Direct Selling’s Strength in the World’s Billion Dollar Markets
September 01, 2015
by Andrea Tortora
http://directsellingnews.com/index.php/v...m5AjoQxGqA
Direct selling continues to gain ground worldwide, with global retail sales and the total salesforce both reaching record highs in 2014...........................................
The China Factor
Despite the growth in the U.S., all eyes are on China. With 2014 sales of $30.2 billion, it is growing ever closer to claiming the No. 1 spot among the world’s billion-dollar direct selling markets. China’s phenomenal year-over-year growth rate of 18.6 percent puts it on pace to bump the United States to the No. 2 spot in 2015, as long as current growth trends continue, predicts DIR Group Management Co. Ltd., a Wuhan City-based firm that provides industry research and consulting to direct selling companies in China.
DIR Group Management subsidiary and consultancy Syncplex predicts China will continue to grow in retail direct selling revenue for 2015. According to Syncplex CEO and Founder Lau Chong Guan, “The number of licensed companies is on the rise and should reach 70 by the end of 2015. The Chinese government granted 15 new licenses as of July 2015, and there is rapid growth among new companies.”
China’s $30.2 billion in 2014 sales, as recorded by the WFDSA, only includes licensed companies. Syncplex believes there is another 20 percent in sales recorded by companies without licenses, which would bring the China market close to $36 billion in 2014.
Clearly, China is a country primed for direct selling. Its growing middle class has money to spend and is eager to experience a wide range of consumer goods, including health and wellness products that focus on prevention. At the same time, transportation issues that once made it difficult to get products to consumers in rural China are less of an issue today.
For the bulk of direct selling companies, China will remain an intriguing market to observe. Only the very largest direct sellers based outside the country—such as Amway, Avon, Herbalife, Mary Kay, Nu Skin and Oriflame—have achieved success in China. As well, several Chinese and Asian players have been successful, for instance, Perfect, Infinitus, Joymain and Tiens. Still, growth in the market is likely to be concentrated among a few players. Here’s why:
China’s relationship with direct selling began in the 1990s, when Avon entered the country. Scandals among other companies caused the Chinese government to ban direct selling in 1998. When China joined the World Trade Organization in 2001, it agreed to reopen its doors to direct selling, which it did in 2005. Today there are about 50 licensed direct selling firms operating in China. The official number of independent consultants is unknown.
During the ban, companies that first entered China, including Avon and Amway, evolved their business models to comply with Chinese law. This meant opening standalone retail stores (called specialty shops) that allowed for continued sales and a brand presence. Despite the ban, direct sellers that operated retail outlets maintained growth rates and grew their market share in cosmetics and toiletries from 2000 to 2005. Stores expanded at rates between 2 percent and 5 percent, and direct sales grew between 4 percent and 9 percent.
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The industry’s 6.5 percent three-year compound annual growth rate (CAGR) from 2011 to 2014 is evidence of direct selling’s strength and its ability to keep reaching more people in all corners of the globe.
To avoid a repeat of earlier scandals, in 2005 the Chinese Ministry of Commerce put strict rules in place to obtain a direct selling license. The process is complicated and lengthy. However the government did loosen up rules for online sales. It wants online shopping to account for more than 5 percent of China’s total retail sales by the end of 2015. To achieve that goal, Chinese officials are encouraging multi-channel sellers that operate traditional stores to offer online shopping.
Today, direct selling fits nicely into China’s current economy and cultural outlook. The person-to-person interactions dovetail with the cultural aspect of guanxi or “doing business with people you know. “
“More people want to be entrepreneurs, and so direct selling, in fact, provides them with the opportunity to invest small to start their own business,” Brian Liu, a senior manager at DIR Group Management, says via email.
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China’s phenomenal year-over-year growth rate of 18.6 percent puts it on pace to bump the United States to the No. 2 spot as soon as next year, some industry experts believe.
Claiming a Spot on the World Stage
From the Chinese perspective, there are two major direct selling markets in the world: one is the global market minus China, and the other one is the China market. The ability to use Internet sales and smartphones in direct selling embraces China’s entrepreneurial spirit.
Social media channels such as WeChat let consultants create online “micro-shops” to promote and sell their products, and many of these online stores use a simple multi-level payout structure, says DIR Group Management President Brian Cai.
\Native and international companies are keen to tap the China market, especially pharmaceutical firms. Two new healthcare and beauty product firms began direct selling operations in 2014—Taiwan-based Orient Pharmaceutical and Shandong Province-based Sanzhu Fuer Pharmaceutical. Both make medical and health products. Other established native Chinese direct sellers are eager to show off their success while rewarding their salespeople with tours around the world.
In May 2014, Perfect China (a seller of health food, household, beauty and skincare products) sent 7,000 distributors on a tour of California. The group logged 12,000 hotel room nights at 30 hotels. It was the largest single group meeting from China to ever visit the U.S., says the Anaheim/Orange County Visitor & Convention Bureau. The event generated $85 million in revenue for the region’s economy.
This May, the Tiens Group, which offers healthcare products, booked more than 4,700 rooms in 79 hotels in France to take 6,000 consultants on a four-day excursion to celebrate the company’s 20th anniversary. The trip generated $20 million in revenue.
In the same month, Infinitus, a direct seller of modern Chinese herbal products, sent 12,700 consultants, sellers and customers on six-day trips to Thailand. The company sent people in groups of 2,000 to 3,000 to visit Bangkok and the beach town of Pattaya. Thailand’s tourism officials reported an economic impact of $18 million, according to published reports.
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Today, direct selling fits nicely into China’s current economy and cultural outlook. The person-to-person interactions dovetail with the cultural aspect of guanxi or “doing business with people you know.”
Surrounded by Growth
Direct retail sales and direct sellers are on the rise across the globe, as WFDSA data illustrates.
Asia is by far the largest region for direct sales in 2014, claiming 45 percent of global retail sales. China, Japan and Malaysia make up 64 percent of that. The three-year CAGR for the region is up 8.4 percent to $81.5 billion..........................................................
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