strategically spending ahead of growth in that market both from a capital point of view as well as an investment point of view. I think we are spending the time right now to really build the correct fields, infrastructure, to get ourselves ready for more important growth, and there is a lot of work being done at this moment on the product line.
The actual consumption spend obviously is lower in India than it is in some of the other emerging markets but it is a fast-growing market. The population of obviously women in India and our stronghold in micro financing if you would in our number business model makes it I think very right for that market. So we believe that in terms of the rising Asia opportunities, India from the long-term point of view is a very important strategic market that we are starting to invest in right now.
Connie Maneaty -- BMO Capital Markets
And when do you plan to go into more broadly?
Andrea Jung
Well, we are there now, but I would just say if you look over the next three to five years, we are hoping to really ramp India up into a significant contributor.
Connie Maneaty -- BMO Capital Markets
I have a lot more questions but I would let Bill go.
Bill Schmitz -- Deutsche Bank Securities
Yes, I only have one actually with the Madame Alexander Doll, I am just kidding. I didn't get one yet (inaudible). Can you just talk first about how you react to enhance emotional activity in all these emerging markets by competitors in the non-direct selling channel because you hear about Unilever focusing almost strictly on volume growth in places like Brazil and China and then also P&G obviously has a lot of excess earnings now to reinvest back in these market, so in your plans for next year and kind of that mid single-digit growth, does that include enhanced level of promotional spending?
Andrea Jung
Yes. We are including and as Chuck showed in his slide that we continue to believe in an investment point of view that while we believe we are at scale, certainly we are getting towards scale that our investment spending is still slightly a little bit ahead of sales, that is our thought and a lions share of that is going into our developing and emerging markets. I mean you heard Charles, I will let him finish up here, but you heard how much from a compounded growth rate increase in Latin America, but Latin America, Central and Eastern Europe, China, huge recipients of this continued investment promotionally.
So I don't see any change in that thought. It certainly worked for us. We are making every decision based on analytics. The payback are still great. So that is what we are doing in our core business and as we introduced some of these new categories in white space, we want to make sure that we are competitive in spending, so we never advertised hair color before in the company, but we introduced it with a very healthy level of advertising investment which I think was part of why we sold 5 million units, that's a very good net to date. I don't know if Charles wants to talk a little bit more about sort of competing against the promotional spend?
Charles Cramb
If you look at the business in Latin America, and you mentioned Brazil specifically, we are starting from a very strong position in the value segment. So while other people have to discount to get there, we start from that front, and we have complemented our portfolio with higher priced products, so the really exciting thing that you saw in Andrea's charts is that unit growth across all pricing levels and that has been possible because of the investments we have done in the brand and the investment in the channel. So basically, we're continuing with the same playbook. I think we were better positioned than our competitors to face this economic crisis and we are very well positioned as we start seeing some of this economic crisis behind us in some countries in Latin America.
Andrea Jung
A lot spending obviously in markets like Brazil and Russia. When I look at the playbook, what we spent this year, and how we're performing, look at our third quarter performance in Russia and Brazil against both CPG as well as direct selling competitors, , we just feel like if we just do the right thing and run the playbook, it is working.
Bill Schmitz -- Deutsche Bank Securities
Okay. And how dynamic are the analytics in the catalog? So if I took sort of four months of lead time to print a catalog, so we've kind of the dynamics change in the market real time, kind of like there now, how quickly can respond?
Andrea Jung
Well, one of the things that we did when we ran the play, Bill is, we actually are not limited just to the catalog. We can produce of flier, so what happens when we reacted to the smart value and a desire to flow more of under $5 product, and we made that decision kind of when the economy really hit in the fourth quarter, we actually went in and because we couldn't hit the brochures, we did these smart value buy from us as opposed to the high street promotional flyers in every single market around the world very quickly coming right out of January. Then we were able to when we got, it's now in the brochures, fully embedded in the brochures, the ones that we could react to, but we have the ability to get literature to our consumers and our representatives in compelling pieces in addition to outside the brochure.
Bill Schmitz -- Deutsche Bank Securities
Okay. And then just on productivity, it seems like it's always discussed at all these meetings, and it is only going one way unfortunately, and maybe it is (inaudible) better in these emerging markets mix, but have you changed the way district managers are incentivized to better encourage productivity?
Andrea Jung
I think that is a good question. Really the productivity issue is a combination of three things, one is mix, mix of two representatives, mix of markets, and then I think we have to say consumer contraction obviously is pressurizing that from an average order point of view, but those are the three components of the mathematical productivity number. But as I said, going forward from here, now we have these large numbers of representatives here, and as the economy recovers, our whole focus strategically investment wise, and I think looking at compensation and how that marries it for our sales force in terms of productivity is important, so the things that we drive, where it is activity, productivity, those will be reflected in our schemes as well as again the technology that can help that.
Bill Schmitz -- Deutsche Bank Securities
Okay, great. Thanks.
Andrea Jung
Unidentified Participant
Our next question comes from Katherine Wolfe [ph]. She has also joined us over the next. Her question is over the past few quarters, advertising is growing significantly below sales growth, could you explain this in the context of strategic initiative to grow slightly ahead of sales growth?
Andrea Jung
Yes, I think Chuck addressed that. I mean it really is a combination of FX and media efficiency and media pricing, our GRPs are not down from a year ago in the last two quarters, and not at all in the year as a matter of fact. So I think our GRPs are flat to up in 2009, it's just translation as well as effective buying.
Linda Bolton Weiser -- Caris & Company
Hi. I am Linda Bolton Weiser with Caris & Company. Can you talk a little bit about illustrative data from your competitors that are being reported indicate you are gaining market share in Brazil and Russia, can you talk a little bit more about some of the other major markets within those regions like for example Poland, how are you doing there in terms of market share? And just can you give us a little bit of a more broader view on what is going on?
John Owen
Well as I said, we reported accelerated growth in the third quarter. The accelerated growth that we reported was brought in the entire central Eastern European region, and we're not breaking results further than that but suffice it to say it was a four-point improvement on acceleration on the growth. We saw that led by Russia which also increased four points quarter on quarter. So that just shows us that the improvements that we are saying across Central and Eastern Europe is broad.
Linda Bolton Weiser -- Caris & Company
And can you just give a little more color on China, the decline there? I know you mentioned that it was the boutiques, but what specifically is going on there?
Andrea Jung
Yes. China, if you look at the third quarter sales in China, there were some factors unique to this market. Let us just separate for a second from Beauty boutiques versus the sales promoters, and think as we said before, we were just -- this is an evolution in China, it is unique, it is a China model that has this hybrid business between Beauty boutiques and sales promoters. And the business obviously logically you know we are really changing our promotions to focus on the sales promoter side of the business. And the evolution is being done obviously in this particular case has to be consistent with government regulations.
Our revenues we mentioned from the BBs were down in the quarter. They have been down this year, what are we doing there? We have been adjusting in 2009 our merchandising strategies with and making them more consistent with other of our direct sales best practices that we are running in all of our emerging and developing markets that are more common to us. And as we have done that, BBs who are used to perhaps different kind of pricing strategy or understanding when they can buy their product is different from the frequency and pulse of the direct sales for sales promoters.
The result is then that they're submitting smaller orders in anticipation of pricing shift. The news there are BBs, so they are just -- they're not – they are submitting the same numbers, so activity is unchanged. In terms of their morale, most of them I guess, almost 80% of them are positive still about their future association with the company and 70%, 80% of them, certainly it is not about their inventory levels, but it is just the change in promotional strategy which was designed and as purposeful as our direct sales business has come to scale is changing their buying behavior. So that is what is happening, so there is a structural element there, designed by us on the BB side of the equation.
On the other side of the question, the direct sale, or sales promoters side of the equation, really the change in impact from the first half trends really is about timing of product promotions and incentive timing. Chuck mentioned retroactive which is one of the biggest SKUs in China, one of our most popular SKUs, and we're having a major re-launch at the back end of the fourth quarter as we come into November, that is being heavily supported with a major amount of TV and incentives. So I think there were some waiting there on order authority till the fourth quarter.
Chris Ferrara – BofA
I'm sorry. Chris Ferrara from BofA. I just wanted to ask you about the non-Beauty that you're talking about, what is swapping new products from non-Beauty particularly in the US right getting I guess better image products, where are you in the process of getting that done? I mean is there a design framework in place already, and I guess what do you expect the trajectory of that change to be over the next 18 months, and is this going to be something that is more backend loaded more likely?
Andrea Jung
So in the United States, specifically North America?
Chris Ferrara – BofA
Yes please. And I guess globally too if you got it.
Geralyn Breig
Well, we -- the first things that happens starting you know last year was the markets started to soften in the home and entertainment segment. So there was a market-based contraction of that segment that was not driven by us. As we got into this year, we purposefully began to de-emphasize the gifts and decoration segments specifically and I gave you an example in fashion but we have similar examples of buying later in the home gift and home decoration category as well. And as we move forward into planning for next year, we are purposefully planning further reductions in the less advantaged categories, both the ones that I would highlight today as well as some that we highlighted as a corporation that we want to exit.
And at the same time, we are purposefully and carefully staying in the categories that are doing well, even in this economy. So you have probably seen for example our presence in what we call functional kitchen items which are actually doing well in this marketplace and are not image dilutive, so we're selling those. And we're also doing participating in the global expansion of jewelry. So we have a developed jewelry business in the United States, there were segments and opportunities for us to take advantage of as well. So we are on the path towards it and we are showing improvement I think, we're going to show improvement year-by-year marching towards that goal of reducing it to about 35%.
I would add that on the structural change that I mentioned, going to one catalog for Canada, US and Puerto Rico, we also set up a centralized buying group for the whole of the geography as opposed to three separate buying groups and that will further drive North American change in our Canadian and the Caribbean geographies as well. So it should be a steady march towards the reduction over the next several quarters.
Andrea Jung
From a corporate point of view you know I think in that 2 x 2 I showed some of the new white space categories and segments that we're working on right now, so I would think more like 2011 when we get those fully launched in the business in an upscale so that the excess will be timed similarly to that. So I think we will start but I would think that hopefully if we can launch many of those segments in 2011, we can begin to again transition the portfolio mix.
Chris Ferrara – BofA
I guess you've seen somewhat of a drag in 2010 you can get…
Andrea Jung
It is not a drag, but I am just saying in terms of the speed to the evolution out of some of these categories into some of the newer profitable categories of white space and Beauty and adjacent categories. By the time we launch those, we are setting up organizations now, etc. It is not going to be probably full-scale in 2010. So we just want to marry the timing of exits with new category opportunities in terms of keeping her earnings pocketbook whole.
Chris Ferrara – BofA
And of course understanding that non-Beauty is that big elsewhere in the world, but there are certainly pockets where it is large. I mean is this approach something you foresee taking in other places besides the US?
Andrea Jung
Absolutely. As a matter of fact probably UK was a leader in this. I mean again it didn't have as much non-beauty as the US did but even if I go back a year ago I mean they really did start and really launched it, actual open to buy process starting to get out and move away from non-beauty, which I think has been very helpful as you can see in the UK business structure.
Chris Ferrara – BofA
Andrea Jung
Connie Maneaty -- BMO Capital Markets
Geralyn, I was really intrigued by the slide that showed how you guys kind of look at the macro economic headwind you are facing in the US, so wondered if you can talk a little bit about what is really in that analysis and is it tied to what you're saying in terms of average order size, so like when you try to isolate what the Avon specific process what you are calling macro, no one gets a – it is a guideline but how you guys are actually coming to that sort of ballpark figure?
Geralyn Breig
Okay. Very high-level. We do models that forecast our revenue and inside of revenue we look at the environment, the macro economic environment. Inside of macro economic environment, we look at a lot of different causes that could be impacting our business, some of which the team has spoken about in the past, such as gas prices as one example, and the rate of decline of say fashion and apparel businesses. So all those factors are in the models and they are all measured for are they impacting, aren't they impacting our business, and it all together aggregates up to an overall factor for macroeconomic environment drag in the business.
Andrea Jung
Not specifically Avon specific but what would be Avon specific is, implicit in that is obviously the category mix. So you can have a higher drag on non-Beauty than Beauty and so you just implicitly understand Avon's current mix plus gas. So maybe different because of our mix of business but not necessarily because of anything we are doing.
Connie Maneaty -- BMO Capital Markets
Okay. So in a way that does kind of account for what you're seeing in terms of average orders? If you say it was like a unique Beauty order and that Beauty order is a smaller than it might have been in another macro economic environment, that is sort of accounted for in the way you're thinking about the headwinds you're facing at the start of the quarter?
Geralyn Breig
Our average order is down and it is substantially down because of our other non-beauty business and the non-beauty business is impacting the net result on our average order.
Connie Maneaty -- BMO Capital Markets
And was the average order size in the US -- I don't know if it was in North America or US number that was out on the screen but has that got any better, I mean is it still decelerating, is it less rate of decline or is it just very constant through the course of the year?
Geralyn Breig
Through the course of the year it is varied, but it has stayed in more or less the same range of decline.
Andrea Jung
Basically the same second and third quarter, same rep growth, same revenues.
Connie Maneaty -- BMO Capital Markets
Okay, great. Thanks.
Doug Lane – Jefferies
Hi, it is Doug Lane from Jefferies. Just a couple of quick questions. I've read that slide right on capital spending, it looks like 2010 million will be a little bit higher than 2009 so I just wanted to see if we should expect overall free cash flow to improve despite the higher capital spending?
John Owen
In terms of despite the capital spending, yes. As we're looking at 2010 right now, with some of the completion of the supply chain initiatives, as we fully bring on the Zanesville, Ohio, facility, as we invest in the facility in Brazil, the capital for supply chain is going to start to abate. IT will pick up a bit more in terms of some of the systems and enablement processes. Overall though a little bit of pick up in 2010 and then a moderation down from that point forward. So from a free cash flow -- from a cash flow perspective, just keep it general, capital will be a little bit more than it is this year but the net income gain should more than offset that. The wildcard is going to be the timing on implementation of some of the restructuring and that is what could have significant rocking moments in terms of not only quarter by quarter but even year by year cash flow.
Doug Lane – Jefferies
Okay. And secondly you talk about your active representatives but can you give us a figure of some percentage of how your total sales force compares this year versus last year at this time?
Andrea Jung
Well in terms of the actual, I think we said that our staff is up in the double digits, so staff is a ahead of active rep growth.
Doug Lane – Jefferies
Okay, thanks.
Andrea Jung
Thank you.
Unidentified Participant
I wanted to get a sense of your core target consumer, the Avon buyer, in comparisons to the buyers who go to the other retailers for example Wal-Mart, is there a big difference like how do you how to describe your core Avon purchaser?
Andrea Jung
I think the core Avon purchaser was like very much sort of the average in any given market, I mean I don't think there is a huge difference between an Avon consumer necessarily and a Wal-Mart consumer. I think you have seen some of the numbers certainly in Latin America. We have such high penetration in terms of consumers that they would be very reflective of the population.
Unidentified Participant
Andrea Jung
Okay sorry. We're running a little over. We have kept you here a long time. We really appreciate everybody's attendance. And if there are any other questions you can direct them to Rene in Investor Relations, and talk to you all soon. Thank you very, very much.
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