7 Ways Mobile Will Change Business In 2014

(Photo credit: Wikipedia)

In 2011, Microsoft Tag predicted mobile Internet use would surpass desktop Internet use by 2014. As 2013 winds down, it’s clear mobile Internet use is at an all-time high, with 63 percent of all cell phone owners admitting they use those devices to go online. The number of consumers who say they primarily use cell phones for Internet access is up to 21 percent.

While desktops will likely remain the primary method of Internet use for most users in 2014, there’s no denying mobile is a big player. For businesses, this means some serious changes as more workers than ever shift from being tied to a desktop or laptop PC to connecting to files from anywhere. This not only enables workers to connect to presentations and documents from anywhere, but it also opens up new concerns for the businesses interested in protecting data.

2014 will also bring more widespread consumer mobile adoption, bringing additional changes to corporate marketing strategies. To prepare for this increasingly-mobile world, here are a few steps businesses should take:

BYOD Security

If your business doesn’t have a BYOD policy in place, you’re already behind. Businesses are increasingly putting remote wipe and encryption software on personal devices, as well as mobile virtual workspaces that separates work data in a separate, encrypted area on a user’s personal device. If there’s even a remote possibility one of your workers could access work data on a personal device, you should have a written, signed policy in place for each of your workers.

Constantly Connected

The line between work and personal will continue to blur as employees complete work during evening and weekend hours, as well as on vacation. Mobile device ownership means workers have the ability to remain connected to work at all times and that will breed an expectation that workers be reachable at all times, as well. This could mean good news, though, if employers allow their workers to be more flexible in the hours they are officially on duty. An employee who stays on the phone until ten p.m. working through an issue with a client may be forgiven for taking off early on a Friday. Unfortunately, chances are this constant connectivity will only result in Americans working longer hours and being expected to respond to calls during valuable family time.

More Cloud Apps

As businesses redefine the devices used to connect to servers, more employers will opt to make the move to the Cloud. Solutions like Office 365 will become the norm as these businesses realize the cost savings in having their apps supported by an outside provider for a low monthly fee. Cloud providers who provide connectivity from any approved device will be at an advantage as businesses begin to troubleshoot ways they can continue to do business in a mobile-preferred workplace. When a new solution is needed, businesses will be able to immediately find and download that solution without having to pay a team of software developers to create one. This also eliminates the need to pay tech support personnel to install and troubleshoot the software, especially if the app provider offers tech support.

Mobile-Based Marketing

Even Google is recognizing that the world of search is changing. The site’s new Hummingbird algorithm addresses the role mobile now plays in search today. Users are more likely to ask a question into a mobile device than type in keywords and Google is now prepared to deliver those answers. For this reason, it’s important each business take a step back and ask themselves what questions a consumer would ask that would lead them to their website. Site content should answer questions like, “Where do I find a good plumber?” or “What’s the best Mexican restaurant near my house?” This can be done, in large part, through ensuring contact information, directions, and other frequently asked questions are addressed clearly and accurately.

Apps for Everything

The suite of electronic tools a business needs to conduct daily operations is shifting. At one time, a business owner needed an Office suite, e-mail, and industry-specific software to open for business. Today’s business owner has an infinite number of apps available, many for a far lower price than traditional software. The trend toward mobile means businesses will open their minds when it comes to the software necessary to run operations. Everything from billing and scheduling to project management may be moved to Cloud-based apps, allowing small businesses with small budgets to compete against much larger companies.

Mobile Wallet

With each year, it seems we’re no closer to leaving our wallets at home. More businesses are realizing the benefits of taking rewards programs to a consumer’s mobile device. Rather than requiring valued customers to carry yet another card either in a wallet or on a keychain, businesses can provide them with those same rewards through simply presenting a smartphone app. Rewards apps like Shopkick Local provide increased exposure by displaying local shops alongside major retailers. As 2014, consumers are moving closer to being able to pay with a mobile device, with major players like PayPal partnering with stores nationwide to enable mobile payments.

In-Store Mobile Use

Bricks-and-mortar stores are realizing the benefits of arming floor staff with tablets. Workers can use this technology to reduce lines by checking people out during busy times or to locate items at other locations. Mobile POS systems have also allowed small businesses to set up state-of-the-art cashiering systems at a minimal charge. In 2014, consumers will see more of this in-store use, as well as inventive technology to reach out to customers as they enter a store. Customers who opt in may begin to see special offers pushed to their smartphones as they near a favorite store, enticing them to stop by.

As the world continues its gradual shift from PC to mobile, businesses are adjusting their own thinking, as well. These changes are occurring both inside the workplace and in the way businesses reach out to consumers. As 2014 progresses, the shift toward a more mobile workforce will continue, allowing workers the freedom to work from anywhere.

from Forbes.com: Most popular stories http://www.forbes.com/sites/drewhendricks/2013/10/29/7-ways-mobile-will-change-business-in-2014/

With The 2015 Escalade, Cadillac Elevates The Art And Science Of Luxury

Photographer Autumn de Wilde created the Plexiglass houses in the background to play with the idea of distorting reality, as seen through reflections in the side of the 2015 Cadillac Escalade. (Credit: Autumn de Wilde)

Autumn de Wilde, a noted photographer in the fashion and music worlds, doesn’t look at cars the way most people do, which is one of the reasons why Cadillac asked her to document the design process of the all-new Escalade.

“I’m obsessed with reflection,” de Wilde says during a one-on-one interview following the world debut of the 2015 Cadillac Escalade in New York. “I always have been.”

A music video she directed for the song “Old Enough,” by The Raconteurs, used eight giant mirrors in a forest to create a series of reflections of the band as they played. “You move them an inch and it reflects a whole different part of the forest,” de Wilde says.

She is intrigued by the images that emerge from the play of light on a variety of surfaces, whether mirrors, ponds, or the doors of an Escalade. “You see a mountain that’s over there, but somehow it’s reflecting in the side,” she says. “To me, the distortion of reality in the side of metal and mirrors is always fascinating.”

De Wilde brought that distortion to life in a series of photographs taken at a ranch in Lebec, Calif. They show the 2015 Cadillac Escalade in the arid environment next to a dazzling art installation of her own creation: two 12-foot-tall, house-like structures made of colored Plexiglass and mirrors.

She says the design of the vehicle, and the headlamps in particular, “totally fascinated” her.

Each headlamp on the new Escalade is bejeweled with 17 light emitting diodes. The tail lights, now twice as tall as before and similar in design to those on the CTS Sport Wagon, have 29 LEDs each.

“On their own, they were especially beautiful,” de Wilde said. “In trying to do something a little different, I wanted to figure out how to exaggerate the feeling you would get when you go up to the sculptures in the car.”

In that regard, the new Cadillac Escalade is a better muse than the version it replaces. Its sides have subtle undulations that catch the light, unlike the flat body panels of the current model.

This artful enhancement to the Escalade’s form is just one example of the evolution in Cadillac design aimed at elevating the status of the brand.

The company’s bold “Art & Science” motif, which debuted on the original Cadillac CTS sedan in 2002, has thus far relied on striking, angular forms to stand out from the competition—which it has done well.

But as with the Elmiraj, a concept car that Cadillac unveiled this summer to show where it is headed with future designs, the creases on the new Escalade seem less dominant visually than on previous models. One reason might be that the surface they are set against is more complex.

Cadillac commissioned photographer Autumn de Wilde to document the design process for the 2015 Escalade. She is standing in front of portraits she took of the craftspeople who helped create the prototypes of this new full-size SUV. (Credit: Cadillac)

“It still has those hard edges, it has to have that,” says Ed Welburn, vice president of global design for General Motors, Cadillac’s parent company, in an interview just after the reveal of the redesigned full-size SUV. “But between those edges is space to do a far more sophisticated surface. You see that in the Elmiraj concept. You see it in the new CTS as well. You see it in all of them.” (Read more about the Elmiraj here.)

Like previous Escalades, the new one shares technology with other full-size GM trucks, including the Chevrolet Tahoe and GMC Yukon. As you might expect from those truck ties, it retains a ruggedness uncommon for a luxury SUV these days.

Unlike others, which have traded their burly underpinnings for lighter, leaner ones, the 2015 Escalade is a true workhorse beneath all the chrome, wood and leather. It has a robust frame and a big V8 engine that produces 420 horsepower.

Cadillac revealed the 2015 Escalade to a crowd of young people and journalists in a converted industrial space in Manhattan. (Credit: Cadillac)

The engine in the 2015 Cadillac Escalade is part of a new generation of V8s that GM calls “Gen 5,” a version of which also powers the 2014 Chevrolet Corvette Stingray.

The Escalade’s 6.2-liter V8 is one of the most powerful in the lineup. It is not offered on the Chevy Tahoe. It is, however, offered on the top trim level of the GMC Yukon, called the Denali.

The new Escalade also gets an adjustable Magnetic Ride Control suspension system, which includes tour and sport modes. This feature was optional on the previous model and is now standard. It’s not offered on the Chevy Tahoe either, and is only available on the Yukon Denali, albeit without the tour and sport settings.

Despite having features other GM trucks don’t, the 2015 Cadillac Escalade still has a lot in common with them. But one key difference now is that it has a distinct style all its own, which wasn’t always the case.

When the original Escalade debuted in 1999, about the only thing setting it apart from the Chevy Tahoe and GMC Yukon was the front grille and the wheels. The subsequent two generations of the Escalade were spruced up a bit, but still looked largely the same as their Chevy and GMC counterparts.

Not anymore. The unique vertical headlights, now a Cadillac calling card, are stretched even taller on the new Escalade. The big chrome grille got even bigger. But it’s satin finished this time, which creates a softer effect than the bling-bling mirror finish of Escalades past.

“There’s very little brightened chrome on the exterior or interior of the vehicle. It’s more sophisticated, more refined,” says David Leone, executive chief engineer of GM performance luxury vehicles. This helps it look more contemporary, which is key to ensuring the new Escalade attracts younger buyers.

Just as crucial for Cadillac is elevating the level of luxury on the inside of the 2015 Escalade. The company has the Land Rover Range Rover in its competitive crosshairs—an ambitious target.

To that end, expect a much quieter ride. “We redesigned the whole cabin so the doors are now flushed into the body side,” which helps improve aerodynamics and reduce wind noise, says Jeff Luke, executive chief engineer for GM trucks. The doors are triple-sealed, too.

And, Luke adds, “We’ve got acoustic glass in the windshield and the front side doors, thicker glass in the rear, more insulation underneath the carpet and the front of the dash to block out noise underneath the vehicle.”

Luke is confident the new Escalade will be the quietest vehicle in its segment, beating even the Ranger Rover. “I’m excited about it,” he says.

Each headlight on the 2015 Cadillac Escalade has 17 LEDs. (Credit: Cadillac)

The 2015 Escalade also has a wider rear door opening for easier entry and egress. This addresses an issue customers had complained about. The cargo space improves as well, as the third row folds into the floor now, instead of stacking up on top of it like before. Both features greatly enhance the versatility of the new Escalade, be it the standard-length version or the extended ESV version, which is 20 inches longer.

Cadillac’s CUE system, which eschews traditional buttons and knobs, comes standard. This system operates via a large touchscreen on the center console with touch-sensitive controls underneath it. The company has taken flak over CUE, as have other automakers with similar newfangled systems. The critics say removing traditional controls overcomplicates the user experience inside the cabin.

The 2015 Cadillac Escalade features the company's new CUE system. (Credit: Cadillac)

But Leone says CUE, like an iPhone, just needs getting used to.

“I remember when I first got my iPhone,” he says. “I was not totally comfortable with it. I was cussing at it and everything else. But after you get to use it, you don’t want to go back to the hard keys and the hard knobs. I don’t ever want to see a Blackberry again. Same thing holds true here. It’s just got more capability.”

The setup in the new Escalade is improved over previous versions of CUE. “We’ve improved the response time in terms of when you touch the screen and your response occurs,” Leone says. “We’ve been able to take out about 25 percent of the delay that was there previously.”

As cool as all this new technology is—and the fact that Leone expects the new Escalade to get 10 percent better fuel economy in both city and highway driving—it’s the low-tech features on the interior that could hold sway over many consumers.

All of the Cadillac executives use the expression “cut and sew” frequently to describe the heightened craftsmanship on the 2015 Escalade’s interior. The leather smells good, the stitching is artful, and the wood trim has a deep luster that showcases the grain. There are even suede inserts on the door and dashboard.

Though all of these materials are put together on a modern production line, just like with every other GM vehicle, handcrafting is still very much a part of what goes on in the design studios, as de Wilde discovered during her photography project for Cadillac.

While working on the prototypes of the 2015 Cadillac Escalade, leather workers cut and stitched the hides. Wood workers used hand planes to shave down specially selected wood veneers. Sculptors created clay models of the exterior.

“I didn’t really understand how handmade the beginning of the process was, because, eventually, everything ends up going through a factory,” says de Wilde, who, besides doing a photo shoot of the new Escalade itself, also created artistic portraits of those who played a part in the vehicle’s development.

“I didn’t know anything about clay sculpting, I really didn’t know about all the different techniques they use to experiment with their design,” she says. “So that, to me, in any field is always fascinating.”

The Escalade’s coming-out party is a hip affair in the brick-walled space of a converted industrial building in lower Manhattan, complete with a live band performing. Off to the side, portraits of the craftspeople are on display, arranged as if at an art gallery.

De Wilde says she feels a kinship with the auto workers depicted in her large black-and-white photos.

Matthew Grubba (Left) and John Korpal are wood model makers in GM's design studio. (Credit: Autumn de Wilde)

“I think because I work in fashion too, and I work with designers, I get to watch and hear about the process that they use to tell their team of craftsmen how to bring something they design to life,” she says.

“It’s all, to me, the same process, in that there has to be somebody directing a team of very talented people, and if you don’t have that many talented people working, your vision just can’t come to life. I have the same thing when I work. I work alone sometimes, but most of the time I work with an incredibly talented team. So I guess I felt attached to making their abilities and their faces and their lives sort of flower on camera.”

Follow me on Twitter: @matthewdepaula

from Forbes.com: Most popular stories http://www.forbes.com/sites/matthewdepaula/2013/10/22/the-2015-cadillac-escalade-elevates-the-art-and-science-of-luxury-at-cadillac/

Food Stamp Cuts Spell More Bad News For Shoppers and Retailers

The reduction in food stamp allocations that takes effect today could have a big impact on

(Image credit: AFP/Getty Images via @daylife)

2013 Holiday sales.

An estimated 48 million Americans are on the government’s supplemental nutritional assistance program (SNAP) and benefits for a family of four will be reduced by $36 a month. Benefits were increased as part of the Recovery Act in 2009, but Congress allowed the increase to expire on Nov. 1.

It’s part of the endless bad news for retailers and shoppers. So much for the hopes of a healthy holiday season to help boost the economy.

Not only grocers that will take the hit. Walmart estimates it takes in about 18% of all food stamp expenditures, according to the Wall Street Journal . Add in all additional items bought and money spent, and the retailer is prepared to take a hit.

Both Walmart and Target lowered their sales forecasts for the remainder of the year, including the holiday season.

Shoppers on assistance are the most price sensitive and have the strictest budgets. Any time there’s a rise in gas prices, certain retail segments get squeezed. Discounters, dollar stores and convenience stores (including gas stations) all see sales decline.

Shoppers on assistance manage to make a few discretionary purchases, but that becomes much harder to do with fewer food stamps. Ever wonder who takes advantage of early layaway for the holidays at stores like Kmart? It’s largely the low-income shopper.

One side effect of this will be increased promotional activity, discounts, deals and coupons heading into the holiday season. Walmart already kicked off its holiday promotions Nov. 1 with “early bird” online sales offering what the retailer calls the best prices of the season, nearly a month in advance of Black Friday.

Target too, is planning to be aggressive on price this year, focusing more on discounts and deals than high-end designer partnerships.

More aggressive pricing from leading retailers like Walmart and Target will pressure others to follow suit. Combined with ongoing concerns about the debt ceiling and government shut down, recent increase in payroll taxes and now fewer dollars to families in SNAP, well… fasten your seat belts, it’s going to be a bumpy ride.

from Forbes.com: Most popular stories http://www.forbes.com/sites/lauraheller/2013/11/01/food-stamp-cuts-are-more-bad-news-for-shoppers-and-retailers/

Maybe Some Day We Will Yell For A Google Instead of A Taxi, KPMG Study Says

Google self-driving car; Google photo

Some day in the future when high-tech, self-driving cars are available, consumers may think of them as high-tech first and cars second, and look to buy them from high-tech companies instead of car companies.

That’s a takeaway from a thought-provoking study on self-driving cars from KPMG LLP, the audit, tax and advisory firm.

“The market is very open for new entrants like tech companies,” like Apple, Microsoft, Samsung, Google, Intel or others, said Gary Silberg, a KPMG partner and national industry leader, automotive.

Other key findings included what Silberg found to be the most appealing hypothetical customer benefits: shorter and more predictable commute times – predictability was an important benefit — plus the ability to “turn off” self-driving when desired.

So-called “mobility on demand” could be another important attraction, he said in a recent phone interview. That is, a pay-as-you-go setup as opposed to full-time ownership of a vehicle which after all is sitting around most of the time doing nothing, when you’re not using it.

The results are based on respondents in California, Chicago and New Jersey who were interviewed in focus groups in the late spring and early summer. It’s qualitative – a deep dive with a relatively small sample – as opposed to quantitative, like an online questionnaire with a big, nationwide sample.

In all regions, Silberg said, respondents rated the tech companies higher than automotive brands, even premium automotive brands, when it comes to developing self-driving cars.

“Why? This is all about software, connectivity, lasers – it’s all tech. And people think these companies know how to integrate all these technologies,” he said. “It’s not about the engine and the power of the car.”

Meanwhile Google for instance reportedly has logged more than half a million miles in self-driving mode in modified Toyota Prius models fitted out with its experimental self-driving technology.

Who knows? Google says it’s just experimenting with self-driving in a high-level, Looking at Big World Problems sort of way, and not for any specific outcome, much less with any idea of getting in the car business.

But if some day Google ever decided to build its own self-driving car, “Google it,” could mean getting from Point A to Point B, instead of looking something up.

from Forbes.com: Most popular stories http://www.forbes.com/sites/jimhenry/2013/10/31/maybe-some-day-we-will-yell-for-a-google-instead-of-a-taxi-kpmg-study-says/

Surviving In The Freelance Economy

Self Employment Tax Form - Schedule SE (Photo credit: Philip Taylor PT)

Six years ago, I took the plunge and went freelance. It was a radical decision. I’d been an employee for virtually all of my career. My self-employed husband and I had three small children at the time. We had a mortgage to pay and no way to get health insurance aside from buying it ourselves.

Our experiment worked out, and I have no regrets. Freelancing isn’t an easy lifestyle or a route to boundless wealth, but it allows something that traditional careers don’t: Control of your time. Now it’s hard to imagine wanting to sell the bulk of my waking hours to a corporation in exchange for a salary, as I once did in traditional jobs. It was a relief to know today that I didn’t have to explain to a boss that I needed to take the late afternoon off to bring our now four children trick or treating for Halloween. I could just do it, no questions asked. I can’t imagine going back to having to get permission from someone else. That’ s not to say I didn’t have to plan my time so I could take some time off. I had to get up in the early morning darkness to work before waking my kids for breakfast so I could make it happen. Still, everything was my choice, not someone else’s decision.

If the government can iron out the technical problems slowing the health reform, more people may feel free to consider self-employment and the freedoms it brings because they’ll have the assurance of knowing they can somehow buy health insurance. If you’re among them, here are some suggestions for getting started.

Adopt the millionaire-next-door mindset. Starting a business requires you to think differently about your finances than many W-2 employees do. Live about 30% below your means, when it comes to choosing a place to live, the car you drive, the clothes you wear and other purchases, so you always have strong cash reserves. That will cushion you against slow payments from customers. It’ll also give you the freedom to go after work you find meaningful and say no to projects you’d rather not do. This is easier advice to give than to follow. Surrounding yourself with people who prioritize things other than money–whether it’s their kids, their rock band, their volunteer work, or something else–will help.

Look at other freelancers as your friends–not competitors. All of the lucky breaks in building my business came via referrals from other people who do the same kind of work I do. I try to help them as much as I can, too. Is it possible that I might lose an opportunity to one of them at some point–or vice versa? Sure. But how much work can any one person do, anyway? As more companies outsource work once done internally by full-time employees, I’m more likely to find myself teaming up with other folks in my niche than competing against them for work.

Never think like a short-timer. Although your responsibility to each client generally ends when the project is over, try to look at each job the way you would if you were an employee whose career was depending on it. Get the job done right, even if the time involved makes it a little unprofitable for you. Because of the type of work I do, I hire freelancers and get hired as one. When I’m the one doing the hiring, I never forget if a freelancer goes above and beyond to get a job done well.

Recognize that you are running a business–and embrace it. Like most writers, I didn’t go into my field because I enjoy learning things like how to use cloud-based accounting software. But, having seen many freelancers give up on self employment because they were disorganized about the business side of things, I force myself to tackle a big task like this every four or five months. The more disciplined you are about things like keeping invoices organized, the freer you are to spend time really digging into the projects you love. Isn’t that why you went into business for yourself in the first place?

from Forbes.com: Most popular stories http://www.forbes.com/sites/elainepofeldt/2013/10/31/surviving-in-the-freelance-economy/

WWE's Hidden Gem

Professional sports leagues and college conferences have been getting rich television deals during the past few years. Chris Bevilacqua says the next winner will be World Wrestling Entertainment, whose television deals soon expire.

Based on WWE’s big live viewership, favorable demographics and big social media following, it could see its broadcasting revenue, currently $140 million, triple with its next deal.

WWE currently generates over 300 gross rating points per year combined with RAW and SmackDown. There are 50 million U.S. television households with at least one WWE fan, and of the 97 million active WWE fans 41% are males age 18-34.WWE regi;ar;u ramls as one of the top 15 “most talked about” brands on Facebook.

Potential bidders for WWE’s next media deal: Fox Sports 1 (which already showcases the UFC, NBC Sports Network, or perhaps even Netflix or Google, who are both entertaining the idea of sports content.

Bevilacqua dishes his analysis in the video below during a recent edition of the YES Network’s Forbes SportsMoney, with co-host Bob Lorenz and myself.

from Forbes.com: Most popular stories http://www.forbes.com/sites/mikeozanian/2013/11/01/wwes-hidden-gem/

Avon Credit Default Swap Protection Costs Surge As Ground Forces Flee Amid Revamp

Avon Products’ hold on investment-grade funding status grew shakier this week after the company yesterday posted another quarter of sliding sales and profits.

The New York City-based beauty products company, which has seen widening credit spreads of late, also continues to face potentially crippling penalties related to legacy issues involving violations overseas under the Foreign Corrupt Practices Act. Earlier this year, Avon paid one of the highest coupon rates by an investment-grade borrower to lock in long-dated funds.

Avon debt securities generally changed hands late yesterday and today 20-30 bps wider since its third-quarter results results hit the tape yesterday, including trades in its 6.5% March 2019 issue today at T+280, from T+250 on Monday, according to trade data published by MarketAxess.

Under bond index criteria, Avon unsecured debt would shift to the junk category if two of its three ratings fell below the investment-grade threshold, which would force many accounts to dump the securities under portfolio credit-quality restrictions. The current split-rated profile (BBB-/Baa2/BB+) already includes a negative outlook on S&P’s BBB- rating, and Moody’s today placed the Baa2 ratings on review for downgrade to reflect both operational trends and the compliance issues.

Five-year CDS referencing Avon debt reached 215 bps this morning, up more than 41% over the last week, from levels near 150 bps, according to data provider Markit.

Despite pockets of strength across its Latin America and Europe, Middle East and Africa segments, net sales fell 8% in the latest quarter and were down 5% for the year to date through September. Total revenues and gross profits on a moving 12-month basis have declined year over year for six straight quarters, filings show.

S&P this summer noted that negative revenue trends were prominent among metrics that could trigger a ratings downgrade, while also saying that encouraging growth in Avon’s much-touted Brazil market “remains tenuous,” given an intensely competitive environment there.

“It was a tough quarter,” said Avon CEO Sheri McCoy on an earnings conference call yesterday. “Working at turnaround is not a linear process. And as we said to you on our last call, we knew that the third quarter would be challenging. Given our sales performance, it’s clear that it was tougher than we anticipated.”

While Avon has had some success in culling costs – including a 4.5% drop in cost of goods and a 6% reduction in other operating expenses over the latest 12 months from levels two years earlier – savings have not come without brutal disruptions across its traditional direct-selling business.

Most glaring in recent quarters is the New York-based company’s bone-thin ground force in the U.S. and Canada. The company’s base of active representatives in North America shriveled by 16% year to year in the latest quarter, leading to a 19% year-over-year plunge in regional revenues and negative operating margins, according to the company.

Avon’s field representatives have thrown in the towel in droves since the company launched its transformational “One Simple Sales Model” initiative in 2011, which involved slashing district sales manager positions and reassigning existing representatives.

“In the process of reducing the number of district managers and reassigning representatives, we broke some critical relationships, and as you know, direct sales is a relationship business,” McCoy admitted yesterday on the conference call, according to transcripts. She added that Avon’s recruiting engine “fell apart” as the disruptive program was rolled out.

Avon also faces ongoing viability concerns under potentially massive settlements with the Securities and Exchange Commission (SEC) and U.S. Department of Justice (DOJ) related to violations under the Foreign Corrupt Practices Act in China and other countries. After Avon proposed settlements following an internal investigation, the SEC in September countered with an undisclosed settlement that Avon said yesterday was a “of a magnitude significantly greater than our earlier offer.”

Avon said that if the DOJ’s offer proves to be comparable to the SEC’s, the proposed settlements would mean that Avon’s “earnings, cash flows, liquidity, financial condition and ongoing business would be materially adversely impacted.” Scenarios are equally ominous if settlement talks break down and the government resorts to rounds of litigation, Avon said.

Negative operating and regulatory developments have removed the luster in the credit markets from Avon’s deleveraging strategy over the past year. In March, Avon placed $1.5 billion of new long-term debt to back an array of refinancing efforts, including funding current debt while repaying three private debt issues with restrictive covenants, dated 2015, 2020, and 2022, in a refinancing package encompassing roughly $1.9 billion of debt.

The company this summer announced the sale of its Silpada jewelry business for $85 million, providing cash for additional debt reduction from a base of roughly $2.9 billion of total debt at the end of June.



With operating cash flow generation the weakest in six years over the last 12 months, Avon leaned on its cash position to supplement those debt repayments. Cash eroded to $808 million in September from roughly $1.5 billion at the end of the first quarter this year, to represent the thinnest balance dating to 2004, according to S&P Capital IQ. Liquidity is backstopped by a $1 billion, four-year revolver entered into in the first quarter.

Reflecting investor unease over Avon’s credit quality, investors in those new debt issues placed in March would be compensated in the event of downgrades, under coupon step-up provisions that tack 25 bps to the interest rate for each notch downgrade by Moody’s or S&P below the investment-grade threshold, up to a combined 200 bps, according to regulatory filings.

But pro-investor bells and whistles in the indenture didn’t keep Avon from paying up dearly for new long-dated funds: holders of the Avon 6.95% bonds due 2043 already had exposure to the second-highest coupon rate for a high-grade, long-bond issue this year or last, according to LCD. – John Atkins

from Forbes.com: Most popular stories http://www.forbes.com/sites/spleverage/2013/11/01/avon-credit-default-swap-protection-costs-surge-as-ground-forces-flee-amid-revamp/