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March 01, 2011

Cover Story

Direct Selling’s Billion-Dollar Markets

by Katherine B. Ponder


Click here to order the Direct Selling News issue in which this article appeared.


Direct Selling NewsThe story of direct selling in 2009 and 2010 is much the same as it was worldwide for all industries. Developing nations continued to rise, and China and India were standouts for significant growth. More people were clamoring for additional income opportunities, but overall direct sales numbers were generally lower than they were a few years ago. In short, less was more around the world.

In Asia-Pacific, for example, sales based on 2009 data were $49 billion, produced collectively by 13 nations. This regional total eclipsed figures for the North America region—Canada and the United States—which produced a combined tally of $29.5 billion. In Europe/Africa, the entire region’s output was $20 billion among the 33 countries. The 15 nations in the Latin American region totaled $18 billion. When you put it all together, global sales totals for direct selling was an impressive $117 billion.

Beyond the numbers, though, direct selling offered a safety net to cushion the economic crisis that hit worldwide. “[People] turn to direct selling because this is a great way that they can earn supplemental income, and work on a part-time basis, often in addition to another job they may have,” says Amy Robinson, U.S. DSA Vice President of Communications and Media Relations. “We have seen over the past year a definite increase in people who are joining direct selling companies.” The network of global direct selling also helped deliver more opportunities to up-and-comers in developing nations.

Our year-end counts show changes among those countries with more than $1 billion in sales. For the first time, we have 20 nations that have achieved the ten-plus digit mark. Australia, Venezuela and India are all new to the list; China has moved up one place; the United States managed to hold on to first place despite lower sales; and Japan is closing the gap at the No. 2 spot.

We based our findings on statistics reported by the World Federation of Direct Selling Associations (WFDSA), interviews with local Direct Selling Associations (DSAs) and third-party reporting. When we encountered discrepancies we, in most cases, defaulted to the WFDSA data. The intent of this article is to tell a story about the cumulative impact of the direct selling way of doing business in key markets around the world. It is virtually impossible to ensure statistical accuracy when approaching a project of this nature, as there is no single source that tracks individual company performance in all key markets.

Market Estimated 2009       Sales (US$ in billions) Previous Ranking 2008 Sales (US$ in billions) No. Salespeople (2009) No. Salespeople (2008)

1. United States

28.3

1

29.6

16,100,000 15,100,000

2. Japan

22.4

2

22.8†

2,700,000

2,700,000

3. Brazil

13.5

3

10.0

2,377,336

2,028,098

4. China

10.9

5

8.00

not available

>32,000,000

5. South Korea

7.84

6

7.00

3,987,933

3,089,158

6. Mexico

4.83

7

4.40

2,000,000

1,900,000

7. Germany

3.76

4

9.00‡

460,000

778,000

8. Italy

3.36

9

3.36

390,955

366,000

9. Russia

3.06

10

2.87

4,995,508

4,413,918

10. France

2.41

11

2.40‡

265,000

242,000

11. United Kingdom

2.1

8

3.56‡

400,000

419,500‡

12. Taiwan

1.7

12

1.64

4,442,000

4,111,000

13. Thailand

1.56

13

1.59

10,000,000

5,400,000

14. Canada

1.3

15

1.18

644,455

608,000

15. Colombia

1.26

14

1.50

900,000

867,000

16. Australia

1.25

*

.844

500,000

*

17. Argentina

1.15

16

1.17

731,122

714,000

18. Malaysia

1.13

17

1.03†

4,000,000

4,000,000

19. Venezuela

1.12

*

.887†

565,000

*

20. India

1.06

*

.586

2,012,940

*

NOTE: All figures provided by the WFDSA. All sales numbers are retail figures. *Not ranked in our 2010 list as having more than US$1 billion in sales. †2006 figures  ‡2007 figures.

 

1. United States—$28.3 billion

With $28.3 billion in sales for 2009, U.S. direct selling was down almost 4.4 percent from 2008. “U.S. direct sales declined, but retailing as a whole declined 7.3 percent over the same period,” says U.S. DSA President Neil Offen. “In addition, recruiting rises as unemployment increases, with a natural drop in productivity and a counterintuitive loss of more productive members of our salesforces. But the increase in our field count will show increased sales and profits as the economy rebounds, as it has over the three previous recessions. Our 2009 versus 2008 salesforce grew incrementally by slightly more than 1 million distributors, from 15.1 million to 16.1 million.”

Expectations are that year-end results for 2010 will show a continuation of the trend: increase in salesforce numbers but generally flat or slightly negative sales. Looking forward to 2011, analysts expect that those who entered the direct selling arena as a way to make up for lost income will remain active even as the economy recovers. That trend will likely lead to higher sales for the year.

Top-selling product categories have home/family care/home durables at 23.9 percent of the market, wellness at 22.8 percent, personal care a very close third at 21.3 percent, services at 18.4 percent of sales, clothing and accessories at 10.3 percent, and leisure or educational products at 3.3 percent.
Growth in the DSA continues, as the number of those willing to become entrepreneurs takes a jump. Fifty-five new companies applied for DSA membership, and eight of those were accepted. By the end of 2010, there were 202 companies active in the DSA.

2. Japan—$22.4 billion

Direct selling in Japan has literally had its ups and downs in recent years. Between 2006 (the previous reported timeframe from WFDSA) and 2009, it lost approximately $400 million in sales. When you’re the No. 2 nation in the industry, this looks relatively small. But Japan’s economic recession has been every bit as bad as that in the United States, and economic problems began long before 2007. Government economic stimulus spending helped to move things along in late 2009 and 2010, but officials are now warning that growth will slow in 2011. The Japanese Direct Selling Association is remaining upbeat but is avoiding predictions of significant growth.

It has been too much for some direct sellers. Avon announced in November 2010 that it was selling its Japanese business. The company couldn’t justify continuing corporate support. During the November announcement, Andrea Jung, Avon’s Chairman and Chief Executive Officer, said, “While Japan is an important consumer market, our analysis indicates that we would need to commit significant additional investment in order to generate profitable growth in the near to intermediate term.”

On the other hand, some companies have stuck it out in Japan and are seeing an uptick. After bleak Japanese sales in 2009, Tupperware saw good news in the country this past year. In announcing the company’s third-quarter 2010 results, the corporation celebrated, “… double-digit growth in Tupperware Japan. Profit was up 36 percent in local currency (up 27 percent reported). Total salesforce was up 25 percent at the end of the third quarter, and the active salesforce was up 24 percent in the quarter.” Amway, too, is still counting Japan among its international markets and is even investing in iPhone apps to make ordering very convenient for Japanese customers in 2011.

3. Brazil—$13.5 billion

The direct selling industry in Brazil also had a difficult year in 2009. WFDSA figures show that annual sales fell almost $2 billion from $10 billion in 2008. The national DSA, Associacao Brasileira de Empresas de Vendas Diretas (ABEVD), however, remains bullish on its members’ performance. According to ABEVD’s figures, sales actually rose 18.4 percent from 2008 to 2009.

The ABEVD has 48 direct selling members, including Brazil-based Natura. Many of its members are the big-name multinationals known throughout the United States. They are committed to the industry, following the code of ethics and staying in business for the long term. More Brazilians found their way into business by becoming direct sellers, for a total of 2.37 million salesforce members in 2009.

Top sellers in the nation are personal care with 88 percent of sales, nutritional supplements with 6 percent, home care with 5 percent and other services accounting for 1 percent.

“In a year of adversity for most sectors of the economy, the direct sales opportunity generated income for 2.3 million people who went to fight and made the industry move billions of dollars, and helped the country in raising taxes,” says Lily Cipriani, President of the ABEVD.

4. China—$10.9 billion

China continues to be a tantalizing yet elusive market for direct selling companies. Its sales in the industry grew by almost $3 billion between 2008 and 2009, proving that companies are operating successfully within its borders. Many are founded in China; yet for multinational companies, the market remains a challenge.

Chinese DSAs offer part of the picture, but, because the industry is more loosely organized here than in established markets, it is not the definitive measure. For example, the Direct Selling Association of Hong Kong counts eight member companies on its roster: Amway Hong Kong, Best World Lifestyle, Infinitus, Herbalife, Mary Kay, Nu Life, Nu Skin and USANA. These companies enrolled more than 178,800 distributors in 2009. While they had strong sales results, it was only part of the grand tally of more than $10 billion.

China closed its doors to direct selling in 1998 and began slowly opening again in 2006. There are many regulations on companies that want to enter the market—many find it almost too challenging. Some follow the path that Syntec Nutraceuticals is treading: open physical retail stores first and then gradually empower salesforce members to go beyond the walls, selling to friends and family, once they are awarded a direct selling license. The very first company to be given a direct selling license in 2006 was Avon. The cosmetics giant has even had its challenges in China, as evidenced by a 31 percent sales loss in the third quarter of 2010.

As companies prove themselves adept at complying with Chinese laws and regulations, they are setting the stage for greater things. Nu Skin, for example, was granted permission by the Chinese Ministry of Commerce to sell in some of the country’s largest cities in Guangdong province and Shenzen city. Nu Skin President and CEO Truman Hunt has long believed that the ability to expand the direct selling model to those in Guangdong province will have a positive influence in the China market.

All eyes are on the explosive growth in China, with analysts taking bets on when it will surpass the United States and Japan. Direct selling’s role in that growth remains to be seen.

5. South Korea—$7.84 billion

In South Korea, when the doorbell rings, it could very likely be your friendly neighborhood direct seller. The country moved up one notch in our international rankings by gaining $840 million in sales in 2009, according to WFDSA.

Hong Joon-Kee, Chairman of Korea DSA and CEO of Woongjin Coway Co. Ltd, attributes much of the growth to that doorway traffic. “Both door-to-door sales and MLM were doing well. Especially increasing the rate of sales, volume of door-to-door sales was higher than MLM (door-to-door sales 16.5 percent, MLM 11.6 percent).”

The industry has approximately four million distributors and 64 members in the Korean DSA. Research shows that one-sixth of the population has been involved with direct selling at some point in their lives. The largest company in KDSA is Joon-Kee’s own Woongjin Coway, which is “a domestic eco-friendly leader in lifestyle commodities like water purifiers, air cleaners, bidets and so on.” Amway Korea has the largest salesforce, with 920,000 distributors.

Indications for 2010 final sales figures are that South Korea will hit $9 billion. The 2011 forecast for the industry is to parallel the national economy by growing 4 to 5 percent.

“Global companies like Herbalife Korea, Nu Skin Enterprises Korea and Amway Korea are booming,” says Joon-Kee. “The Korean direct selling market is one of the largest markets around the world.”

6. Mexico—$4.83 billion

Mexico rose one place in our annual list by gaining approximately $430 million in sales from 2008 to 2009. It was an increase made even more remarkable because it came during troubled economic times.

The Asociacion Mexicana de Ventas Directas (AMVD) closely tracks the activities and success of its 39 member companies. AMVD estimates that these companies account for 85 percent of the industry’s sales in the country, with growth of almost 6 percent from 2008 to 2009. (This growth is even despite the fact that Mexico’s GDP plunged 6.5 percent in 2009.) AMVD member companies sell everything from beauty products, which have mastered 41 percent of the market, to dietary supplements, footwear, fashion, home items and miscellaneous products.

Mexico had economic troubles just like its neighbors in 2009, but national GDP growth increased 5 percent in 2010. Many direct selling companies also expect to post strong year-end results for 2010. Third-quarter results for Avon in Mexico were reported as having “very healthy increases,” and the market will see Mannatech launching early in 2011.

AMVD President and Amway Mexico Director Jesus Alvarez has been in the market for almost 20 years. He notes that his company and others have had to adjust to consumer needs and changing economic and social priorities. “The business has changed in terms of product offerings, the concept and the approach. We have tailored our prices to the Latino market, keeping our quality and plan compensation consistent.”