Direct Sales Companies Saw Spike In Sellers During Recession

Direct Selling Association

Amy Robinson is the Chief Marketing Officer at DSA.

One of Idaho’s fast growing companies is Scentsy.  They sell wickless candles and personal care products.  It’s a direct sales company, meaning independent consultants sell products largely through home parties (think The Pampered Chef).

The Direct Selling Association is a trade group for some of the country’s most well known direct sales companies like Avon, Herbalife and The Pampered Chef.  DSA has about 200 members, including four companies based in Idaho (Kyani, Melaleuca, 21Ten and Scentsy).  According to DSA, direct sales in the U.S. totaled more than $28.5 billion in 2010.

Amy Robinson is the Chief Marketing Officer at the Direct Selling Association.  StateImpact Idaho recently spoke with her about the industry.

Q: How have direct-selling companies grown in the United States?

A: The exact number of direct selling companies isn’t a number we can identify specifically, but we have about 200 companies in our membership.  We estimate those companies make up about 90 to 95 percent of sales.  But there are definitely a number of small direct selling companies that are operating in the U.S.  Certainly many of them are small businesses, just getting started.  Direct selling is a great way to get products to market for small companies, so we certainly anticipate there will be many more companies out there that we’ll learn about everyday.

I don’t have stats on the average lifespan of a direct selling company.  First of all, there is no uniform registration requirement for direct selling companies, so there’s no way to track how many there are, or their life cycle, etc.  But certainly there are many companies that are well known brand names.  You’ve got Avon, Amway, Mary Kay, Pampered Chef, these are all companies that are fairly widely known and certainly have been in business for quite some time.  And these companies all started out as small companies.  The Pampered Chef is a perfect example.  Doris Christopher started that business in her basement with a loan from her life insurance policy.  That company has grown significantly and it’s now part of the Berkshire-Hathaway family.

Q: Do direct-selling companies do better during certain economic cycles?

A: I think in economic times where people are concerned about losing a job or making ends meet with their current income, they’re looking for other options, and they look to direct selling for those options.  Direct selling is very flexible, they can do it while they’re looking for a job, around a full time job, or they can do it part-time.  Most direct sellers work less than 10 hours a week at their business.  The flexibility is key, but during these poor economic times you have people coming in and saying, “This is something I need to try out.”

Q: What about on the consumer demand side of things?  People have been spending less in recent years.

A: It’s interesting to look at how consumers shop during a recession.  Certainly they don’t stop spending money.  They just spend money a little bit differently.  For example, you might have a family who goes out to eat two times a week.  Perhaps while they’re trying to watch that bottom line, they decide maybe they’ll go out just once a week.  But they still want to eat good food when they’re at home.  So, they’ll be looking for gourmet food mixes, kitchen supplies and that kind of thing.  Which of course are all sold through direct sales.

For most women, when they look at cutting their budget, cosmetics aren’t the first thing to leave that list, so you’re always going to have women looking to buy cosmetics.  And perhaps they’re looking for a new brand.  The fact that their friend might be inviting them to a [direct sales] party might be a good opportunity to find a new brand they love.  There are certainly a lot of products sold through direct selling that I think compliment very well the different way people look at spending money during a recession.

Q: Direct sales receipts, like traditional retail, have gone down since before the recession started.  What trends have you noticed?

A: Traditionally, direct selling has done well during a recession, particularly during the last two recessions.  We saw direct selling increase during the recession.  When you compare it to traditional retail, when retail was declining direct selling was increasing.  The recession we’re coming out of now was the deepest we’ve seen in a long time, and I think the commensurate decline in sales was not particularly surprising.

Q: Do direct sales tend to do better in certain parts of the country?

A: If you look at the raw statistics, you notice the South generally has a higher sales percentage than the Northeast.  I think that has something to do with the urban versus rural makeup of those regions.  To some extent, you have companies based in different parts of the country, particularly growing companies.  You have a lot of growing companies based in one region or another.

If you live in an urban area, you might be more likely to go to the coffee shop. People living in an apartment might not have the space, and might not tend to meet there.  These are just guesses on my part.  So, in a place where you have people who tend to entertain at home, or have people stay at home, I think you’re more likely to have a higher sales rate there than in an area where people don’t congregate at their homes as much.

Q: What about the demographic breakdown?  Who is signing up to be direct sales consultants?

A: Most direct sellers are women, about 85 to 90 percent.  As far as particular generations that might be direct sellers, we really are seeing a wide range of different types of individuals getting involved.  We have a lot of stay at home moms who tend to be in that 35 to 40 range.  But we’re also seeing a lot of mature adults, 60 and above, who maybe have retired and are looking for a second career or a little extra spending money.  We’re also seeing a lot of Gen X and Gen Y individuals who really, when you look at their business outlook, don’t ever intend to have a boss.  They want to go into business for themselves they want to have that flexibility in their schedule.

Q: What are the risks involved with direct sales companies?

A: One of the things we tell people is to evaluate a company very carefully before joining.  There are a lot of companies out there.  You want to look at what that start-up cost is.  The median start-up cost is around $99.  If you’re being asked to invest several thousand dollars for essentially the right to recruit other sellers, that’s definitely a red flag.  You want to look at the buy-back policy.  If you decide direct selling isn’t for you, will that company buy those products back from you?

The Direct Selling Association requires our members have buy-back policies that offers at least 90 percent of the price you paid for inventory and sales-aids for at least the last 12 months.  You also want to understand how you’ll be compensated. You want to make sure you’re compensated for sales, not merely bringing people into the business, because that as well is a red flag.

DSA data shows U.S. direct sales revenue peaked in 2006 at $32.18 billion.  It fell as low as $28.33 billion in 2009 but ticked up to $28.56 billion in 2010.  For some companies, like Meridian-based Scentsy, sales have only continued to increase, even through the recession.

This interview has been edited and shortened.