Tristan Walker’s recipe for building a brand

by
Daniel Roberts

@FortuneMagazine

November 17, 2014, 11:03 AM EST

I’m shaving in Tristan Walker’s home bathroom.

He stands behind me, taking me through the steps of Bevel, his shaving “system” and the first brand of his health and beauty line, Walker & Company. Bevel’s core tool is a sleek steel razor that harkens back to old-school barbershops. But in support of that razor is a handful of oils and creams, and instructions—carefully researched by Walker, with the counsel of dermatologists—for achieving a close shave and a clean one, free of nicks and bumps.

It starts with a hot shower or hot compress on the face. Then: the priming oil. Next: the shaving cream, via a handsome brush. Walker keeps instructing me to move it more vigorously to get a foamy lather. Finally, the shave: short strokes, without applying much pressure. (The blade is sharp enough to do the trick on its own.) Last step: restoring balm. And yes, it feels good.

It’s also the first time I’ve shaved fully in months—like many young men now (35 percent of them, according to Experian, up from 31 percent in 2009), I keep a little bit of facial hair. That is one limitation of creating a shaving line—it’s not a service every person needs. But Walker’s whole point is that there are scores of men who have never shaved, only because they’ve been afraid of cuts and burn—especially men of color. (Some 80 percent of black men and women get frequent shaving irritation, compared with 30 percent of the rest of the population.)

There is a savvy brand unity to Bevel. If a customer forgets any of those steps, he can always find them in a slick how-to video done in the same stylish format of everything Bevel does, from its Instagram account to its Bevel Code lifestyle site.

Walker is hardly new to the San Francisco startup scene– he is a former entrepreneur-in-residence at Andreessen Horowitz, and ran business development at Foursquare– but in the year since he launched Bevel, the attention has exploded. Walker & Company has raised $9.3 million in funding. In October, he was named to Fortune’s 40 Under 40 list. People on the sidewalk in Palo Alto greet him enthusiastically, from Palantir employees to Brian Spaly, CEO of personal shopping startup Trunk Club. It has earned a lot of buzz for a small, subscription-only shaving line. (Walker won’t share numbers, but says sign-ups are growing at up to 50% each month.) As for the rush of press, he’s “super thankful,” but says “the real work starts now.”

That work happens at the Walker & Company offices, by a team of employees that is 80 percent non-white, far more diverse than any tech giant’s. (Google revealed last summer that of its U.S. workforce, just 2 percent is black, 3 percent Hispanic; to that end, Walker also cofounded Code2040, a nonprofit that places minority engineers in summer internships at top tech companies.)

So how has Walker done it? He sat down for a conversation with Fortune at the end of October. What follows is an edited transcript.

Fortune: You’ve said part of your aim is to address Silicon Valley’s lack of diversity. Just last week, Marc Andreessen said in an interview that he thinks a lot of these companies are diverse, listing Eastern European and Asian employees as examples.

Tristan Walker: I think it’s a fair point. I mean, it’s a fact. He’s not lying. But when we think of diversity, we take it to the next level. When we think about folks of color, sure, we think Asian, but we also think black and Latino, two demographics that have been truly underrepresented here but are leaders in global culture. Walker & Company looks unlike any other Silicon Valley company. And that’s exciting.

Is there an extent to which being in Silicon Valley can feel like living in a bubble?

I’m sure it’s possible. But I’m incredibly focused. And our team is incredibly focused. In the Valley, there are a lot of folks solving extremely important problems, and there are a lot of folks that aren’t. A lot of people said about my business, “Well, who needs this stuff?” And the answer is tens and tens of millions of people. A lot of folks in Silicon Valley can be jaded to the point where they let their lack of context drive their judgment. But the folks who don’t, don’t. Marc, for example, has a view, and he is willing to express it. That’s what I appreciate about him and Ben [Horowitz]. A lot of folks don’t have a view, they just adopt the popular thinking.

Is the tech world your social scene? Do you hang out with a lot of fellow startup founders?

There are three things that are important to me: my faith, my family, and the people I work with. Anything outside of that, I don’t have much time for. And my work, that’s really also family. So, my social life is in the context of that. And living in Palo Alto limits the distractions. Palo Alto is the first zip code I’ve lived in where no one underestimates anyone. You could be walking down the street in ripped jeans and a dirty t-shirt and be worth billions of dollars. And that’s a special thing. I don’t think I would have been as focused if I’d built this company in San Francisco.

Looking at the art around this office, and online at Bevel’s content, it’s so clear that design is a core focus for this company.

Well, I’m not joking when I talk about my experience of going to CVS and Duane Reade, having to go to the ethnic aisle—it’s not really even an aisle, it’s a shelf—and the products all have a 65-year-old, bald black guy with a velvet robe on, drinking a screwdriver. That sucks. That second-class citizen vibe has to go. It’s crazy that no one has innovated on that design. So, with every brand we will launch, design is top of mind. And it’s not only design aesthetic, it’s function. Jony Ive, at an event recently, said something that really stuck out for me. He said he gets the sense that people can sense care for a product as much as they can sense carelessness. That’s why we focus on design. It’s there when you lift off the top of the Bevel box. We have handwritten notes that go out in the box. People notice that stuff. They sense the care.

You developed Bevel while you were at Andreessen Horowitz. What other ideas did you consider?

I wanted to build a bank. I wanted to tackle obesity. I had an idea to fix freight trucking in the country. I realize I’ve dedicated my life to really one thing, the demographic shift happening in this country. And a big portion of that demographic that is ignored is the demographic we’re serving. The banking idea would have helped those people. The obesity idea was trying to reimagine the concept of play, in a world that is extremely digital. How do you take play outside of the house? I have no idea what that product will be, but someone’s going to nail it.

Did you always know that whatever idea you came up with, you wanted it to address the changing makeup of our country?

I always knew there was an opportunity. Look at Beats. Look at Ciroc [vodka]. These are brands that have been built on the backs of this culture. That’s never happened in personal health and beauty. So I am targeting people who really need us. We’re building a brand that people are proud to support. So if we build that mind share, the market share will sort itself out. It’s a brand with a story. The Bevel story is really my story—I didn’t have a father to teach me how to shave, I’ve been using these bad mass-market products for my whole life.

How can you tell when a new customer is coming just to try Bevel because it’s new, vs. someone who is likely to remain a customer?

Over 90 percent of people who go for the starter kit stay with us. People might look at it and say, “Oh man, $59.95?” But it’s a system. It’s important not to think of Bevel just as a shaving product. We’re solving a skincare problem. If you have razor bumps and ingrown hair, you need our system to solve it. You need the double-edged safety razor, you need the priming oil that we make, you need the shaving cream with the ingredients we have.

That’s the proposition, but you’re not the only subscription shave service. There’s Dollar Shave Club, and others. Who are your competitors?

Anyone selling a multi-blade razor is not a competitor, because people prone to these issues cannot use a multi-blade razor. Those cut the hair beneath your skin. It’s like, the first blade will cut the hair, the second blade will cut your skin, the third blade will make your bed in the morning—it’s gotten out of control. Our product is one blade that will cut the hair at the skin level. It works. Beyond the razor, we have two competing products—one, depilatory creams like Nair. They burn your skin, but you don’t need to use a razor. Or there’s this old formula a lot of men use, called Magic Shave, from L’Oreal. It stinks up your bathroom, has all these chemicals, but it does well because it’s a razorless solution. The second solution is clippers, which your barber uses on everyone else’s face—which is disgusting, and it still destroys the hair follicle.

How did you come up with the design of the razor?

We partnered with a few folks, some ex-IDEO guys. I’m crazy about design. We care a lot about solving for latent needs, needs people don’t know they have. A perfect example of that is the winged edges. Other safety razors are exposed on the sides, so when you unscrew it, you have to touch the sharp blade. It’s crazy! So we have the wings to house it on those sides. And there are some companies already trying to replicate and steal our design.

Here’s another example: shaving is all about balance. And on our razor, we’ve marked the exact point of the center of balance, which is where you should hold the handle when you shave. It’s subtle. [Walker demonstrates how you can balance the razor, heavy though it is, on a single finger.]

I want to bring it back to Andreessen Horowitz. Has Marc Andreessen been a mentor to you?

He has, but I’m especially close with Ben. Ben taught me how important courage is to building a business. And Marc has this incredible way of asking “what if.” Like, “What if this were possible…” And it’s hard to compete with someone that has the courage to ask “what if” all the time. I thank the two of them for beating that into me.

Is there any feeling of pressure, like you’re being expected to do more than just build a brand—to also address the lack of diversity in tech?

My job isn’t to fix Silicon Valley. My job is to be a great dad, a CEO our people can believe in, and stay true to my faith. And also be a person who does what he says. If I can do all of those things, that’s what matters.

–

Advance beauty product orders boost Estee Lauder’s profit

by
Daniel Roberts

@FortuneMagazine

August 15, 2014, 10:24 AM EST

Estee Lauder reported higher sales of skin care and makeup, proving to be one of the few bright spots in retail for the latest earnings season, though the beauty-products maker’s results also greatly benefited from about $178 million in advance retail orders.

Double-digit sales increases for Estee Lauder’s EL skin care, makeup and fragrances lifted the company’s results easily above Wall Street’s expectations. Net sales jumped 13% to $2.73 billion for the quarter ended June 30, with growth also balanced in the Americas and markets abroad. MAC, La Mer and Clinique are among some of Estee Lauder’s most notable brands, and the company also works with major fashion names like Coach, Michael Kors and Tory Burch.

“Our topline growth was nearly double that of prestige beauty and was broad-based across regions, product categories and channels, despite slower industry growth in some key countries,” said Chief Executive Fabrizio Freda, signaling consumers opened their wallets to scoop up makeup and skin care products.

Estee Lauder also benefited from advanced orders before it shifted more operations to utilize SAP-based technologies. Estee Lauder had previously warned orders would come in ahead of that change, which occurred in July.

The strong report from Estee Lauder comes after a handful of retailers, including Wal-Mart, Kate Spade and Macy’s, reported disappointing quarterly results, a worrying trend that suggests many consumers were holding back on spending amid slow economic growth. The Commerce Department this week reported retail sales were flat in July from the prior month, a muted report that was the weakest reading since January, when winter weather kept shoppers out of the stores.

But beauty sales appears to be one of the few strong performers in the retail world. U.S. prestige beauty sales jumped 5% in 2013 from the prior year according to industry tracker NPD Group, with most of that gain fueled by skin care and makeup. Prestige beauty is industry lingo for products mainly sold in U.S. department stores.

Estee Lauder appears to believe the good times will continue, estimating the global prestige beauty industry will report roughly 3% to 4% growth for the company’s fiscal 2015. Estee Lauder says it expects to grow “ahead of the industry” by focusing on fast-growing countries and bringing new products to market.

Cost cuts help Procter & Gamble post a bigger profit

by
Daniel Roberts

@FortuneMagazine

August 1, 2014, 7:08 AM EST

Procter & Gamble reported a 38% jump in fiscal fourth-quarter profit as the consumer-product giant cut overhead expenses, though overall sales trends were choppy.

The maker of Gillette razors, Crest toothpaste and Tide laundry detergent reported mixed sales results for its major business lines for the quarter ended June 30. Net sales jumped 5% for grooming products and rose 1% for the baby, feminine and family care segment. But beauty, health care, and fabric care and home care products sales were all lower than a year ago.

P&G PG is broadly exposed to the fickle nature of the consumer. Though some recent reports have suggested U.S. consumer confidence is at its highest level since October 2007, some retail and consumer-product executives have pointed out consumers, particularly lower-income households, are still struggling amid a number of negative macroeconomic factors.

Overall, P&G reported a fourth-quarter profit of $2.6 billion, or 89 cents a share, up from $1.9 billion, or 64 cents a share, in the same period a year ago. Core profit, which excludes restructuring charges and other items, grew to 95 cents a share from 79 cents. Net sales slid 1% to $20.2 billion.

Analysts surveyed by Bloomberg had expected core profit of 91 cents on $20.48 billion in revenue.

Looking ahead, P&G sees net sales for the new fiscal year rising in the low single-digit range and expects core earnings on a per-share basis to grow in the mid-single digits.

With a wired store, Birchbox rethinks brick-and-mortar retail

by
Daniel Roberts

@FortuneMagazine

July 11, 2014, 12:54 PM EST

On a sidewalk in New York’s Soho neighborhood this week, two women’s eyes lit up as they approached the glowing front window of a new retail store from Birchbox, the company best known for selling mail order subscriptions for beauty product samples. “Store opens Friday,” the security guard offered. “You know the Birchbox?”

With her gaze fixed on the wall of pink cardboard boxes behind the glass, one of the women approached the window and snapped a photo with her iPhone. She was spellbound. “Oh I know the Birchbox,” she murmured hypnotically. Even as she walked away, her eyes stayed locked on the window.

It’s no secret that in three and a half years, Birchbox, has built up a devoted following. More than 800,000 women subscribe to the company’s monthly beauty sample boxes. (The company also offers boxes for men.) Half of them purchase full-sized versions of those items on Birchbox.com. They’ve written millions of reviews on the site, and watched just as many “haul” videos showing the boxes’ contents on YouTube. They will undoubtedly be just as excited about Birchbox’s next move, a brick-and-mortar retail store, which opens its doors today in downtown Manhattan.

Inside the store, there’s plenty for them to like. Birchbox’s approach to brick-and-mortar retail carefully mirrors the digital brand it’s known for. Editorial displays carry copy with a tone that matches the website, and there are iPads that promise personalized offerings. Naturally, the store’s pink, white, and tan color scheme matches the boxes it sends to its female subscribers.

Earlier this week, Katia Beauchamp and Hayley Barna, the company’s co-founders and co-chief executives, showed off all the ways their store would be different from other brick-and-mortar beauty stores. For one, the company’s new store is merchandized by category, not brand. This would normally be an affront to beauty brands, which typically require department stores and drug stores to group all of their products together in one big, branded display. In the Birchbox store, items are arranged the same way they’d appear online, in sections like “BB Cream” (as in “beauty or blemish”) or “second-day hair products.”

Barna says the company’s sales associates were thrilled about this development because they no longer have to drag customers all around the store to show them different brands of eyeliner. The brands would have never agreed to it if they didn’t already have relationships with Birchbox, Beauchamp said. Moving from the online sales environment to an offline one—rather than the usual other way around—gave the company an advantage, she added.

Despite the many physical products placed around the store, the space leans heavily on the company’s online presence. The iPads placed around the floor offer more products, reviews, and video tutorials from Birchbox.com. A physical display in the front of the store shows a rotating inventory of the top online sellers, and a large interactive display in the back allows shoppers to input their attributes (hair type, skin color, age, et cetera) for new product recommendations using their finger.

At a counter in the back of the store, shoppers can put together custom boxes of beauty samples. Downstairs, across from a corner of Birchbox for Men products—which the company expects will be purchased mostly by women as gifts—is a Birchbox salon, where professionals offer manicures, hair styling, and makeup services. The company says it will play host to appearances from various beauty celebrities and offer free classes for subscribers on makeup techniques like contouring and nail art.

In April, Birchbox raised $60 million in new venture funding, which valued the company at $485 million. In its announcement, the company said it would use the capital to amp up marketing and possible international expansion beyond the U.S., France, Spain and the U.K.

Birchbox has since been flooded with incoming calls from interested landlords and realtors around the country, which Barna said came as a surprise. If all goes well in New York, Birchbox may expand to more brick-and-mortar stores. For now, the company says its Soho store will serve as an experiment to learn about the ways its obsessive and devoted customers interact with the products. Of course, it’s also a chance to win over any casual beauty shoppers who, for whatever reason, don’t already “know the Birchbox.”

Avon: The rise and fall of a beauty icon

by
Daniel Roberts

@FortuneMagazine

April 11, 2012, 9:43 AM EST

Exclusive: As CEO of Avon, Andrea Jung made bad bets and missed opportunities. Now she’s been replaced – and the 126-year-old company has a second bidder lining up.

It was a painful hour for Andrea Jung.

The CEO and chairman of Avon Products was fielding questions during the company’s third-quarter earnings call from a pack of frustrated analysts — and they weren’t holding back. The company had surprised the Street, missing analysts’ estimates, and reporting that it would no longer hit its revenue-growth and operating-margin targets for 2011. A day before the October 2011 call, the Securities and Exchange Commission had subpoenaed Avon for information related to whether the company had improperly shared information with analysts — on top of an SEC inquiry into allegations of bribery by employees in China and elsewhere. On the call Citigroup’s Wendy Nicholson said, “It strikes me that you guys are so totally screwed up in so many ways, the change has to be radical.”

Avon AVP is indeed undergoing a radical makeover: In early April the company announced it was replacing Jung as CEO with Sherilyn McCoy, a Johnson & Johnson JNJ vice chairman. McCoy, 53, inherits a 126-year-old company in disarray. Years of management missteps (compounded by a complacent board of directors) have left the beauty brand bruised — and vulnerable. Privately held Coty, majority-owned by German holding company Joh. A. Benckiser GmbH, made an unsolicited $10 billion offer for Avon at the end of March. Fortune has learned that Richmont Holdings, another holding concern, is also putting together a bid for Avon. Remarkably, Richmont founder and chairman John Rochon, former CEO of Avon rival Mary Kay, led an attempted takeover of Avon that began in the late 1980s and ended in the early 1990s. At one point his group was Avon’s largest shareholder; it ultimately sold its shares.

The sale of the venerable company would have been unthinkable eight years ago, when its market value topped $21 billion. But today a buyout could be the final act of a wrenching corporate drama starring Jung, a glamorous, ambitious executive, who wanted desperately to remake pedestrian Avon in her own image. Even as Jung racked up accolades and sat on high-profile boards (GE! Apple!) the company plunged deeper into crisis: Execution problems bedeviled Jung’s far-reaching growth plans; management made bold projections about the future of the business without the strategies or expertise to deliver results. Under pressure from shareholders, Avon’s board finally announced in December 2011 that Jung would step down as CEO — with a two-year contract to stay on as executive chairman.

It is a stunning reversal of fortune for one of corporate America’s stars. Named CEO at 41 in 1999, Jung had been dubbed a marketing wunderkind and was widely credited with reinvigorating the direct seller. Despite her company’s relatively small size, $11.3 billion in revenue in 2011, she exerted her influence in broader circles. Last year Fortune named her the 6th most powerful woman in business. (McCoy was No. 10.)

Beneath the polished façade — she favors Chanel suits, not what you’d find on a typical Avon Lady — Jung was struggling. Despite her scant operations experience, she had gone without a chief operating officer since 2006 and failed to groom a successor. Jim Preston, who served as CEO of Avon from 1989 to 1998 and hired Jung, tells Fortune, “How could you go through five or six years of the performance that they’ve had and not begin to ask serious questions, and say our hires are not right, and our operating systems are not right?”

Avon’s execution problems were exacerbated by its unwillingness to fully embrace its door-to-door roots. The company straddles the worlds of direct selling — how it sells — and beauty — what it sells — and must balance the two. Under Jung, Avon leaned too far toward being a beauty company that wanted to compete with blue-chip consumer packaged-goods companies like Procter & Gamble PG and L’Oréal. It strayed from its core without realizing the limitations that came with its direct-selling channel and customers. Ashok Pahwa, former vice president of new businesses for Avon, said some people in direct selling suffer from “the cocktail party disease” — a sense of embarrassment and inferiority around the business, which, he says, creates a feeling that “they need to make Avon something it isn’t.”

Avon declined to make Jung or members of its board available for this story, but former employees and industry analysts paint a picture of a company unsure of what it wanted to be, and therefore uncertain of how to move forward. A onetime executive suggested that Avon is operating as though it were two companies: “There’s the public company, the one Andrea represents,” she told me. But “the company that actually sort of fuels the business and is at the heart of what Avon is, is not a consumer packaged-goods company at all. If you go to Mexico City or Moscow or to the heartland, that’s the real Avon Lady.”

To understand what’s gone wrong at Avon, you first have to understand what it means to be a direct seller. While Avon is the fifth-largest beauty company in the world, it’s by far the biggest direct-selling enterprise globally, with 6.4 million active representatives marketing its products. What Avon is actually selling is an earnings opportunity to its sales representatives, who then turn around and sell Avon’s lipsticks and lotions to the end user. Alan Kennedy, a longtime executive in the industry who worked at Avon in the 1970s and 1980s, puts it this way: “The fundamental challenge in direct selling is getting people to sell your stuff, not so much getting people to buy your stuff.”

Effective direct-selling companies are 25% about the brand and 75% about the sales channel, says Rick Goings, CEO of direct-seller Tupperware Brands TUP , who worked for Avon from 1985 to 1992. Traditional retailers pay rent and use advertising to pull customers into the store, but direct selling is a push business. “You redeploy what you would spend on rent and advertising into payment for a direct sales force,” Goings explains. Direct selling may feel outdated in the U.S., but the channel remains hot in emerging markets like Brazil. Direct selling grew about 30% between 2006 and 2011 into a $136 billion global market, according to Euromonitor International. Avon gained only 1.1 percentage points of share in the direct-selling industry during the same time frame, with 11.4% of the market in 2011.

This quirky sales channel was unfamiliar turf for Jung when she arrived at the company in 1993. Until then she had spent her career in high-end retail, working for Neiman Marcus, I. Magnin, and Bloomingdale’s.

Jung took a job at Avon as a consultant, assigned by Preston, then CEO, to look into the feasibility of retail outlets. Preston thought the project would take months, but within weeks Jung reported back that the move would be a mistake. Avon didn’t have the right packaging or positioning to compete with store brands. Jung, articulate and smart, wowed Preston. She spoke fluent Mandarin (her parents emigrated from China) and she had a Princeton degree. She joined the company full-time in 1994 as president of the product marketing group for Avon U.S., a newly created position.

When Preston retired in 1998, Avon board member Charles Perrin, former head of Duracell, was tapped as CEO. Jung was elevated to president and chief operating officer, setting her up as heir apparent. Perrin had planned on staying for about five years but remained for less than two. Jung took over in November 1999 just after Avon said it would miss earnings targets, becoming the first woman to ever lead the company.

With her marketing background and experience working at prestige brands, Jung brought a new kind of sophistication to Avon. “How many other chief executives embody their companies the way Andrea Jung does?” asked Institutional Investor early in her tenure.

In reality, Jung embodied what she wanted the company to become. Avon typically attracts representatives earning below $50,000. It costs $10 to sign up, and most reps sell Avon part-time and make on average less than minimum wage doing it.

An Avon ad from the 1960s celebrates the company’s door-to-door workforce.

Avon certainly needed some rejuvenating, but Jung moved to give the company a dramatic face-lift. While still president, she opened the Avon Centre with its store, spa, and salon in Trump Tower on Fifth Avenue. In 2000 Jung launched Avon’s “Let’s Talk” campaign, the company’s first global advertising initiative, and signed Venus and Serena Williams as spokespeople. Advertising spend climbed from $63.4 million in 1999 to its peak of $400 million in 2010. Jung tried to refresh existing brands, and launched new ones. “Mark,” a hipper, trendier line aimed at college-age women, attempted to both raise the company’s image and attract a younger demographic.

The year Jung became CEO, Avon adopted the slogan “the company for women,” moving away from its long-time ad campaign “Ding Dong, Avon Calling.” The change was meant to modernize Avon, but it also paralleled a shift in focus within the company. The old tagline emphasized the direct-selling side of the business. Now Jung was taking Avon into a new arena: retail.

Avon started with mall kiosks, and followed with a plan to go into Sears SHLD and J.C. Penney JCP with a new line called beComing. It was a flawed venture from the start. The new sales outlets and product line had the dual objectives of going higher-end and of introducing Avon to women who may never have encountered its products before. But associating with Sears and J.C. Penney wasn’t exactly going to class up the brand, and the retailers already served a similar demographic to Avon. Sears backed out not long before the launch, and Avon’s foray into J.C. Penney ended two years later in 2003.

Although the undertaking failed, it cemented among some Avon executives a feeling that Jung just didn’t embrace direct selling — or Avon’s existing customer base. Says one former manager: “All the things she tried — Mark, retail — you’d have to ask, ‘In her heart of hearts, does she really believe in the model?’ ”

Still, for a time all seemed golden under Jung’s leadership. From her start as CEO to June 2004, Avon’s stock tripled, topping $46 a share. Profits grew at nearly the same rate and reached $846 million in 2004, up from $287 million in 1999. Avon went into international markets early, and non-U.S. business made up about 70% of sales. (That figure was nearly 85% in 2011.)

But soon other beauty brands started aggressively pursuing Avon’s customers; multinationals such as P&G made inroads in the developing world, and drugstores and big-box retailers expanded their selection of affordable cosmetics. By 2005, profits were flat after three years of double-digit growth. “When things started to slow, there was an admission that the company had been resting on its laurels,” says BMO Capital Markets analyst Connie Maneaty.

Avon, once set up for growth, had gotten too fat. Jung implemented a half-billion-dollar restructuring, cutting 30% of managers and chopping its 15 layers down to eight. Consultants came onboard, and Jung started looking at acquisitions as a way to restart expansion. She also brought on new hires from the type of top-tier companies that Avon was aspiring to become. Emblematic of the new look at headquarters was Liz Smith, who joined as president of global brand marketing in 2005 from Kraft KFT . Smith tried to bring a new kind of discipline to Avon, putting in place pricing analytics for the first time, but also ruffling some feathers. “Avon’s an iconic brand,” said one former marketing executive in the U.S. business. “It’s not the same as macaroni and cheese.”

Another restructuring that began in 2009 created a revolving door at Avon that left employees demoralized and uncertain about who was in charge. Confusion around Avon’s strategic direction only magnified the issue. Rather than working toward some long-term vision, employees often felt as if they were Band-Aiding problems for the short term. “At Avon, when something doesn’t go right, just put some concealer on it,” says a former communications manager.

Take, for example, the way Avon used its catalogue to try to make its numbers. Avon, unlike other direct sellers, publishes a 150-page-plus brochure every two weeks in the U.S. market, an astonishing frequency that effectively lets the company alter its offerings twice a month.

The flexibility to change its lineup so frequently could be a blessing, but it gave Avon too much room to abandon whatever game plan it had set in motion. Despite Jung’s efforts to position Avon and some of its products as more upscale, if marketers needed to hit a sales goal, they might heavily discount items — a no-no in luxury — in a subsequent catalogue. “On the one hand you had high-tech skin care, a lot of celebrities,” said Ron Robinson, former global director of product innovation at Avon, who now runs an industry website. “And then you had the discounting going on.”

Odd strategic choices foiled other efforts to go upmarket. The company acquired Silpada, a direct seller of silver jewelry, in 2010 for $650 million, but intentionally runs it as a separate business. When questioned about the logic of the structure on the second-quarter 2010 earnings call, Jung tried to quash analysts’ concerns, telling them, “You guys are going to love this like we do.” But silver prices spiked, and the company had to take a $263 million write-down in 2011’s fourth quarter. The increase in commodity costs was bad timing, but analysts also point to the size of the charge as proof that the company overpaid.

A major gap existed between what Jung wanted to accomplish and what she was capable of executing. Fortune has learned that in 2010 Avon announced internally a plan called “Road to $20 billion.” According to several sources, Jung envisioned the company doubling its revenue in five years through a 10-point strategy, which included launching a baby line. Less than a year later, after a bad quarter, the company cut off funding for most of the initiatives. Executives communicated a new directive: Avon would eventually hit $20 billion, but not by 2015.

Even as Jung was pursuing an ambitious growth strategy, the company was struggling in key emerging economies. Brazil had surpassed the U.S. in 2010 to become the biggest market for Avon in terms of sales, but managing operations in the Latin American country vexed the company. When the government required electronic invoicing for tax purposes in June 2010, Avon’s computer systems, already nearing capacity, were further strained. The change created service issues for representatives, forecasting problems, and product shortages at three times normal levels.

A year later the company went ahead with implementing a new information-management system in Brazil, one it had been planning for nearly two years. “We have an amazing team down there that has been working day and night that is ready to launch this on Monday,” Jung assured analysts. Avon was not as ready as Jung thought. The following quarter she explained that when the new system went live, late orders were missed, which threw off demand forecasting. Products arrived behind schedule, orders went unfilled, and shipments to representatives got delayed. The service problems had dragged down sales by eight percentage points in the quarter, with three of those points coming from lost sales due to rep annoyance, Jung said. Unlike the U.S. direct sales market, representatives in Brazil often sell for multiple companies, and Avon was at risk of losing them to its strong regional competitor, Natura.

In China, Avon’s problems were even worse. With its entrepreneurial culture and demographic profile, China was a ripe market for direct sellers. Avon opened for business there in 1990 amid press reports that the company had sold out of six months’ worth of inventory in just four weeks. But a direct-selling ban by the Chinese government in 1998 forced Avon to open brick-and-mortar locations called Beauty Boutiques.

Avon received the first license to resume direct selling in China in 2006 — a coup for Jung and for Avon. The business was so important that the country head reported directly to Jung and Susan Kropf, the chief operating officer at the time. Avon ran China with a “hybrid” model, maintaining its stores while also selling through reps. But as the company shifted away from Beauty Boutiques, results took a nosedive, with China’s revenue and operating profits plummeting 35% and 154%, respectively, year over year in 2010, the last year Avon reported China as a separate business unit.

Perhaps even more troubling were the reputation problems Avon faced in China. In 2008, Avon disclosed that Jung had received a whistleblower letter with allegations of possible violations of the Foreign Corrupt Practices Act (FCPA) in China. Avon began an internal investigation, which subsequently led to the departure of six employees. The highest-level dismissal took place this January, when Avon reported that Charles Cramb, the former CFO, was no longer with the company. In October, Avon disclosed that the SEC had opened a formal investigation. The Wall Street Journal has reported that Cramb was fired because of signs that he had known about possible corruption in China as early as the mid-2000s. The Journal has also said that a 2005 internal audit report found improper actions in China at least two years before the whistleblower letter. Cramb did not respond to requests for comment.

An amended shareholder class-action lawsuit filed on March 16 against Avon, Cramb, and Jung alleges that the plaintiff found that Avon employees, in connection with obtaining the company’s direct-selling license, paid to “schedule meetings between Jung and high-level Chinese government ministers; repeatedly treated Chinese licensing officials to ‘dinner and karaoke’; and paid Chinese government officials and other employees to attend some Avon press conferences.” Additionally, the lawsuit alleges that before 2009, Avon had “virtually none of the basic legal compliance protocols that were universally expected of a public company of Avon’s size at that time.”

The investigation has taken a financial toll, with about $225 million spent so far on legal and professional fees associated with the FCPA inquiry and compliance reviews. In 2010 and 2011, Avon spent nearly $100 million a year — a figure one FCPA lawyer described as “eye-popping.” Today posters with reminders like misconduct — DON’T COVER IT UP and IS INTEGRITY ON EVERYONE’S LIPS? are on display at Avon’s headquarters.

For all the problems under Jung’s watch at Avon, she did articulate a powerful purpose for the company: that Avon empowers women around the world by giving them an earnings opportunity. Avon pushed the idea of “the company for women” in its philanthropic work as well. The Avon Foundation, with a focus on domestic violence and breast cancer, approved nearly $38 million in grants last year. In 2010, Jung declined her bonus because of Avon’s poor performance, and donated the $5.4 million to the foundation.

Jung herself was also an inspirational force with the rank and file, who viewed her as a visionary leader with a true love of the company. “Andrea’s tenure has been underscored by a deep commitment to our representatives,” a company spokeswoman wrote in an email, noting that Jung pushed a new incentive system for reps and made it easier for them to do business online. Avon executives who previously worked directly with Jung were more critical. She was image-conscious, they said, looking to outsiders such as consultants and new hires for affirmation. Early in her tenure, in a leadership-derailment assessment, which measures a leader’s vulnerabilities when under stress, Jung tested as a “pleaser.” The label meant she had difficulty with conflict and a natural inclination to meet expectations of others.

Jung was the chairman of a board that loved her. (Full disclosure: The longest-serving director is Ann Moore, former CEO of Fortune’s parent, Time Inc. Also, lead independent director Fred Hassan sits on the Time Warner TWX board.) Jung’s directors allowed her to join the Apple AAPL board in 2008 — Steve Jobs personally recruited her — and let her remain a director at both Apple and GE GE as her own company floundered. “Avon couldn’t be more important to Andrea,” counters Ogilvy & Mather chairman Shelly Lazarus, who serves on the GE board with Jung. “And yet at the same time she manages to be an excellent director of both GE and Apple, and I don’t find that surprising. She’s a very capable, competent woman who works very hard.”

Now the board has a new star CEO. McCoy is an A-list executive with an impressive resume; at J&J she oversees the global pharmaceutical business and the consumer unit, which includes skin-care brands like Neutrogena. She earned a master’s in chemical engineering from Princeton and worked in a number of roles at J&J, including marketing, product science, and devices. She was passed over for the CEO job at the health conglomerate earlier this year.

Her high profile — and scant experience in direct sales — makes her a lot like Jung was when she joined Avon, though McCoy arrives with significant management training and operations experience. And like Jung, McCoy is likely to want to put her mark on the beauty company. What isn’t known (she’s not giving interviews) is what kind of makeover she has in mind for the company — although Avon’s hiring of a new CEO signals its intent to fight any buyout bid. Whatever path she takes, she has an opportunity to restore Avon’s traditional balance of direct selling and its brand. And that’s a beautiful thing.

Reporter associate: Doris Burke

This story is from the April 30, 2012 issue of Fortune

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