Lessons Learned from Publicly Traded Direct Selling Companies

Key trends and takeaways found in a deep dive of public company performance.

Although many direct selling companies are private, there are a few leaders in our channel that are publicly traded. I was recently involved in an analysis of public US direct selling companies as a project for the DSA Industry Research Committee (IRC). The goal of this project was to examine public direct selling company stock performances to ascertain any lessons we can learn from them as our channel continues to transition into a more competitive and relevant distribution channel and business opportunity.

The IRC subcommittee has analyzed the stock performances of select public direct selling companies in the following categories:

Performing: Stock gains during the last 3 and 12 months.

Challenged: Stock losses during the last 3 and 12 months.

Challenged but Possibly Improving: Stock gains during the last 3 months only (overall loss during the last 12 months).

The IRC has evaluated the performance of the above groups of company stocks in relation to the Vanguard/S&P 500 and GIG company stocks for sample portfolios of $100,000. IRC Subcommittee members utilized annual and quarterly public reports to analyze the root causes of major shifts in stock performances.

In this article, I will share the key insights and takeaways from this research. Information is important, but what turns information into results is utilizing the information to improve your business.

The Impact on Stock Values

We did analysis on 11 public companies. Most have had declines of various KPIs since 2016 including sales, recruiting, distributor engagement, customer acquisition, customer retention, compensation to distributors and profitability. The variance of those KPIs depends on which company you are researching.

We reviewed the stock values over the last three months, one-year, three-year and five-year period. Below is a chart summarizing those findings.

We also compared the stock performance against the GIG company stocks and the Vanguard/S&P 500 and GIG company for sample portfolios of $100,000. Once we looked at the data through the stock prices, we then reviewed the public data to see what commonalities and challenges existed. As you can see from the charts below.

Common Opportunities and Challenges

We first looked at commonalities between the public companies, allowing us to identify challenges and where companies were focused on improving their businesses. Challenges identified include:

1. Multi-year declines in stock values, sales, customers, new distributors, distributor engagement and leadership.
2. Prospecting for customers and distributors in a growing competitive landscape.
3. Regional and global inflationary environments.
4. Negative currency fluctuations.
5. Growing global economic and geopolitical challenges.
6. Growing regulatory and legislative overreach.
7. Cultural misalignment in behavior and customs.
8. Supply chain issues.
9. Rising operational costs.
10. Labor challenges.
11. High levels of debt.
12. Rising costs of debt.
13. Effectively managing change.
14. Diversification of the business model.

Comparing Results

There were clear differences in areas of the business that varied when we analyzed the three groups. In the chart below, I have categorized these areas into this table.

Six Key Takeways and Suggestions

1. The longer it takes to establish sales growth, the deeper the decline and the more challenging it is to recover. Priority one should be establishing sales growth and implementing plans to maintain it.
2. Rightsizing was a common focus in the current market landscape. It seems to become a growing priority if (1) sales continue to decline; (2) the company is not profitable; and (3) if the company lacks financial resources to invest into the evolution and competitiveness of its business. If you are in a rightsizing phase of your company, it is important to understand that small decisions can have major consequences. Often managing change is a process, not an event. Taking on too much change at one time creates additional challenges, so prioritize the changes you plan to make and be sure that any decision made by the company is examined from short-, mid- and long-term perspectives.
3. A decline in the base generally equates to a decline in the business. The base is made up of your customer, retailers and junior leaders. If these groups are growing, leadership will grow. If you want to build a stable company that continues to drive momentum, you need to focus on building the base. Keep in mind this group generally represents 70-95 percent of sales, recruiting and customer acquisition. The best way you can help your leaders is to help them grow and strengthen their base.
4. Experiences define a business. If those in your community are not experiencing a business that supports them, then you are at risk of losing them. That applies to distributors and employees. It might be useful to assess where the experiences in your business need to improve. You will likely find the challenges and solutions are tied to trust gaps, ineffective communication and managing the business with a transactional mindset vs. a people-centric mindset.
5. Companies that are performing are focused on strengthening timeless fundamentals which include increasing the customer base; strengthening distributor prospecting; and engaging and increasing their brand visibility. These are key areas that the company should focus on improving to create a stable environment for continous growth and momentum.
6. Many struggling companies are holding on to the past. Remember, the most dangerous mindset in a fast changing marketplace is that “we have always done it this way.” Assess your beliefs and examine whether they need to change to move the business in a better path forward.

Moving Forward

In the end, information is as useful as your ability to utilize it. Embrace change. Understand that the competition for customers, business opportunity and employees is going to get more challenging. Building a business model for the future generations will continue to be a key focus for long-term growth. No company can survive and thrive without sales growth and profitability. The good news is that we are seeing a growing number of companies improving these areas and are positioned to be the future leaders in direct selling. There is room for everyone to grow.

GORDON HESTER is a direct selling veteran, lecturer, consultant and author with over three decades of experience in direct selling with an emphasis on strategic development, analysis and sales. He is also Chair of the Florida Direct Selling Coalition.