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The story of direct selling is one of sustained growth that keeps breaking records.
Global retail sales and the industry’s total salesforce both hit new highs in 2015. The World Federation of Direct Selling Associations (WFDSA) estimates that retail sales rose 7.7 percent in 2015 to $183.7 billion, up from $170.6 billion in 2014. The total salesforce jumped 4.4 percent, to 103 million people, up from 99.7 million in 2014. In all, 23 countries posted sales of $1 billion or more from direct selling.
“Direct selling is well positioned in today’s marketplace as consumers seek personalized service and quality products from people who they know and trust,” says Amway President and WFDSA Chairman Doug DeVos. “It results in a great opportunity for aspiring entrepreneurs, many of whom are seeking an opportunity to make a little extra while sharing products that they enjoy. With general attitudes toward entrepreneurship at very positive levels, the recent industry results are encouraging and the future is even brighter.”
Every region in 2015 reported sales jumps, and 80 percent of countries around the world showed increases in both sales and sellers. These are not just flash-in-the-pan bursts of activity, but sustained, steady growth spanning years.
“Given the mediocre performance of the global economy in 2015, I was pleasantly surprised by the steady and broad-based growth of direct selling during the year,” says Paul Bourquin, managing economist at Nathan Associates Inc. The Washington, D.C.-based economic consultancy works with the WFDSA to maintain confidentiality of incoming data, and to verify and vet the annual global data report.
The numbers are powerful because most national governments do not collect and report statistics on the direct selling channel, and “quite a few direct selling companies seek better or alternative information from that provided by syndicated sources,” Bourquin says. “The worth of the data is revealed by member companies wanting the information and dedicating the time and resources to do the research.”
The WFDSA also tracks the compound annual growth rate (CAGR), a measure of sustained growth over time. The global direct selling industry boasts a 7.2 percent three-year CAGR (2012-2015), with increasing sales from $149.3 billion to $183.7 billion.
The group of 23 countries with retail sales of $1 billion or more in 2015 claims 94 percent of all global sales. Sales are concentrated among the very largest direct selling markets, with the Top 5 countries accounting for 64 percent of all sales and the Top 10 accounting for 80 percent. The countries are an interesting mix of advanced and developing economies, which points to the strength and appeal of the selling channel in nations with a wide variety of infrastructure and technology as well as political and economic situations.
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THE BATTLE FOR No. 1
China was predicted to eclipse the United States as the world’s largest direct selling market as early as in 2015, but growth of 4.8 percent meant the U.S. reached record sales of $36.1 billion, up from $34.5 billion in 2014 and enough for the U.S. to hold onto the No. 1 spot. There are now 20.2 million Americans involved in direct selling, up 11 percent from 18.2 million in 2014.
These latest numbers illustrate the industry’s “strength, vibrancy and vigor” in the United States, says Joseph N. Mariano, President of the U.S. Direct Selling Association. He says the sales growth rate outpaces growth for traditional retail sales and the overall gross national product in the U.S.
“It is gratifying to see record growth in direct selling in the United States for the past five years,” Mariano says. “Today, there are more people involved and more revenue is being generated than at any other time in our history. Direct selling remains relevant today, because in an age defined by technology, people still see great value in person-to-person interaction and demonstration.”
Industry watchers note that China exhibited strong sales growth of its own, with sales jumping 19 percent to $35.5 billion, up from $29.8 billion in 2014. (The number of people selling products for direct selling companies in China is unknown.) As the Chinese government continues to approve more licenses for direct selling companies to do business within its borders, sales in the industry can only skyrocket, and China will most likely overtake the U.S. position in direct selling in 2016 or soon after. Today there are 78 companies with a direct selling license. Within two years that number is expected to jump above 100.
China’s Ministry of Commerce keeps close watch on the direct selling channel but does plan to keep issuing licenses. Observers say the Chinese government wanted to see slow, controlled growth in the sector before allowing it to accelerate. There are established direct selling firms in China, including Amway, Herbalife, Vorwerk, Infinitus, Mary Kay, Perfect, Tupperware, Nu Skin and Tiens. At the same time, startup homegrown Chinese companies are seeking their own success in the channel. These firms sell nutritional, beauty and healthcare products and are experiencing 15 percent to 20 percent year-over-year growth. They include: Kangmei, Kasley Ju, Golden Sun and Ten Fu Tenmax.
There is no doubt that the Chinese market is definitely opening up. A recent example is a November 2015 direct selling symposium held in Beijing. Sponsored by the WFDSA and the Direct Selling Research Center at Peking University, the event brought together the WFDSA CEO Council members, which included companies like Amway, Shaklee, Mary Kay, Bestworld Lifestyle, Nu Skin and Tianshi, among others.
The benefits of direct selling in China also are catching the eyes of traditional retailers like France’s Millet, a seller of outdoor and mountaineering equipment. The brand is employing a variety of distribution channels, including single-brand stores and e-commerce as it tries to reach consumers in second- and third-tier cities.
Such specialty shops are how some direct sellers, including Avon and Amway, maintained a presence in the Chinese market during the country’s ban on direct selling between 1998 and 2005. When China reopened its borders to the channel, it imposed strict rules for acquiring a direct selling license.
At the same time, the Chinese government welcomed online sales with a goal of boosting online shopping to more than 5 percent of China’s total retail sales, in an effort to reach more consumers. China encouraged multi-channel sellers with traditional stores to also open online shops.
This model embraces the Chinese middle class and its younger generations, which have money to spend and a love of technology, especially smartphones. Social media apps such as WeChat are popular ways for distributors to build online stores that let them promote and sell products.
In fact, the Internet and social media play a much larger role in China’s economy than in the U.S. economy.
On a global scale, the state of the economy has a dual impact on direct selling, says Carlo Ledezma, USANA’s Vice President for Latin America and a vice president for Mexico’s DSA.
“Our industry thrives on economic growth and prosperity in the micro-economic conditions of any country,” Ledezma says. “On the other hand, when things in the overall economy and in the country don’t go so well, there is an extra incentive for people to try and go out and pursue something outside of what they would usually do. That is when they look for opportunities in the direct selling industry.”
The number of people interested in starting their own businesses—which is what direct selling delivers for distributors—is high, according to the sixth annual Global Entrepreneurship Report commissioned by Amway. The 2015 report interviewed nearly 50,000 people in 44 countries, and 75 percent expressed a positive attitude towards entrepreneurship.
Companies that know how to leverage both sides of this economic coin truly benefit. Those that are smart use strategies that can capitalize during prosperous times. Those that are even sharper know how to pitch the opportunity to people looking for new ways to make money in tough times, Ledezma says.
This duality is part of the story of direct selling’s continued sustained growth. It is a narrative that can be told region by region:
Asia-Pacific. This region, which includes four of the Top 10 billion-dollar markets, boasts the largest sales and the biggest growth, with 46 percent of global direct sales, and a three-year CAGR of 10.6 percent. The region generated $84 billion in sales in 2015. Sales in China, Japan and Korea account for 79.9 percent of that amount.
Ten of the 23 billion-dollar markets are from the Asia-Pacific region:
While direct selling’s growth in China remains a top story, the channel quickly is becoming embedded in the cultures of many Asian and Pacific countries.
Malaysia, Taiwan and Indonesia all offer great opportunities for direct selling. Indonesia, with a salesforce of 12.7 million people, boasts a three-year CAGR of 11.9 percent on sales of $1.07 billion in 2015. The industry does well in this country, and has yet to realize its fullest potential. The Philippines and Malaysia also are perennial growth stories. In the Philippines, compound annual growth rate of retail sales over the three-year period was 9.8 percent; 2015 sales were $1.24 billion. In Malaysia, the CAGR is 9.4 percent with 2015 revenue of $4.44 billion. The world’s No. 3 market, Korea, saw 2015 revenue of $16.89 billion and a CAGR of 7.5 percent, while Taiwan’s 2015 retail sales were $3.35 billion with a 6.6 percent CAGR.
Finally, Vietnam is a market to watch. The country’s 2015 sales were just $492 million, but the channel posted three-year compound annual growth rate of 25.4 percent, the third-highest CAGR among all nations where direct selling data is collected and tracked.
New Zealand is enjoying the benefits of a strong economy and a very low unemployment rate. This means residents have the income to purchase goods. And while many in New Zealand have jobs, recruiting for the country’s direct selling companies is actually on the rise. The country’s direct retail sales grew by 13 percent in 2015 to $206 million. There are 104,256 people involved in the industry as independent direct sellers. New Zealand accomplished a CAGR of 4.8 percent.
Garth Wyllie, Executive Director of the Direct Selling Association of New Zealand, expects the growth trend to continue, based on reports from the country’s individual direct selling companies, the strong economy, a positive regulatory environment and a supportive government.
“The only possible headwinds would be if employment gets any flatter, we may struggle
to find people looking for the opportunity,” Wyllie says.
New Zealand is actually gaining population as people migrate to the country from Australia and Asian countries to find work and enjoy a less expensive cost of living. Many Asian students, for example, turn to direct selling for an additional source of income while completing their studies, Wyllie says.
Australia is battling an economic downturn and people are leaving the country for greener pastures. At No. 21 of the world’s 23 direct selling billion dollar markets, Australia’s 2015 sales of $1.11 billion was down 5.6 percent compared to 2014. Direct selling growth in the country has slowed, with three-year CAGR of just 0.6 percent.
The tough economic situation could prove beneficial for direct selling, Wyllie says. Higher unemployment in Australia means more people will be looking for ways to replace lost income or supplement existing income.
Americas. Direct selling has a long history in the Americas, which includes the U.S., Canada and South and Central American countries, and three of the Top 10 largest direct selling markets. The group accounts for 34 percent of global sales or $62.9 billion, up 4.6 percent from sales of $60.2 billion in 2014. The U.S. delivers 57.4 percent of that revenue or $36.12 billion, while Canada contributes 2.5 percent or $1.63 billion. Three-year CAGR (2012-2015) for the Americas region is 4.8 percent.
Central and South America combined provide 40 percent of the Americas direct sales or $25.2 billion.
Seven of the 23 billion-dollar markets are from the Americas region:
1. United States
Today, the channel continues to enjoy a large following in the United States, where more than 20.2 million people are involved. Direct sales and the number of people involved continue to grow, with more individuals generating more revenue in 2015 than ever before. The most popular sales method employed by companies remains person-to-person interactions at 71 percent, followed by party plans at 20.4 percent, according to data from the U.S. DSA. The gender mix of people involved in the industry showed a larger number of women, with 77.4 percent of consultants being female.
Direct selling is intertwined with many cultures in Latin America, where some of the big companies started distributing products as long as 60 years ago. The industry is well established in many growing nations as it began when infrastructure such as roads and transportation were not yet abundant, making person-to-person sales an ideal way to distribute goods.
In many ways, direct selling has grown up along with many of these countries. Take Mexico, which came in at No. 7 on the list of billion-dollar markets with 2015 sales of $6.93 billion. This is a middle-income country facing many financial challenges from exchange rates and governmental changes designed to bring about economic reforms. Although the overall economy is solid, the population is disappointed that changes are not taking place as quickly as they would like, says USANA’s Ledezma. Most direct selling firms active in Mexico are based in the U.S. That means a struggle exists for these companies to absorb the exchange rate in ways that do not increase prices for consumers and distributors.
“Directors and managers are dealing with these challenges and have to find very efficient ways to manage costs and investments and leverage economies of scale,” Ledezma says. To help weather this storm, the Mexican DSA fosters a sharing of best practices.
Despite these challenges, direct selling is expected to continue to grow in Mexico. Ledezma says this is because of Mexico’s reputation as a good market for the channel. People in the country are familiar with the model, and the collaborative environment among existing direct sellers is attractive to new entrants to the market.
“Companies thrive in Mexico when they have a good product and when they deliver on their promises to consumers,” Ledezma says.
As a whole, the DSAs in the Americas are working hard to educate potential consumers and distributors about the industry and to dispel myths. Ledezma and his colleagues are very intentional about “explaining what we do and how we do it. There is a difference between legitimate network marketing and a pyramid scheme,” he says.
Europe. With three of the Top 10 billion-dollar markets, the countries of western, central and eastern Europe claim 19 percent of global sales or $35.4 billion, up 5.7 percent from $33.5 billion in 2014. Western Europe delivers 83.3 percent of the region’s total sales, or $29.5 billion. Central and Eastern Europe generated $5.9 billion in direct sales in 2015. The European region’s three-year CAGR is 4.3 percent.
Six of the 23 billion-dollar markets are from the European region:
10. United Kingdom
EUROPE FACES UNCERTAIN ECONOMIC CHANGES
The full impact of the United Kingdom’s “Brexit” vote to withdraw from the European Union remains to be seen. At the very least, the new economic climate will include financial uncertainty, which may bode well for the direct selling channel as individuals look for ways to earn additional income and create stability for their household finances.
Just like any other industry, direct selling is impacted by the current macro and socio economic downward trend, says Katarina Molin, Executive Director at Seldia, the European Direct Selling Association. Yet the negatives can be offset by the need for individuals to earn an extra income, coupled with the increased consumer need for recommendation and explanation before buying decisions are made. In this light, Seldia predicts an increase of the direct selling business in several markets now facing an economic downturn, for several reasons.
Entrepreneurship is growing more popular all around Europe. A digitized economy and increased demand for more flexibility in balancing work and private time from Generations X and Y are driving the trend.
“We believe the future labor market in Europe will lead to a stronger demand for flexible working models, for which direct selling is an opportunity,” Molin says. The growth of the “shared economy,” which accounted for €28 billion in transactions in 2015 across Europe, also contributes to an increased understanding and recognition of flexible part-time income opportunities for individuals as an alternative to fixed employment.
Throughout Europe, direct selling has shown constant growth in the last five years. In 2015 sales as a whole grew by 4.5 percent compared to 2014, and in the European Union sales grew by 7.5 percent (compared to average retail trade in the EU, which grew by 3 percent in the same time period).
Just as the younger generations are embracing direct selling and its tech-friendly platforms, so are “senior entrepreneurs,” or those over age 50. The 2015 Amway Global Entrepreneurship Report shows an entrepreneurship potential for Europe at 38 percent, which has yet to be realized. Molin says the experience, knowledge and skills of this demographic is a huge asset to Europe, from a social and economic standpoint. By 2020, a third of the working-age population in Europe will be over 50, yet the Amway report finds that only 6 percent of the over-50 group is self-employed.
“The potential is enormous and remains largely unexploited in Europe,” Molin says.
Africa-Middle East. Direct selling is gaining a foothold in South Africa and other countries in this region, accounting for 1 percent of global sales or $1.3 billion, with a three-year CAGR of 3.2 percent. South Africa is the most active direct selling market in the region with 2015 sales of $597 million.
TOP PRODUCT CATEGORIES
Wellness, cosmetics and personal care, and household goods are the Top 3 product categories across the globe. Independent consultants also provide customers with clothing, utility services, financial services, food items, books and toys.
The number of people participating as direct sellers is on the rise across the globe. The salesforce in the Asia-Pacific region grew 4.5 percent in 2015 to 51.9 million people, according to the WFDSA.
The Americas jumped 6.0 percent to 35.1 million sellers.
Europe climbed 0.3 percent to 14.6 million distributors.
And Africa and the Middle East now are home to 1.7 million independent consultants, up 4.8 percent year-over-year.
The industry can only keep growing as more countries embrace the model and more individuals realize the benefits of being an independent consultant. What will ensure success is for direct selling companies to self-monitor, to uphold the high standards they have set and to continue to tell the real story of direct selling.
“The opportunity for direct selling right now is tremendous. People around the world are increasingly looking for ways to work differently, with more flexibility and independence,” says Amway’s DeVos. “These are benefits that direct selling has always offered. If we continue to set appropriate expectations around our income opportunities, highlight our product offerings and keep providing strong consumer protections, the potential for our industry has no limits.”
The outlook is bright closer to home, too, says the U.S. DSA’s Mariano. “In the years ahead,” Mariano says, “direct selling in the U.S. can continue to grow if we continue to embrace technology, appreciate the different expectations of different generations of salespeople and never lose sight of our customers, who demand great products and a great customer experience.”