Lex: Redeeming direct sales
Financial Times
Published: 11:10 - 11/04/08
"Direct sales" has a bad rap. It tends to conjure up images of pyramid
schemes, or Avon ladies from another era. Direct sales companies are seen
as
less reliable than consumer goods peers, with listed sellers typically
trading at a valuation discount.
This is unfair. Sales representatives for US-based Avon Products, the
largest direct seller with a market capitalisation of $17bn, have been
plying their trade since the 19th century. World Trade Organisation rules
require members to permit direct selling. The industry generates $120bn of
annual sales, powered by 60m independent "consultants" around the world.
Neither is decline apparent. Direct sellers have steadily increased their
share of the global cosmetics and toiletries market over the last ten
years.
With 11 per cent of the market, it now accounts for more sales than
department stores. Oriflame, which operates mainly in the former Soviet
republics and central Europe, has averaged 17 per cent annual sales growth
since 1990. Direct selling represents more than a fifth of the market for
cosmetics in Brazil, Russia, India and China.
There can be a lumpiness in quarterly figures -- relation****ps with a few
large customers do not help smooth re****ted numbers. Consultant turnover
is
high, but reflects the attraction of direct sales as a flexibile source of
additional income for the -- mostly -- women who do the selling. The churn
level is comparable to that of managers of fast food restaurants. But
returns in direct selling are typically high, thanks to the low level of
infrastructure required.
http://www.ft.com/cms/s/afcce07a-079c-11dd-a922-0000779fd2ac.html
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