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The Billion Dollar Club: How the Top Countries Compare
DSN, Canaccord Adams to Host Investor Conference
Shaklee CEO Addresses White House Conference on Aging
Young Company Focus: Schu*La*La. They Know Shoes

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The Billion Dollar Club:
How the Top Countries Compare
by Kathrine Ponder

International direct selling is the hot source of industry growth. While mature markets must expand slowly with new products and new sales channels and incremental growth, new markets such as those in Asia and Eastern Europe provide big potential.

"Our international growth rate is exceeding domestic growth," says U.S. DSA President Neil Offen. "International expansion is critical to the growth and profitability of the major, well established firms in the industry. Our latest sales force figures show 13.6 million direct salespeople in the United States and 41.2 million outside this country."

The top 15 countries each have more than $1 billion in direct sales revenue and are a combination of old and new markets. Together they account for $90.8 billion in annual revenues for the world's direct selling companies, which translates to almost 90 percent of the industry's global sales.

The members of this billion dollar club face new challenges and are looking forward to new opportunities in 2006. All have active direct selling associations and many are grappling with similar legislative issues, such as defining the difference between an employee and an independent representative, privacy regulations to restrict selling, and taxation issues. Individually, each country has its own story to tell.

1. United States
Number one with $29.6 billion in revenues, the United States has more than 13 million salespeople working with nearly 200 Direct Selling Association member companies. As one of the oldest countries for the industry, the United States and its direct selling companies have exported their ideas around the world. "For many of our largest companies, their non-U.S. sales and sales force numbers far exceed those in America," notes Mr. Offen.

The country's industry sales are somewhat slow for existing brands. Many, such as Tupperware, have looked to multi-channel distribution as a means of generating sales, and others are finding that Internet based ordering is helping to fuel growth. New products and even entire new product sets also facilitate sales. Corporate giants such as Amway hold their own in the industry, but new direct selling entities of existing corporations, such as Crayola's Big Yellow Box, are contributing significant growth for the national numbers.

2. Japan
Japan is a close second to the United States with $27 billion in revenues, but it is actually the largest national direct seller in relation to its population. More than two million people work as direct sellers there, out of a total population of approximately 127 million. Like the United States, the Japanese market is mature. The Japanese DSA notes that this slowdown took place about 1997 and has affected the growth but not the popularity of direct selling. Products sold through the industry in Japan are as diverse as health care items, clothing, electronics and even pest control services.

Japan's aging population and population decline expected to start in 2006 are realities. The success of companies may depend upon an appeal to seniors as salespeople and customers, to younger people's need for supplemental retirement savings, and to the 70 percent of young Japanese women who do not expect to marry.

3. South Korea
South Korea's 4.6 million distributors generated $8 billion in sales in 2004. The Korean Direct Selling Association has successfully promoted the image of multi-level marketing, which was once generally disdained by the public and the Korean government. The Korean DSA's efforts have helped remove many market restrictions and barriers against the industry, such as requiring MLM companies to put retail prices on each package label. Door-to-door sales are common within the industry, and the cosmetics segment is growing among men and women who have more disposable income. Health and wellness products are also popular in the country, and companies such as Royal BodyCare are entering the market with confidence.

4. Brazil
Brazil's economy has faced many hurdles during the last few years, from significant currency devaluation in 1998 and 1999 to an energy crisis in 2001 and high unemployment in recent years. Direct selling tends to gain appeal during such times, and many Brazilians did indeed turn to MLM to earn income. More than 1.5 million distributors /representatives worked their businesses to the tune of $3.9 billion in 2004 revenues. Leading CFT companies such as Avon and Natura have seen strong sales during 2005 in Brazil, helping to offset slow growth in other countries.

Online sales have grown exponentially during the last five years within Brazil, making it the leading Latin American country in Internet sales. This online trend follows the increase in credit for average Brazilians, who now have credit cards to use when ordering.

5. United Kingdom
The stalwart direct selling Brits have brought in $3 billion through the efforts of 520,000 salespeople. The U.K. DSA estimates that the industry is responsible for 110 million consumer transactions, with sales of personal products such as cosmetics, clothing and jewelry accounting for 26 percent of those sales.

One of the most pressing issues for U.K. direct sellers is legislation against door-to-door selling and cold-calling. Most sales rely upon referrals and personal relationships, so the laws affect relatively few sellers, but are being monitored by the industry.

Forty years have passed since the U.K. DSA was formed, so the market is definitely mature and stable. As in other markets, however, top companies are seeking to maximize U.K. profits by making their operations more cost effective and addressing the U.K. and European region as a whole for logistics.

6. Italy
The Italian direct selling industry is alive and well, with more than 272,000 independent contractors generating $3 billion in sales. The majority (77 percent) of distributors are women, and the top selling products are cosmetics, nutritional supplements, consumer goods, and durable goods. Amway counts Italy as one of its top European markets, giving parent company Alticor positive sales on the Continent.

Italy's labor laws can prove challenging for direct sellers, as stipulations regulate the definition of an employee versus an independent salesperson. One product segment that presents potential for direct sellers is the telecommunications industry, with Italy being one of the top global markets for wireless communications.

7. Mexico
Mexico's 1.85 million distributors sold $3.34 billion in goods and services during 2004. While economic factors made the industry decline slightly during the early 2000s, the Mexican direct selling industry seems to be recovering. Companies such as Lexxus International are counting on an expanding middle class to respond to market entry. However, increasing competition within the industry's cosmetic companies is shrinking the margins of established companies like Avon. The nation continues to attract new competitors, however, including Natura, a Brazil-based cosmetics/toiletries company. Such stalwarts as Tupperware count their Mexican distributors as the most productive.

The country's drug classification system continues to hamper development of the herbal, vitamin and food supplement market. These products are technically drugs under Mexican law and therefore are subject to more regulations that can be cumbersome and cost-prohibitive. Nutrition giant Herbalife, however, has mastered the hurdles and counts Mexico as one of its most profitable markets.

8. Germany
The German market is a strong contender, with $2.9 billion in sales and more than 206,000 salespeople during 2004. Its population is among the largest in Europe, which attracts and keeps many direct sales companies. Some of the top-selling products according to the German DSA's September 2005 data are financial services and housewares. Tupperware cites German consumers' current "poor spending" as one reason its European sales were relatively flat for 2005.

As in other markets, privacy and data protection laws are strictly enforced. The direct selling industry also is subject to strong regulations to avoid so-called "snowball" distribution systems. The country's active DSA emphasizes all of these aspects and has helped to build a strong image for direct sellers in the country.

9. China
China's one billion-plus population draws commerce, no matter the challenges. For direct selling, those challenges have been numerous and unpredictable but have not prevented success by the industry. More than $2.5 billion in direct sales were processed in 2004. Direct selling in China was nearly cut short when the government banned direct selling in 1998. Close communication and political negotiations allowed several companies to restart their operations under very specific regulations, and the industry continued its ascent in the country. The challenges today are that upline and downline relations are being called into question with legislation that was put in place in December 2005. Compensation caps of 30 percent, restrictions to products within five specific categories, limiting part-time work, and requiring sales from a fixed location on the mainland are all in the legislation and are causing companies to scramble. Government representatives from around the world are continuing efforts to mitigate the damaging portions of these laws, and direct sellers such as Mary Kay and NuSkin have proven their resilience before and are ready to work within the new framework-whatever its final arrangement.

10. France
French direct sellers number 170,000 strong and have created $1.7 billion in sales. Their top selling products are home improvement and décor, kitchen-related goods, dietary and nutrition products, and cosmetics. Herbalife is seeing strong growth in the country as its efforts expand and draw customers and distributors.

One of the most often discussed issues in French direct selling is employment law. There are many fine points that differentiate between who qualifies as a salaried employee or as an independent salesperson. Some of the criteria are how much money a person is making in the business, if they pursue it full time, how their time is spent, what professional backgrounds they have, and even how large the downline is. The French DSA helps companies and salespeople navigate the law so that everyone is aware of the ramifications and stipulations.

11. Taiwan
Taiwan has nearly four million salespeople working with direct selling companies, for a total of $1.6 billion in sales. With a population of 22.6 million people, more than 3.8 million Taiwanese people have experiences in direct sales. This means that 5.92 percent of the population works in direct selling, a figure that is much higher than that of other Asian countries. Nutrition products, personal care, and clothing/accessories are the top product categories within the industry. The Taiwanese DSA is working diligently to expose harmful pyramid schemes and educate consumers and potential salespeople about legitimate business models.

12. Russia
Russia is an up-and-coming market for many companies. Its consumers still deal largely in cash, but the industry has grown to $1.3 billion despite its still developing banking industry. More than 2 million people have become direct sellers and are eagerly taking up the banner of entrepreneur. They serve a very large population base of more than 144 million people, many of whom are just beginning to earn enough to have discretionary income.

The most popular direct selling product category is personal care, and Russia is noted to be a top market for fragrances. Avon and Oriflame in particular have found early success in the country, largely because of their affordability and availability through a growing network of salespeople.

13. Malaysia
Malaysia's direct selling growth during the last few years has been phenomenal. Between 2001 and 2004 alone, it increased more than 27 percent, thanks to the more than $1.3 billion in direct sales by 4 million direct sellers. There are currently more than 520 licensed companies in the Malaysian DSA, including American standard-bearers like Amway and Shaklee.

The growth was aided in 2003 when the government relaxed its direct selling restrictions, and the industry continued to expand in 2005 as people looked for additional sources of income. The Malaysian DSA played a key role in assuring the government that industry standards and membership regulation would help patrol the industry without state control. Their work is not done, however. The nation's government is now considering legislation that would require all direct sellers to purchase government-issued ID cards.

14. Australia
Direct selling in Australia is continuing its growth and is seen by companies like telecom direct seller ACN as the first stop for Asia-Pacific expansion. The country has more than 690,000 salespeople generating $1.1 billion in sales for approximately 70 companies. The products sold by these industrious Aussies range from exercise equipment to home electronics and personal care. Online ordering is becoming more common among direct sales customers, and companies are working diligently to ensure that commissions from Internet orders will properly be credited to individual salespeople. The nature of online growth has also allowed more Australians to work from home and become direct sellers.

15. Canada
Canada's 898,000 independent sales contractors raised their sales again in 2004 to a total of $1 billion. Direct selling is a strong force in Canadian commerce, creating approximately $966 million in personal income and more than $1.4 billion to the overall economy in 2004.

The typical profile of a direct salesperson in Canada fits closely that of the United States. The majority pursue it part time, 88 percent are women, most have at least some college education, and most conduct their business in individual homes. Also, as in the States, direct sellers in late 2005 and 2006 will have to contend with higher oil prices that affect consumers' spending habits and consultants' ability to drive significant distances.

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DSN, Canaccord Adams
to Host Investor Conference
Canaccord Adams and Direct Selling News recently announced that they will co-sponsor an investor conference highlighting the direct selling industry. The conference is scheduled to take place in New York City on March 10, 2006.

"This conference is a terrific opportunity for Direct Selling News to partner with one of the most respected investment banks in the country," said Stuart Johnson, President and CEO of Video Plus, which owns Direct Selling News. "We are excited to showcase the viability of the direct selling industry to the investment community."

Up to one hundred institutional investors are expected to attend the conference and hear presentations from leading public and private companies in the direct selling industry, including Herbalife, Nu Skin and USANA.

"Canaccord is honored to be able to partner with the industry's leading trade publication to further investor understanding and exposure to the growing direct selling industry," said Scott Van Winkle, Managing Director of Canaccord Adams.

Canaccord Adams is a global investment bank focused on growth companies in the metals and mining, energy, technology, life sciences, consumer and diversified sectors. With a focus on research-driven investment ideas, Canaccord Adams offers investment banking, institutional sales and trading, and corporate executive services. With offices in Toronto, Montréal, Vancouver and Calgary in Canada, in London in the U.K., and in Boston, New York and San Francisco in the United States, Canaccord Adams offers the expertise of a global investment bank with the personalized attention and long-term strategic client relationships of a boutique investment bank. More information is available at www.canaccordadams.com. Member NASD/SIPC. For more information about the conference, contact Nadine Miller at nmiller@adamsharkness.com.

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Shaklee CEO Addresses
White House Conference on Aging

Roger Barnett, Chairman and CEO of Shaklee Corporation, unveiled business models for successful aging as a part of a keynote address presented at the recent 2005 White House Conference on Aging. The address came near the end of the four-day event, held every 10 years, during which resolutions concerning national aging policies were selected for later presentation to the President and Congress.

Themed "The Booming Dynamics of Aging: From Awareness to Action," the conference was held in Washington, D.C. from December 11 through 14, 2005. Barnett was present at the invitation of the Honorable Dorcas Hardy, Chairman of the Policy Committee, and Dr. Mary Furlong, a California delegate and founder of SeniorNet and ThirdAge.

(left to right): Robin Read, President & CEO, National Foundation
for Women Legislators; Hon. Dorcas Hardy, Chairman of the
Policy Committee, WHCoA; Roger Barnett, Chairman and CEO,
Shaklee Corporation; Dr. Mary Furlong, Founder, SeniorNet and ThirdAge

In unscripted comments, Barnett emphasized the need to develop business models and health opportunities for the 78 million aging baby boomers, some of whom will begin turning 60 in January 2006. "The public and private sectors need to work together to develop policies that will help the aging baby boomers remain a productive and engaged part of society," said Barnett. "They need to be offered opportunities that will not discriminate based on age, sex, race, education, or economic background. The Shaklee business model is one such example, and there are many others. but there needs to be more."

Underscoring his statement that success is not limited by age, Barnett showed some photos of Shaklee Distributors from ages 64 to 100 who continue to be active in their businesses. He then pointed out that Shaklee's founder, Dr. Shaklee, started the company at age 61 and lived to see it transform into a Fortune 500 company during his 80s.

Other points presented in Mr. Barnett's address included:

Aging baby boomers need to be educated about proactive steps they should be taking now-such as dietary supplementation-that could enhance productivity into their 70s, 80s and even 90s.

The tax impact, if the baby boomers continue working into later life, could be significant; the resulting higher tax revenues would benefit us all.

Life does not have to end at retirement; for many, it is just the beginning of a new phase.

Shaklee was a corporate sponsor of the conference, joining other high-profile companies such as Johnson & Johnson, Genworth Financial and Aetna. For the first time, the conference featured an exhibition that was open to the public. Organized into two pavilions, Technology and Healthy Lifestyle, the exhibition provided an opportunity to review products and services available to assist older Americans. Shaklee, part of the Healthy Lifestyle pavilion, was the only natural dietary supplement company represented at the conference.

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Young Company Focus: Schu*La*La…
They Know Shoes

Shoes, handbags, scarves.three essential items in every woman's wardrobe have been introduced to the direct selling industry through one imaginative company called Schu*La*La. No longer do you have to wait in long lines, fight angry mall crowds, or put up with snooty shoe-boutique employees. Schu*La*La has brought together beauty, sophistication and comfort in its extensive, exclusive line of shoes sold through a customized party plan model. Every shoe in the collection is designed and manufactured specifically with comfort in mind and is created using only the finest leathers and innovative shoe technology.

"Our product and business model are focused on producing footwear that is truly differentiated and based on patented technologies that make our shoes more comfortable to wear," says Mary Jane Mellet, Schu*La*La's Director of "Pizzazz" (i.e., marketing and business development). "We refer to these as 'hidden technologies,' and we felt that this sort of topic seemed right for the party plan model because that model does a particularly great job of selling products that benefit from an explanation or demonstration."

Officially launching the company in October 2004, the founders of Schu*La*La spent their first year researching the ideal growth model and developing their concept. "We have deliberately grown slowly because taking shoes out into the field is a very complicated process, and we wanted to make sure that we built it in a way that could be replicated," Mellet says. They began recruiting in September of 2005 and now have representatives in Connecticut, Indiana, Massachusetts, New Jersey, Washington D.C. and New York, and they expect rapid growth in the year to come. "In 2005, our growth has been entirely through word of- mouth-we haven't employed any mass marketing tactics," Mellet adds. "Everything has grown organically and is brought in through consultants. And with our first round of consultants on board, they in turn are now recruiting, so we expect to see more growth in 2006."

The founders of Schu*La*La have been in the shoe business for years (both Born and Dexter are owned and operated by the parent company), so they know what women are looking for when it comes to shoes. "In our company, we always refer to our shoes as a ready-to-wear accessory," Mellet says. "Typically, women buy shoes to match clothing." Luxurious leathers and a vibrant array of custom colors, such as chili pepper and melanzana, combined with patented shoe technology, have set Schu*La*La shoes above the rest.

Schu*La*La also offers a line of what they refer to as whole-body accessories to complement their shoes. "It seems like a natural fit to fill out the line with other accessories, and we started with handbags and scarves-things women would typically wear," Mellet says. "The whole body aspect refers to the fact that we provide accessories like comfort items, gloves, pedicure kits, ultra-soft socks, chenille slippers, and so forth. Comfort is pivotal to our body accessories, as well as our shoes."

In fact, Schu*La*La takes sophistication coupled with comfort so seriously that they plan to keep exclusive the brands and styles they offer. "We're pretty particular about our offering," Mellet says. "We're not trying to be the Jimmy Choos of the world. We're really focusing on comfortable footwear, but have an eye toward fashion trends at the same time. We're really the best of both worlds." And it seems they've got the right idea. "We've seen a real boost in the media about comfort footwear being the next big trend. And it's not the old school comfort," Mellet says. "Our shoes are built from the inside out, based on comfort first, and the styling is then layered on top of that, so we refer to it as comfort by construction. Whereas a lot of shoes will add comfort features on top of the design that can sort of break down, our shoes are built with comfort in mind."

Mellet started out in advertising, working in New York, before transferring to Schu*La*La's parent company. "Our company is a shoe company, so I spent the first year in what we call the executive training program, where you work with an executive," she says. "I really learned the ins and outs of the shoe business, so that was invaluable experience" When developing the concept for Schu*La*La, Mellet was put in charge of researching the various network marketing models and she continues to work with a team of experts in direct sales to further flesh out the company. "Once someone has tried on our shoes, they really understand the product, and the party plan model provides customers the opportunity to feel and touch and interact with the product," Mellet says. "Most importantly, they're able to be educated about it, and that's something you don't really see in a retail environment."

Born, Bolo and Quark are three of Schu*La*La's premier brands. Every pair of Born shoes is considered a work of art due to the intricate attention to detail, from hand stitching and rich leathers to the durability and comfort provided by unique opanka construction. Bolo shoes are created using fine Italian leathers and are hand-dyed, hand-rubbed and sculpted to produce an ultra-chic, indulgent line every woman will appreciate. Finally, Quark is the ideal gardening and outdoor activity shoe. Using patented materials and precision technology, Quark shoes are so light that they often weigh less than the boxes they come in.

With a line of products such as this, the founders of Schu*La*La knew they'd have no problem establishing a solid customer base and a dynamic sales opportunity for women who love shoes, fun and fashion. "It only took one year of testing, and as soon as we launched the concept and began recruiting, the business took off," Mellet says. "It's all been word-of-mouth. We've got a great concept that's fun and offers a highly desirable product." And as pending members of the Direct Selling Association, Schu*La*La continues to learn how to successfully run a direct selling company and take advantage of opportunities and market trends. "We have participated in several DSA seminars, and we will continue to attend more in the coming year," Mellet says. "They have been a great resource for us. They have linked us with suppliers that have been very helpful, and we will definitely count on them in the future for the same kind of relationship building."

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