The State of Direct Selling and Envisioning the Future of the Channel

DSA’S 2020 GROWTH & OUTLOOK survey reports that the U.S. direct selling channel remained roughly flat (-0.4 percent), achieving $35.2 billion in estimated U.S. retail sales in 2019.

To better understand direct selling trends within our rapidly evolving macroeconomic landscape, DSA is conducting extensive research in addition to its standard Growth & Outlook market-sizing survey. For example, DSA’s Coronavirus QuickPulse surveys track the business impact of Coronavirus on a weekly basis, and quarterly DataTracker surveys provide insight into quarterly trends and KPIs. DSA’s Industry Research Committee is analyzing all this survey data, secondary research, and developing key insights and actionable takeaways to include in the 2020 Growth & Outlook Report to be released early this summer.

In addition to the standard market-sizing and benchmarking data, this year’s Growth & Outlook reporting has shifted more toward addressing the outlook for the industry and a bit less time looking backward at market-sizing for the prior year. More specifically, this year’s report will identify the impact Coronavirus is having on the broader economy and retail landscape, and it will envision the future of direct selling by providing a direct selling forecast along with scenario planning and actionable recommendations on how to navigate challenges posed by the pandemic to achieve the upper bounds of the forecast.

Before diving further into direct selling insights, here’s some important context about the macroeconomic environment:

STATE OF THE U.S. ECONOMY

In February 2020, Coronavirus shocked the U.S economy into a deep economic slowdown that we haven’t seen

since World War II. According to Oxford Economics’ forecast, we won’t see Q4, 2019 levels of GDP until at least mid 2021.

The good news is that assuming there isn’t another shock, we’re already on the path to recovery in terms of GDP, unemployment, and a few other macroeconomic metrics. But, it may be a long, swoosh-shaped one.

GOP Q4 2019 =100

STATE OF RETAIL

We’re continuing to see accelerated effects from American overbuilding brick & mortar retail in the U.S. In fact, the U.S. has the highest retail square footage per person of any country by far.

RETAIL SQUARE FOOTAGE PER PERSON

Regardless of when people will feel comfortable returning to stores, retail footprint will likely contract as consumers shift online:

U.S. ECOMMERCE PENETRATION (% OF RETAIL SALES)
10 YEARS vs. 8 WEEKS

A survey conducted in April 2020 by Digital Commerce 360 and Bizrate Insights found that 55 percent of online consumers said they were ordering more online than they were before the virus hit, up from 26 percent in March. And 22 percent said in April they were ordering a lot more online, as opposed to only 6 percent in the March survey.

There’s evidence that much of the increase in online shopping is from those purchasing online for the first time: ClearSale analyzed April 2020 e-commerce customer data from clients in five of its major markets: the U.S., Canada, Australia, Mexico and Argentina—all countries where some form of lockdowns were in effect. The analysis showed that across all five countries, the average number of brand-new online shoppers rose by 12 percent between March and April.

U.S. DIRECT RETAIL SALES (BILLIONS)

STATE OF DIRECT SELLING

Before envisioning the future of the direct selling channel, it’s important we understand historical data to establish a common foundation for where we were before Coronavirus hit and we can better understand its impact. Here’s what we can learn from Growth & Outlook data:

 

  • IN A TURBULENT WORLD, DIRECT SELLING REMAINS STEADY AND MAINTAINS RELEVANCE. In the last four years, direct selling retail sales have remained steady, hovering around $35 billion in retail sales in the U.S. Considering the dramatic increase in competition from ecommerce giants and the rise of the gig economy, maintaining stability can be seen as a positive. Although at the same time of course there is room for significant growth.

 

CONSUMERS CONTINUE TO ENJOY PRODUCTS AND SERVICES OFFERED THROUGH DIRECT SELLING. According to the DSA-Ipsos 2020 Consumer Attitudes & Entrepreneurship Study, perceptions toward direct selling have remained stable at about 80 percent over the last 10 years. Most consumers find value/appeal in the good feeling of supporting a small business (69 percent) and the personalized service (67 percent) that direct sellers provide. The wellness and service categories within direct selling continue to be the largest and experienced the most growth.

DIRECT SELLING RETAIL SALES CATEGORY SHARE

 

  • AMERICANS ARE SEEKING ENTREPRENEURIAL, SUPPLEMENTAL INCOME-EARNING OPPORTUNITIES. The Growth and Outlook Survey results continue to provide new clarity into who direct sellers and their customers are.  There were 6.8 million direct sellers in 2019, a 9.9 percent increase from the prior year. 87 percent of direct sellers (5.9 million) are part-time. This overall salesforce increase may continue to be an effect of industry segmentation. There were also more than 36.9 million direct selling customers in 2019. (This customer count excludes customers that have not signed an agreement with direct selling companies.)

 

  • THERE’S EVIDENCE THAT DIRECT SELLING IS RECESSION RESISTANT AND RESILIENT TO EXTERNAL ECONOMIC SHOCKS. Historical DSA Growth & Outlook Survey data shows that direct selling has had a long, steady growth trajectory. Although direct selling is not recession proof, there is evidence that it is recession resistant, having experienced growth during two of the three most recent recessions (see grey boxes above). Although consumer spending and confidence decrease during recessions, there’s generally an increased demand for part-time supplemental income, which works in direct selling’s favor.

    U.S. DIRECT RETAIL SALES

     


Mark Menatti, Director of Business Intelligence at USANA and co-chair of the WFDSA Global Research Subcommittee, is working with the Research Committee to develop a model to better understand the relationship between macroeconomic factors and direct selling. “In short, a strong economy is better for the industry overall because product demand appears to be the largest driver of activity, by far. Additionally, since many of us operate in the premium price space, a strong economy allows more people to buy from us rather than purchase lower cost substitutes. The side gig effect is real also and allows us a measure of stability during tougher economies, but it is the weaker of the two effects.”

 

FUTURE OF DIRECT SELLING

“There are several positive trends in the U.S. in the direct selling channel,” says Monica Wood, Vice President, Global Consumer and Member Insights at Herbalife Nutrition, and Chair of DSA’s Industry Research Committee. “In the short-term, we’re seeing growth as companies have adapted to the changing environment by going virtual. Direct selling companies have been nimble and responsive to evolving consumer needs and providing aspiring entrepreneurs a source of supplemental income.”

DSA’s 2020 Growth & Outlook Report will have a detailed forecast with several inputs along with scenario planning. That said, there’s a limit to the usefulness of trying to predict the future. The most useful part of this forecast is not how to predict the future but in helping us become stronger regardless of what the future holds. We encourage you to address how you can make yourself stronger and learn how to thrive when experiencing disorder and volatility.

HOW T O MAKE DIRECT SELLING ANTIFRAGILE?

According to Nassim Nicholas Taleb, in his book Antifragile, “The resilient is neither harmed nor helped by volatility and disorder, while the antifragile benefits from them.” With the likelihood of continued volatility and disorder caused by Coronavirus, civil unrest, and other world events, how can direct selling move from being resilient to antifragile? Here are some possibilities to consider:

  • MAINTAINING RELEVANCE AMONG FUTURE GENERATIONS. According to Josh Miller, Director of Gen Z Studies at XYZ University, after being the first generation to be completely digitally-native and spending so much time behind screens, Gen Z craves authentic, face-to-face interactions. Establishing these authentic, human connections with members of Gen Z is something direct selling companies are well-positioned to excel in, especially as the U.S. economy reopens.

 

  • IMPROVING DIGITAL TOOLS. A theme that emerged from DSA’s QuickPulse surveys are the quick, nimble adoptions of digital tools to create online parties, virtual conferences and Zoom trainings.

 

  • BEING WHERE YOUR CUSTOMERS ARE: Become customer centric, and consistently adapt to consumers’ shifting behaviors. With shoppers increasingly online and becoming more comfortable with shopping online, continue to pose buying opportunities where your consumers are, whether it’s your own ecommerce/mobile commerce platforms or social media. As COO of Shopify said, “Multichannel is not a strategy. The strategy is to sell where your customers are.”

 

  • BEING ADAPTIVE TO LONG-TERM CONSUMER BEHAVIOR SHIFTS in the face of product delays/ shortages and normal shopping habits being disrupted. According to Natasha Stevens, Executive Vice President Strategy and Product Innovation at GfK, one fourth of consumers have tried at least one brand they’ll stick with after the pandemic is over. “Accidental trial leads to repeat buying.”
    • According to Stevens, the following lead to the highest social media engagement:
    • Brands that acknowledge the reality of the current state with authenticity and transparency resonate and drive engagement
    • Brands that practice empathy and understanding to the specific brand purpose has been able to foster a connection to the target audience
    • Throughout the many phases we’ve been through since March, there continues to be receptivity of product and service promotions especially when precise targeting is used to reach a certain target audience. But it’s important to be mindful and have the data to know that you’re reaching your desired target audience.

 

  • SETTING REALISTIC EXPECTATIONS—people are looking for good products and opportunities to make supplemental income. There’s no need to over-promise, as direct selling offers both.

 

  • USING MESSAGE TESTING INSIGHTS FROM DSA-IPSOS 2020 CONSUMER ATTITUDES & ENTREPRENEURSHIP STUDY to appeal to prospective direct sellers in an effective, ethical way.

According to the message testing from the study, combining the four messages can boost your marketing  efforts and reach 84 percent of your target audience.

MESSAGING TO POTENTIAL ENTREPRENEURS

Through our analysis we identified 4 messages that will have the best reach.