DSA’s 2019 Growth & Outlook Survey results were just released, and after two years of modest decline, direct selling returned to growth, achieving $35.4 billion in estimated retail sales.
Riding on the tailwinds of strong macroeconomic conditions, the direct selling channel is well-positioned to achieve accelerated and sustained growth if it addresses the following:
Revisiting The Retail “Apocalypse”
Before we go into further detail about the industry research findings, here’s some important context about the favorable macroeconomic environment.
Last year in this publication, I attempted to debunk the myth of the retail apocalypse and share a vision for how direct selling could return to growth.
Direct selling did return to growth. However, if you Google “retail apocalypse 2019” you continue to see tens of thousands of articles from prominent publications describing a grim reality of retail. It is true that many shopping malls are dying, which is driven by the closure of many “anchor” stores like JC Penney and Sears. And, there are already more announced store closures in 2019 than in all of 2018, including Payless, Gymboree, Walgreens, Victoria’s Secret, JC Penney, and Dress Barn.
It’s true many retail stores are closing. However, this only tells part of the story. Retail in the U.S. actually grew a healthy 4.8 percent in 2018, just a bit under the 5.2 percent growth of U.S. GDP. Reasons for retail growth include the strong economy and positive consumer sentiment.
Retail Isn’t Dead; It’s Just Evolving
E-commerce is one of the biggest segments of growth within retail at 14.2 percent in 2018. However, e-commerce still represents less than 10 percent of overall retail.
Other areas that are doing well continue to be experiential, discount, and omnichannel/harmonic retail (or companies that seamlessly blend multiple sales channels into an improved and unified customer experience). In fact, while many stores are closing, they are often being replaced by other brick and mortar stores.
How Did Direct Selling Perform?
There are numerous factors driving direct selling’s 1.3 percent growth in 2018.The direct selling wellness sector is the largest sector in terms of growth and share (representing 35.6 percent of total direct selling retail sales). Some of the wellness growth can be attributed to companies offering personalized service, coaching support, and accountability to help people become healthier within the context of a growing obesity epidemic and an aging population. Services and leisure & educational categories also experienced growth in 2018:
We also feel that growth is driven by the success of many companies that are responding well to the evolving retail channel and technology.
The 2019 Growth and Outlook Survey results also provide new clarity into who direct sellers and their customers are. In 2018, there were 6.2 million direct sellers (a 1.6 percent increase from 2017) and more than 36.6 million customers. (This customer count excludes customers that have not signed an agreement with direct selling companies.)
What’s The Outlook For Direct Selling?
DSA’s Industry Research Committee forecasts a 1-3 percent annual growth for the next three years. Rationale for the forecast includes: strong U.S. economy, retail growth, high consumer confidence, people are looking for part-time, flexible, entrepreneurial opportunities, many companies provide ongoing personalized coaching and provide unique value to the consumer. As more companies address retail and technological trends, including the recommendations below, we feel direct selling will be poised for continued growth in-line with GDP and overall retail sales. Direct selling is well positioned to achieve continued growth if companies address the following:
Segmenting Salesforce and Customers To Better Understand Your Salesforce and Become More Customer-Centric
Segmentation poses a business growth opportunity by tracking sales by segment, improving engagement with active and unengaged reps, and tailoring communications by segment. By developing preferred customer/ loyalty programs, companies are more easily able to cultivate customer data and identify how you can best empower your salesforce to meet customer needs.
Doing Research On Gen Z and Developing A Strategy To Attract Future Generations To Products and The Direct Selling Opportunity
There’s been much research done on millennials, but few in the industry are familiar enough to develop strategies to appeal to Generation Z (those born 1996-2011). By 2020, Gen Z will make up 40 percent of consumers and 36 percent of the workforce. Significant differences between Gen Z and millennials are emerging.
At DSA’s Annual Meeting, Josh Miller a 17-year-old entrepreneur representing XYZ University informed several DSA execs on how Gen Z is data-driven, competitive, and focused on financial stability and the future. Another fascinating insight Josh shared is that because Gen Z’ers don’t know a world without smart phones and social media, they now prefer face-to-face communication to online interaction. Information like this should help companies recognize if their direct selling strategy and model are poised to succeed with this generation. As the world’s largest upcoming generation, Gen Z represents the future of the labor market and consumer base. The sooner companies realize this, the more likely they will succeed.
Learning From The Gig Economy, Which Is Shaping Workforce Expectations
With the ubiquity of companies like Uber, Lyft, and Airbnb, it’s easy to forget that the gig economy is relatively new, nebulous, and rapidly evolving. What is evident is that the gig economy has already had a significant impact on reshaping workforce expectations (including direct selling) and will continue to do so for the foreseeable future.
For example, workers are increasingly expecting instant payments. Transportation services like Uber and Lyft allow for immediate payment following a ride, and even Airbnb provides payment at the start of a customer’s stay. Another way to learn and adapt from the gig economy is to make connecting with prospects easier. The appeal of many gig roles is that customers are connected to the gig worker through technology. The worker doesn’t need to do anything but show up. Some direct selling companies are addressing this challenge by matching prospects who visit their websites via geographic proximity. Companies may also be more proactive to drive prospects to their commerce sites, but traditionally many direct sellers view this as infringing on their prospect base. This is an area that needs further investigation. But technology and evolution of e-commerce platforms is likely a step in the right direction.
Another thing direct selling can learn from the gig economy is being able to control the whole business from a mobile device. There are many things we can learn from them that if addressed may make direct selling a better destination for those considering other gig opportunities.
During a tight labor market that’s achieved 50-year lows in the unemployment rate, the gig economy has increased the appeal of flexible, part-time earning opportunities. This should be direct selling’s sweet spot where we can compete and win.
While There Is Clearly Overlap, There Are Also Important Differences
Here are some key similarities and differences between direct selling and the gig economy:
Innovating To Avoid Getting Left Behind During Rapid Evolution Of Retail & E-commerce
Another component of becoming more customer-centric is placing an increased focus on customer retention. It is well documented that the cost of retaining a customer is much less than acquiring a new one. Many e-commerce and gig companies are getting into the retention game with loyalty programs. A notable example of this is Dollar Shave Club, whose retention rate at 12 months is 50 percent—far exceeding many direct selling companies. Consider ways to engage loyal customers with targeted communications, product recommendations and promotions, and consider gamification.
Prioritizing Key Points Of Differentiation That Direct Selling Offers, and Minimizing The Impact Of Perceived Weaknesses
The direct selling industry is at a crossroads as the 100+ year old industry sees the retail and labor landscapes rapidly evolving. Questions emerge like how do you stay true to your core identity while embracing technology and change? What is the best path for direct selling moving forward?
The U.S. macroeconomic conditions create favorable tailwinds for direct selling to thrive, and its best path forward likely lies first in prioritizing key points of differentiation.
The late author and management consultant Peter Drucker said, “Waste as little effort as possible on improving areas of low competence. Concentration should be on areas of high competence and high skill. It takes far more energy and far more work to improve from incompetence to low mediocrity than it takes to improve from first-rate performance to excellence.”
Direct selling has the ability to achieve sustained excellence and comparative advantages in certain areas such as personalization, relationships, and experience. Monica Wood, Vice President, Global Consumer and Member Insights at Herbalife Nutrition and incoming Chair of DSA’s Industry Research Committee said, “Personalization is becoming ever important and is a key differentiator we have in direct selling. Our distributors listen to the needs of their customers and then they customize the wellness solutions we offer based on the individual needs of that customer.”
“Direct Selling, like any industry, needs to evolve with macro and consumer trends, but it should not compromise on its inherent points of differentiation such as the priceless personalized experience a customer has with their direct seller,” says Jeff Kaufman, outgoing Chair of DSA’s Research Committee.
The unique direct selling experience is also a differentiator. As Qualtrics CEO Ryan Smith said, “we’re in the experience economy. People will pay a premium for a good experience, and experience is a growth lever… Either you’re intentionally racing to the top with experience or you’re unknowingly racing to the bottom.”
Focusing On Providing Value
No matter how hard direct selling companies try, it’s unlikely they’ll be able to beat Amazon on selection, shipping time, and price.
Amazon’s economies of scale, technological expertise, and relentless willingness to incur massive losses to compete for market share/growth make competing across any of these dimensions very difficult.
Will direct selling companies need to be able to beat Amazon on one-day drone shipping? Should direct selling companies match Dollar General on pricing? Beyond egregiously underperforming across these metrics, the answer is likely no. As long as you have value in other areas (e.g. the personalized ongoing service salesforce members offer their customers), 3-4 day shipping at a breakeven cost or selling cosmetics a dollar above the dollar store prices are likely fine. Otherwise, you’re on a race to the bottom.
However, at the other extreme, if we surrender entirely on selection, shipping time, and price, then you’re likely doomed. No matter how good your product is, consumers’ expectations have increased, and no one wants to wait weeks for their next order of protein powder. The answer lies somewhere in the middle. Being good enough to not noticeably frustrate customers here may be likely sufficient.
To see more statistics from DSA’s 2019 Growth & Outlook Survey, click here: www.dsa.org/benefits/research