August 01, 2017
Billion Dollar Markets and Beyond
by Beth Douglass Silcox
Sustained Growth Expands Global Direct Sales $25.7 Billion In 4 Years
While direct selling is a niche channel for distributing goods and services, each year more and more companies are discovering the power that can be unleashed through an independent salesforce tapping into personal networks. Where door-to-door sales and in-home parties fueled the growth in direct selling generations ago, today’s direct selling is often more high-tech and, as you might expect, growing faster into new markets as a result. In fact, in 2016, the channel generated retail sales of $1 billion or more in 23 countries.
In 2016, global direct selling generated $182.6 billion dollars retail sales, a 1.9 percent increase over 2015, as well as 5.2 percent three-year compound annual growth rate (CAGR) for the period from 2013-2016 with sustained growth in all regions. This is according to research by the World Federation of Direct Selling Associations, its partner DSAs and participating companies around the world.
WFDSA’s 2016 research showed direct selling increased total retail sales by $25.7 billion in just four years. There were strides forward with sales in most country markets outpacing 2015’s growth, but the year was not without struggle in New Zealand, Hong Kong, and Greece. Billion Dollar Markets were not immune, as France experienced flat-line retail sales and the U.S. saw a 1.6 percent pullback.
But the global direct selling channel witnessed a remarkable sight in 2016 with an important first. The emerging regional market on the African continent crossed the billion-dollar retail sales threshold, as a result of rocketing South African growth of 18 percent.
“Over 107 million independent representatives are involved in direct selling, up 3.1 percent,” says Tamuna Gabilaia, WFDSA’s Executive Director and Chief Operating Officer. “We can see that people all over the world are increasingly interested in getting into business for themselves, and we anticipate we will continue our growth pattern and will remain a vibrant industry bringing economic empowerment to people all around the globe.”
Direct Selling in the Americas
The Americas—the combined markets of North America and South/Central America—ended 2016 up 1.1 percent with retail sales of $60.9 billion and 2013-2016 CAGR of 3.3 percent. The Americas comprise 33.4 percent of global retail sales and are represented by seven Billion Dollar Markets. Cosmetics/Personal Care products are most popular (33.5 percent) with Wellness ranking second (29.6 percent). There are 36.0 million independent representatives.
Americas 2016 Billion Dollar Markets
No. 1 United States (down 1.6%)
No. 6 Brazil (down .1%)
No. 7 Mexico (up 3.7%)
No. 14 Colombia (up 5.6%)
No. 16 Canada (up 5.8%)
No. 17 Argentina (up 41.2%) *
No. 18 Peru (up 7.1%)
* Argentina is a highly inflationary market. As of April 2017, the IMF forecasts inflation of 26% for 2017, but a real increase in the economy of 2%. That GDP in constant prices will increase 2%.
While North America and South/Central America are reported together for regional purposes, they are unique marketplaces in terms of cultural characteristics, product popularity and growth.
After four years of sustained growth, South/Central America recorded an increase of 5.1 percent in 2016 and retail sales of $23.4 billion. These sales make up 12.8 percent of the global direct selling marketplace and there are five Billion Dollar Markets: Brazil, Mexico, Colombia, Argentina and Peru.
Product category research showed gains of 9.3 percentage points for Wellness since 2013. Wellness products strengthened their position and reported in at 21 percent of the market, while Cosmetics/Personal Care still comprised 60.9 percent.
North America—the Billion Dollar Markets of the United States and Canada—represented 20.5 percent of global retail sales and generated $37.5 billion in retail sales in 2016, but that was a pullback of 1.3 percent. In this marketplace, Wellness products made up roughly one-third of product sales with Cosmetics/Personal Care at 17.4 percent. There are 21.8 million independent representatives.
North America’s slip of 1.3 percent was predicated on a 1.6 percent downturn in the U.S. market. Joseph Mariano, President of the U.S. DSA, reasoned that flat-line performance of a few large American direct selling companies, a transitioning retail industry, and the recalibration of U.S. companies to identify their ultimate consumer, combined for this result. Politically charged immigration issues, Mariano says, could also be in the mix.
Regardless of the pullback, the United States generated $35.5 billion in retail sales, the second largest producing year on record. The U.S. comprised 19.5 percent of global retail sales and ranked first of 2016’s Billion Dollar Markets. The 2016 result showed modest growth (1.5 percent) of the 20.5 million U.S. independent representative base, as opposed to 11 percent in 2015.
The socio economic impact of direct selling in the U.S. was estimated at $83.11 billion in 2016, according to study findings presented at the 2017 DSA Annual Meeting in June by Dr. Robert A. Peterson, John T. Stuart III centennial chair in business administration, Charles Hurwitz fellow, IC2 Institute, University of Texas Austin.
“It’s clear direct selling has a huge impact across the country,” Mariano says. “Even with relative minor fluctuations (like 2016), we have a huge impact. It’s also clear, as it has been for many years, we are still a relatively small percentage of total retail in the United States. So we have potential for tremendous growth.”
Asia-Pacific’s Heavy Hitters
After an 11.1 percent increase in total retail sales for 2015, Asia-Pacific growth slowed in 2016 and rose 1.1 percent with total retail sales reported at $83.7 billion. That totals 45.9 percent of global sales. Asia-Pacific’s CAGR between 2013-2016, however, was the highest of all direct selling regions at 6.7 percent.
Wellness products comprised 42 percent of sales and Cosmetics/Personal Care 26.3 percent in 2016. There are 53.4 million independent representatives, up 4.4 percent, and 10 Billion Dollar Markets.
Asia-Pacific 2016 Billion Dollar Markets
No. 2 China (up 1.9%)
No. 3 Korea (up 3.8%)
No. 5 Japan (down 6.2%)
No. 8 Malaysia (up 1.2%)
No. 11 Taiwan (up 9.8%)
No. 13 Thailand (up 1%)
No. 19 Philippines (up 5%)
No. 20 Australia (up 8%)
No. 21 Indonesia (up 10%)
No. 22 India (up 4.2%)
Segmenting Direct Selling’s SalesForce in the U.S.
Seeking a clearer picture of the direct selling salesforce, U.S. DSA and WFDSA embarked on new research to characterize the motivations of people involved in direct selling. U.S. DSA President Joseph Mariano says the channel became increasingly aware of the need to quantify and qualify who was involved in direct selling. Delineation on a company-by-company basis could be important to investors, regulators, and members of the public trying to better understand a particular company. “Our lack
Seeking a clearer picture of the direct selling salesforce, U.S. DSA and WFDSA embarked on new research to characterize the motivations of people involved in direct selling. U.S. DSA President Joseph Mariano says the channel became increasingly aware of the need to quantify and qualify who was involved in direct selling.
Delineation on a company-by-company basis could be important to investors, regulators, and members of the public trying to better understand a particular company. “Our lack
About the Research
This collaborative, global effort of the World Federation of Direct Selling Associations, Seldia (The European Direct Selling Association), local direct selling associations and their member companies, depicts the state of the global direct selling channel for 2016. Compiled annually, it is a collection of individual market data in local currency figures, which are then converted into U.S. dollars using current year exchange rates to eliminate currency fluctuation impact. In some markets, sales are estimated until the respective country submits actual figures to the WFDSA, often based on official governmental reports due later in the calendar year. At that time, actual data is used to restate the estimates and report the next year. The statistics presented expire in June 2018.
China’s Advantage Despite Economic Change
China’s significance within the direct selling channel cannot be understated. Since 2013, the Chinese market increased retail sales by $10.3 billion. 2016 retail sales figures in China stand at $33.9 billion, and the market comprised 18.6 percent of global sales.
Predictions foresaw China usurping the United States’ grip on the No. 1 Billion Dollar Market slot in 2016, but China’s market growth slowed to 1.9 percent after three consecutive years of retail sales growth above 18 percent.
China’s economy is changing, and its path to becoming the No. 1 Billion Dollar Market is unclear. According to the International Monetary Fund, China’s 2016 GDP growth was approximately 6.7 percent, down from 7.5 percent in 2013. By 2020, some project a fall to 5.9 percent. At the same time, the Chinese government is no longer expected to double licensures of direct selling companies as it did between 2014 and 2016, when the rate rose from 40 to 80.
These factors, combined with China’s overall unique brand of direct selling and a regulatory network like no other in the world, present some uncertainty. But its sheer size and the government’s remarkable 5-7 percent GDP economic goals signal opportunity for Chinese startups and international companies granted licensure to operate, according to U.S. DSA’s Mariano.
“I think the direct selling model, as it’s been embraced by China, owes its legacy to what has happened in the rest of the world,” he says. “They have welcomed the growth of direct selling, both Chinese companies as well as non-Chinese companies, in recent years. They have reached out to us and others, in terms of the model and how the model works and how it works in terms of self-regulation and business ethics.”
There’s little doubt China’s economy and direct selling market will grow, which is advantageous not only to China but also to the global direct selling industry.
WFDSA data showed minimal shifting within the ranks of Asia-Pacific’s Billion Dollar Markets. Malaysia raised one slot from No. 9 to No. 8 in 2016, as did Indonesia from No. 22 to No. 21 and Australia from No. 21 to No. 20. However, India slipped from No. 20 to No. 22. All other markets retained 2015’s rankings.
Dubai, United Arab Emirates
The two distinctive European markets—Western Europe and Central/Eastern Europe—comprised the third largest 2016 direct selling regional market globally with 20 percent of retail sales, $36.5 billion. Statistics show steady growth since 2013 with three-year CAGR at 4.9 percent. The European Region contains six Billion Dollar Markets and 14.9 million independent representatives. For the second year, Wellness products were the top product category (32.4 percent) followed by Cosmetics/Personal Care (25 percent).
Europe 2016 Billion Dollar Markets
No. 4 Germany (up 4.3%)
No. 9 France (down 0.7%)
No. 10 United Kingdom (up 7.5%)
No. 12 Italy (up 5.5%)
No. 15 Russia (up 11.1%)
No. 23 Poland (up 5.2%)
“We are pleased to see that the European market has remained stable over the last few years. In fact, direct selling is growing at the same rate as general retail in Europe (3 percent), and the vast majority of European markets reported growth in 2016 compared to 2015,” says Katarina Molin, Executive Director at Seldia (The European Direct Selling Association).
Western Europe’s mature regional marketplace comprised 16.7 percent of the world’s direct selling market on its own. Regional Billion Dollar Market leaders included France, Germany, Italy and the United Kingdom. Despite France’s flat performance in 2016 with retail sales of $4.6 billion, it remained second only to Germany, which reported a 4.3 percent increase with retail sales at $15.9 billion. Germany alone comprises 8.7 percent of global sales.
Brexit worries had no visible effect on direct selling in the European region; however, Seldia will monitor Brexit negotiations closely. A weakening of the British pound, as well as various industry sectors rethinking the viability of headquartering European operations in the United Kingdom post-Brexit, have occurred, but Molin expects more concrete retail trade implications—including possible tariffs—to come after the U.K.’s expected exit from the European Union in March 2019.
A breakdown of European regional statistics indicated Western European sales ($30.5 billion) were five times that of its Eastern/Central European counterpart ($6.1 billion). However, growth in Western Europe slowed (4.1 percent) in 2016, while Eastern/Central jumped to 8.2 percent, a rise of 6 percentage points in one year after steady growth since 2013. This was a continued trend caused in part by Eastern Europe’s need and desire to generate additional income, as well as cultural differences in the approach to direct selling.
Leading the way in Eastern/Central Europe were two Billion Dollar Markets: Russia, which experienced one-year growth of 11.1 percent after losing ground in 2015 (-5.5 percent) and Poland that reported 5.2 percent growth in 2016 after increasing 7.0 percent in 2015.
Molin says in Poland, ample room exists for new companies and products to succeed. “Poland is a strong market for direct selling, if only because of its sheer size, the growing purchasing power of the population and the enterprising spirit of many people, especially the young,” she says.
Some emerging Eastern/Central European markets to watch are Romania (up 11.9 percent), Turkey (up 10 percent) and Ukraine (up 27.7 percent, 2015; up, 4.2 percent, 2016).
Serengeti National Park, Tanzania, Africa
Emerging Regions: Africa and The Middle East
Direct selling provides opportunities around the world, not only in advanced regions, but also in emerging ones. This held true in 2016. According to WFDSA research, more than 8 in 10 people live in the world’s emerging markets (85 percent) and they subsist on just 4 in 10 global GDP dollars (39 percent).
2016’s data showed continued improvement and growing balance between emerging and advanced direct selling markets. Since 2012, emerging market sales share shifted from 35.7 percent to 41.7 percent in 2016. These emerging regions comprised just 1 percent of world sales share. But a great deal happened in emerging markets in 2016. The whole of Africa crossed the Billion Dollar threshold and experienced 9.8 percent growth with retail sales of $1.1 billion. South Africa emerged strong with an 18.3 percent one-year jump in retail sales, thanks to an aggressive public awareness campaign by the Direct Selling Association of South Africa.
Ernest du Toit, Chairman at DSA of South Africa, says the association educated the public on feasible business opportunities, high-quality products and customized training programs offered by member companies. The DSA also highlighted the differences between compensation plans of member companies and those of pyramid and ponzi schemes. The DSA’s campaign bolstered public confidence in member companies and acknowledged them as agents of positive change.
“This campaign—together with focus by member companies on the consumption of their products and services, targeted marketing initiatives, and consistent and effective training programs—has contributed to the 18 percent sales growth in South Africa,” du Toit says. Member companies across the continent of Africa, both local and entities of international companies, enjoyed a 9.8 percent sales growth in 2016. There are just over 2.2 million independent representatives across the continent of Africa, where Wellness leads in product category.