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March 01, 2011

Cover Story

Direct Selling’s Billion-Dollar Markets

by Katherine B. Ponder

7. Germany—$3.76 billion

Germany fell from No. 4 on our previous list, with sales decreasing from $9 billion in 2007 to less than $4 billion in 2009. The decrease from 2008 figures, as supplied by the Bundesverband Direktvertrieb Deutschland e.V, however, isn’t as drastic. “Compared to 2008 numbers, member companies’ turnover fell slowly by 1.3 percent,” says Wolfgang Bohle, Secretary General of BDD, the oldest direct selling agency in Germany. “This little fall probably results from restructuring processes within some companies. In general, the state of direct selling in Germany is good, and businesses are optimistic about the future.”

This is a prognostication supported by Christel Frank, Representative of UVDV Germany, the second-largest direct selling organization in the country: “Germany is by far still No. 1 in Europe and in the Top 10 world markets.” She says she expects 2010 results to be “very positive and growing, versus 2009.”

Looking at trends from 2010, Frank notes an increase in the number of new companies as well as more hybrid party plans. Bohle points out the success of direct selling as an emotional buying or selling experience, where people enjoy consulting along with their purchases. He adds, “Direct selling is above all feminine. Since the labor force participation rate of women increased in the past, women have more income at their personal disposal. Employed women are not only going to have more buying power, they are also explicitly more open toward modern forms of shopping like the Internet and direct selling.” Both Bohle and Frank also saw that health and wellness products are the most popular categories in Germany.

For 2011, the industry will face specific challenges. First, Bohle says that it must nurture a positive public image to help with recruitment. He believes innovation in products and selling would benefit the market; and the industry must address the impact of the Internet—its social media and Web 2.0 applications—for consumers to share information. Beyond this, Bohle says, “It will be tremendously important in 2011 to take still more care to level the playing field for direct selling opposite to other distribution channels, in particular distance selling. Direct selling and distance selling differ from each other through the different marketing of goods and services. This has to be taken into account above all in the area of legislation.”

8. Italy—$3.36 billion

Italy moved up in global rankings by one notch over last year, with an increase of $3.36 million in sales while many fellow nations dropped. The salesforce also grew, adding nearly 25,000 people to the rolls. Both increases are in stark contrast to the national economy, which had increasing unemployment and a 5 percent decrease in economic growth for 2009.

The country also now has two direct selling organizations: the long-established AVEDISCO (Associazione Nazionale Vendite Dirette Servizio Consumatori) and the 2010 upstart UNIVENDITA (Unione Italiana Vendita Diretta). With such recent success, it seems there is plenty of space for two DSAs.

“Direct selling is a mature but prominent part of the Italian economy,” says AVEDISCO President John Paolino. “It offers a real possibility of employment. We will play an increasingly important role, but this also means having to cope with greater responsibilities to protect members and consumers.”

As accountants complete their work on 2010 numbers, sales for the year are expected to be almost 10 percent higher than 2009 figures. “Italian direct selling, despite a mature industry, is the unique trade industry in continuous growth, about 5 percent in the last five years,” says Daniele Pirola, Secretary General of UNIVENDITA. “2010 sales in business premises (small shops, supermarkets, great distribution and commercial centers) increased only 0.1 percent compared to 2009!”

Both UNIVENDITA and AVEDISCO expect 2011 sales to continue the steady rise.

9. Russia—$3.06 billion

Russia increased its sales by $190 million, earning it an advancement of one spot in the rankings. The falling U.S. dollar against the Russian ruble made this change more pronounced, but the industry showed its muscle by increasing even as the national economy suffered through the economic crisis. Government rescue plans for banking and a substantial dip into national reserves pulled the country through, and things began to pick up by the end of 2009. During this period, the Russian Direct Selling Association (RDSA) noted that the number of salespeople increased by almost half a million, to 4.995 million, while company sales figures also increased.

RDSA President Tamara Shokareva reported that there are 25 members of the RDSA, and three of them were included in the top 400 list of the largest companies in Russia according to the Expert Rating Agency. Avon came in at No. 214, Oriflame at 254 and Amway at 328.

Personal care is indisputably the best-selling product category among RDSA members, at 77.67 percent of sales, with home care coming in at a distant 7.68 percent. Household, nutrition, wellness, accessories, financial service and the nebulous “other” took up the rest of the sales. The nutrition and wellness categories in particular seem ripe for growth, and Herbalife is counting Russia among its best European markets. It has even inked an agreement to sponsor Russia’s top football club, gaining prominence among Russian sports fans.

Shokareva expects 2010 results to be very positive, with increases of 5 to 10 percent in sales. She noted that sales for the first nine months of 2010 were up and the number of salespeople had crossed the 5 million mark.

10. France—$2.41 billion

France’s international rankings brought them up one level as well, from No. 11 previously. French direct sales stayed in the same $2.4 billion range from 2007 (the last period reported through WFDSA) to 2009, leaving it a winner for keeping up its pace year-over-year.

The biggest national success, however, was not just the consistency in sales. It has been the recent legal victories in working with the government and the Ministry of Economic Affairs, Industry and Employment. The Federation de la Vente Directe (FVD), France’s national DSA, was part of the ministry’s announcement to create 100,000 jobs in three years. In addition to this announcement, the industry also saw other mutually beneficial agreements. The ministry is the institution that classifies employees versus independent business owners. Thus the agreements announced in 2010 were important steps in clarifying the national definition of direct sellers as independent business operators rather than employees of corporations.

“This agreement is the symbol of the effective recognition of the sector of direct selling,” says Léa Chamboncel, Legal Representative for FVD. “The French DSA and ‘Pôle Emploi’ decided to develop their cooperation and to associate their efforts in order to satisfy the recruiting demands of the members of the French DSA (employees and independents).”

This was good news for the 188 members and 24 partners of the FVD. They also enjoy the relatively widespread familiarity of the industry in France. “[Direct selling] is a big sector that is getting bigger and bigger,” says Chamboncel. “We estimate that eight out of 10 people in France know about direct selling, and that four (out of 10) have already bought something using the channel.”

Trends in 2010 included a surge in the success of the home product/improvement category and the continued productivity of the industry in general.

11. United Kingdom—$2.1 billion

Our annual rankings saw the United Kingdom fall from the No. 8 spot last year. WFDSA sales statistics for the country show a decrease of more than half, from $3.6 billion in 2007 (rankings last year were based on 2007 data, as it was the last information reported to the WFDSA) to $1.4 billion in 2009. There were more than 400,000 salespeople working in the industry in 2009, down slightly from 2007.

owever, there seems to be a renewed optimism in the United Kingdom, with people and businesses stepping up to seize the opportunities that everyone feels sure are coming. Paul Southworth, Director General of the UK Direct Selling Association, says he saw increased recruitment and more startup companies in 2009. In fact, there are now 37 full members in the DSA and 23 prospective members. Avon, Betterware, Vie and Herbalife are the largest direct selling companies in the United Kingdom.

Expectations for the final numbers for 2010 sales are that they will be largely the same as the previous figures, reinforcing the notion that the economic recovery is quite slow. Customers, salesforce members and companies are making the best of it, though. Southworth says that party plan marketing came back into vogue, albeit customer orders were lower. Amway added a party vibe to the seemingly dismal economic year by opening a flagship “Experience Centre” in London. Part shop, part training grounds, this large space allows Amway to display all of its offerings and build an even stronger following. They’re looking forward to long-term gains of the Centre.

Southworth assures fellow leaders that all is well in his country. “[It’s the] right time to enter [our] strong, stable and established market with good consumer acceptance to direct sales.”

12. Taiwan—$1.7 billion

The island nation of Taiwan stayed in the same spot in our annual list, gaining $60 million in sales over the course of 2009. This was great news for the country, marking a 9.2 percent increase and the end of a three-year slide in sales. Shirley Chen, the Taiwan ROC Direct Selling Association (TDSA) Chairman and General Manager of Amway Taiwan Company Ltd, notes that distributor numbers were also up, increasing 8 percent to 4.4 million. The average age of Taiwanese distributors is going down also, as more people under the age of 30 join the industry. And there were more direct selling companies, a total of 302. Forty-nine of these belong to the TDSA.

While 2010 figures were not finalized at the time of this report, Chen expects them to be favorable. “The Taiwan direct selling industry will be up by 10 percent in 2010 with the macro economic growth, and the direct selling companies are making efforts on branding to enhance company reputation and product favorability.”

The top companies are still large U.S.-founded multinationals, including Amway, Herbalife, Melaleuca, Avon and Nu Skin. “The leading companies are projected to grow, continuing to dominate the market,” Chen says. “More direct selling companies are setting up a physical presence to facilitate recruitment and reputation. Nutrition products contributed more sales for the growing health-conscious consumers.”
Whether coming from a sizeable company or a small startup, 2011 promises good things. “The direct selling industry in 2011 is expected to grow continuously compared with 2010,” Chen says.

13. Thailand—$1.56 billion

Even with $30 million less in sales, Thailand remained in the same spot on our international list. These figures include sales of both Thai Direct Selling Association (TDSA) members and non-members as well. There are 10 million people selling through 590 companies, of which 29 are TDSA members. Itthisak Ampanyuth, President of the Thai DSA, believes that the 2010 figures will show almost 12 million distributors and a strong increase of 15 to 20 percent in sales numbers.

The largest direct selling company in Thailand is Amway. All its products are popular, and, since the top-selling categories are personal care and cosmetics, the company’s ARTISTRY™, SATINIQUE® and NUTRILITE™ brands do particularly well.

Ampanyuth added that trends affecting the industry are positive. Distributors and customers are gaining awareness and understanding of the channel, the government has passed favorable legislation that will help the industry, and the Thai baht currency’s increasing value is improving consumers’ purchasing power. The economy decreased 2.2 percent in 2009 but rebounded with a 7.6 percent increase in 2010.

All in all, the industry is doing well in Thailand. “We have the potential to increase dramatically due to the growth of the entire Thai market and distributors’ increasing skill and knowledge,” says Ampanyuth.

14. Canada—$1.3 billion

World economic troubles challenged Canada as well as much of the rest of the international community. Sales declined 3.5 percent during 2009 as the recession took its toll. Official numbers from the Direct Sellers Association of Canada put 2009 sales at $1.3 billion, and estimates for 2010 numbers show that the direct selling industry in Canada will decrease 6.2 percent to $1.23 billion in 2011. The bright side of the picture, however, is that recruiting increased 5.9 percent in 2009 and is expected to have a 1.6 percent increase for 2010 final figures.

Among the 48 member companies in the DSA, 43 percent reported an increase in 2010 sales, with 26 percent reporting an increase of 15 percent or more. Party plan companies reported that 33 percent of them had 15 percent more shows; 22 percent registered increased show attendance; and 44 percent had an increase in average show sales. The success of the party plan companies reveals that consumers are looking for fun yet economical socializing opportunities.

“Direct selling continues to make significant economic and social contributions to Canadians and the nation,” says Ross Creber, President of the Direct Sellers Association of Canada. He adds that his industry generates CAN$1.36 billion of income; injects CAN$4.55 billion of sales into the marketplace; contributes CAN$815 million in taxes that impact education, health services and community growth; donates CAN$7.7 million to charities and builds an industry that touches the lives of people by giving them an opportunity to work, learn, prosper and grow.

Creber concludes, “[Direct selling] is an important industry which delivers a wide range of product offerings to the Canadian population. Through financial opportunities and social benefits, it plays an integral role in improving the quality of lives for all those associated with this industry.”

15. Colombia—$1.26 billion

Colombia’s sales were down slightly from $1.5 billion in 2008, but it kept its spot on our list. Among the 27 members of the Colombian DSA, La Asociación Colombiana de Venta Directa (ACOVEDI), several are multinationals, including Amway, Avon, Herbalife, Natura, Nikken and 4Life.

The beauty and personal care segments have dominated this market. While the national economy grew only 0.8 percent in 2009, the beauty and personal care market grew 6 percent. Skin care registered nearly double-digit growth, with anti-aging products leading the way. As reported in the EuroMonitor, “The share of non-store retailers in beauty and personal care rose from 38 percent in 2008 to 39 percent in 2009 at the expense of store-based retailing, which saw its distribution share contract slightly. This was due in part to the fact that the recession attracted a growing army of Colombians to become direct sellers, particularly those from lower-income segments, as direct selling provided an opportunity to earn extra money or create self-employment. This, in turn, boosted the number of sales made through the direct sales channel.”

WFDSA figures confirm this growth, with an increase of 33,000 salespeople, for a grand total of 900,000 in 2009. Industry experts predict that the increase in the number of salespeople will translate into an overall increase in sales for 2010 final numbers and 2011 results.

16. Australia—$1.25 billion

Australia is new to the list this year, jumping ahead to No. 16. The $1.25 billion is a substantial increase over its $844 million reported in 2008.

John Holloway, Executive Director of the approximately 70-member Direct Selling Association of Australia (DSAA), explains that the historic sales reports were possibly skewed. “The 2008 sales figures came from independent research by academics from Monash University. Prior to that, this data was collected within the DSAA, and I suspect the reporting of sales numbers may have been conservative. Nonetheless, there was obviously a productivity element. I think the performance was also affected by the global financial crisis, improved recruitment and favorable exchange rates.”

Sales for 2010 are expected to be strong but not huge. However, direct selling is performing better than the rest of the retail world in Australia. Salesforce numbers are also expected to increase slightly, and leading categories continue to be health care and personal goods.

“To my mind, the trend in 2010 was the continuing impact of online trading and the integration of direct selling models with other retail models,” Holloway says. “Our industry in Australia has overall a strong performance in a challenging retail environment.”

17. Argentina—$1.15 billion

The industry in Argentina decreased enough to bring them down one notch in our annual rankings. Sales decreased nationally by $20 million. This is hardly surprising, considering that Argentina had its own share of economic problems even before the worldwide recession. Growth in 2008 and 2009 was sharply reduced, in part because of government fiscal actions as well as the international economic crisis.

Direct sellers fared better than many industries. Companies attracted more distributors, increasing their total salesforce members from 714,000 in 2008 to 731,122 in 2009. This follows the widely accepted pattern of people looking for more ways to earn income or get discounted merchandise during a recession. Sales for direct selling cosmetics company Natura were positive for the area. Its figures, when addressing Argentina, Chile and Peru together, had 32.9 percent growth for 2009.

According to the national direct selling association, Camara Argentina De Venta Directa, it has 15 members and five partner members in the group. The most significant product category within the industry is personal care, with 72 percent of the market. Home and family care items come in at a distant second with 26 percent of sales.

The Argentinean Economic Minister Amado Boudou says he expects that the nation’s economy will show growth of up to 7 percent in 2010. Direct sellers are now well positioned to increase their revenues as new salesforce members enjoy a financial resurgence.

18. Malaysia—$1.13 billion

The direct selling industry in Malaysia is steadily growing, enjoying the benefits of more companies launching in their borders. The Direct Selling Association of Malaysia (DSAM) boasts 57 members and 4 million salesforce members. There are many Malaysian and Asia-Pacific-based companies on the roster as well as multinational, U.S.-based companies such as Forever Living, Mary Kay, Amway, Nu Skin and Shaklee. Most embrace in-person selling, but online ordering is growing.

With 21 years of Malaysian operations, Shaklee has a well-established business. Its sales rose 25 percent in the early part of 2009, when most of the world was still counting its losses. Shaklee CEO Roger Barnett says he was happy but not surprised, and spoke to the Malaysian media in 2010 about the successes. “I believe we are the closest thing to being recession-proof,” he says.

DSAM President and Amway Malaysia General Manager Paul Yee agrees that the nation’s future is bright. He says consumers are looking for food supplements that help them meet nutrition needs, and they’re intent on finding the highest quality. This suits Amway just fine. “The environment is competitive and challenging, but we believe that we have the necessary strategies in place to help us meet our objectives,” Yee says.

19. Venezuela—$1.12 billion

A newcomer to the $1 billion list, Venezuela is counting its successes. From 2006 (the latest numbers for WFDSA last year) to 2009, its collective direct sales totals rose by more than $200 million. There are 13 members in the local DSA, called CEVEDIR, including Avon, Amway, L’bel, SwissJust, Stanhome, Tupperware, Rene Desses, Herbalife, Yanbal, Naturabel, Nature’s Sunshine, Vanda and Vivo. Together they have 565,000 independent distributors.

The country’s largest revenue source is oil—95 percent of export earnings—and this helped fuel a successful overall year in 2008. During 2009, oil prices fell, government spending rose, the minimum wage increased and consumers had easier access to credit. This resulted in a national spending spree and inflation in the 30 percent range. The nation has announced it is creating a dual exchange rate system for the national currency, the bolivar, and it closed the unofficial foreign exchange market. This instability and other factors inspired Natura to close its Venezuelan operations in 2009.

Tupperware has reacted to this with a different approach—an accounting one. After experiencing double-digit growth in Venezuela in 2009, the plastics giant has decided to mark Venezuela as “hyperinflationary” and use the exchange rate upon which the company expects to pay dividends. Chairman and CEO Rick Goings says, “We have a terrific business in Venezuela with a great management team and salesforce in place. Due to the external environment we operate in, we’ve also been carefully managing our value chain, given the reality of what it costs to pay for things from outside the country, and this has allowed us to achieve a good return on sales in Venezuela. At the same time, we’ve proactively looked in 2009 to make our cash available even when we’ve needed to do that at the parallel exchange rate, which has also allowed us to anticipate the current situation and avoid disruption in our earnings comparisons.”
Such a reaction underscores how successful companies must remain flexible and vigilant for market changes in the country.

20. India—$1.06 billion

New to the list this year, India’s sales nearly doubled from 2008 to 2009. Figures for 2010 are expected to show a 20 to 30 percent growth, according to Chavi Hemanth, Secretary General of the Indian Direct Selling Association (IDSA). Forecasts call for the industry to be at $1.5 billion by 2012–2013.

Hemanth credits this phenomenal growth to an increasing number and visibility of independent sales consultants and to an increase in the revenues from Tier-II cities. “More than 3 million individuals are involved in direct selling activity across India compared to 1.8 million last year,” Hemanth says. “Revenues from Tier-II and other cities reported a robust growth, increasing from 14 percent of the overall market in 2008–09 to 38 percent of the market this year. South India remains the hub of the direct selling activity followed by west India.” Other contributing factors to India’s success are growth in consumer spending, changing value perceptions and lifestyles, and increased investment by big companies in the industry.

The largest company of IDSA’s 18 members is Amway. It is among those leading the growth as direct selling companies increase their media presence, online ordering capabilities, in-country production facilities and corporate offices/distribution centers.

Hemanth reports, “The direct selling industry has grown steadily…. This has made many multinational companies look at the Indian market more seriously…. The near future could see hectic activity in the direct selling space with market players diversifying into new and nascent product categories in a bid to capture market share. The stakeholders need to take steps to ensure that growth continues.”