Multilevel Marketing: How’s Everyone Doing?

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What is a twenty-year downward trend? Based on industry data, the direct selling/multilevel marketing industry continues to decline as a percentage of US retail sales. In fact, at 0.84%, the industry is now at a level not seen in three decades.

DS sales as a percentage of US retail sales

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And some of the constraints are obvious. Several class action lawsuits have created a liquidity problem at Rodan & Fields. Moody’s downgraded Juice Plus+ due to “double-digit sales declines in its fiscal year ending April 2022,” downgraded Rodan & Fields because “revenue and profit declined by a double-digit percentage in over the past three years, impacted by significant declines in the company’s independent sales advisors,” and rated Isagenix Caa2 because “Moody’s believes that certain social elements, including changes in consumer buying habits and attractiveness of people serving as sales representatives at Isagenix, can negatively impact the company’s “multi-level marketing” business model.” NuSkin missed the estimated earnings as “revenues and profits continued to decline year over year” and this month began the layoffs. By my estimation, 2020 has been good for the industry. But in the absence of the pandemic, the industry likely would have lost ground for six straight years relative to total retail sales.

So what’s the problem? There are many of them and none will soon disappear. First, the barriers to entry are low. Too many MLM companies are chasing too few MLM distributors in an industry that is losing ground in the retail space. It is difficult to know the exact number of MLMs based and operating in the United States, but a good estimate would be 600 to 700. An equally good estimate would be that the number increased significantly from around 2000, towards the beginning of the twenty-year decline.

Creating an MLM takes very little time. Products or services that typically rely on clever marketing to imbue them with hard-to-measure qualities can be easily created. Compensation software can be self-purchased, and manufacturers with excess capacity can be easily found. That leaves seed capital, experienced leadership, and a small number of people with downlines or experience creating downlines. Given the size of the industry, many of these people are known and there is a pipeline to nurture new talent. Distributor poaching is an industrial sport. And trying to build a “gap” based on unique product qualities can lead to unwanted lawsuits.

Second, the industry created its own backlash from former distributors and their friends and family. Consumer movements (e.g. boycotts) rarely last, but just as cleaning up misleading product and income claims on the internet seems like an impossible task, so does removing or responding to #antimlm posts on all social media platforms. New content appears regularly and new stories are told. Experienced posters become good at using disclaimers, hiding content that might get them in trouble with the social media platform, and handling letters from corporate attorneys.

Third, the Federal Trade Commission (FTC) and other regulators. (I know, that’s not a sentence, but it makes the point.) In October 2021, the FTC sent a letter to hundreds of MLM companies warning them about misleading money-making claims. In 2022, the FTC collected comments on an Advance Notice of Proposed Rulemaking (ANPR) regarding this same issue. The vast majority of the over 1,600 comments were negative and illustrative of MLM industry practices. The successful cases against Advocare, a twenty-five-year-old MLM and award-winning DSA member, and LuLaRoe, sued in Washington, have made waves in the industry.

Finally, we have the vaunted “Preferred Customers” and “Discount Buyers”. You know the ones the DSA magically found after the Herbalife settlement in 2016. Before that, the DSA industry fact sheet looked like this – reporting in 2015 that there were 20.2 million people” involved in direct selling”. The following year it looked like this – now reporting that 15.2 million are truly discount customers with 5.3 million full or part-time direct sellers. Three years later, it looked like this – showing 9.6 million discount shoppers, 27.3 million preferred customers, and 6.8 million full or part-time direct sellers. One would think that all of these “customers” benefiting from MLM products would stabilize or even increase demand. But the chart says otherwise. Could it be that the “customers” are in reality only distributors who have become inactive or have failed to meet purchase volumes? Something to think about.

About Deborah Wilson

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