The direct route to beating recession: Selling on the doorstep and through parties is resolutely profitable, Janet Robson finds
Tuesday 08 September 1992
According to the Direct Selling Association (DSA), the industry has enjoyed unbroken growth of 10-14 per cent over each of the past five years. In its forthcoming annual report, the DSA is expected to show that total direct sales reached pounds 800m in 1991, up from pounds 725m the previous year.
One reason for this imperviousness to recession is that direct- selling companies offer low prices.
One of the fastest-growing is Betterware, whose sales rose by 44 per cent to pounds 41m last year. Betterware sells a range of more than 400 household goods, from mops to microwave dishes. The average price of one of its products is pounds 3.40, with only around a dozen items costing more than pounds 10.
Low overheads allow direct- sales companies to offer goods more cheaply than retailers or mail order firms. Martin Williams is managing director of Amway (UK), whose parent group is the second-largest direct-selling company in the world, after Avon, the toiletries company. 'Retail prices in the UK have risen by around 64 per cent over the past 10 years, but in direct selling they have risen by only 28 per cent,' he said.
Direct selling is successful not only for cheap products. Encyclopaedia Britannica, for instance, costs between pounds l,000 and pounds 4,000, depending on the binding. 'We sell to institutions, but families are our main market,' Derek Snoxall, executive vice-president of Encyclopaedia Britannica, said. 'Our business is fairly recession-proof - the average family spend is pounds 1,200 and we haven't seen any change in that.'
However, most direct-sale products cost much less - the average value of a transaction is about pounds 8. Part of the reason for the enduring popularity of direct sales may be that, while postponing buying a car or a television, women are still prepared to allow themselves the luxury of a perfume or a body lotion.
The ability of direct-selling companies to reach the consumer depends on being able to recruit and hang on to salespeople, who are usually self-employed and earn commission only. Mr Williams commented: 'The recession does enable recruitment to occur more easily.' Most salespeople are women working part- time, perhaps looking for extra income to help pay for a family holiday or Christmas presents. For example, Betterware's distribution force increased by 20 per cent to 9,000 in the first quarter of this year. The Dee Group, which sells mainly clothes, has increased its number of demonstrators by 30 per cent to 6,000 since January. The average spend per customer may weaken during recession (though not necessarily), but direct-sales companies are more than able to compensate for that by increasing their market penetration.
Although direct selling appears to be recession-proof, that is not to say that it succeeds only during a recession. It is one of the oldest forms of retailing, and Richard Berry, director of the DSA, believes that recession merely 'brings out the latent strengths of direct selling'.
Many companies say that personal service is where direct selling scores over other forms of retailing. In a recent Mori poll conducted on behalf of the National Consumer Council, 40 per cent of shoppers complained of unhelpful and uninterested shop staff treating them with 'ignorance and rudeness'.
They also complained about goods being out of stock or faulty, and about queues at check-outs. Department stores, clothes shops and electrical stores attracted most complaints. Mr Williams is in no doubt about the reasons for the success of direct selling. 'There's been a growth in multiple retailers who haven't capitalised on customer service. People are becoming more discerning about what they buy and they expect more information about products.'
Amway (UK) sells cosmetics, jewellery, clothes, and household and environmental products through a catalogue and by trial sampling; it is expecting sales of pounds 34m for the financial year to August, an increase of 61 per cent, and is forecasting strong growth for next year. Other valued aspects of the service are convenience - goods are delivered rapidly to the door - and product guarantees. Direct sales companies generally offer money-back guarantees on all their products.
Nearly 80 per cent of direct selling is on a one-to-one basis, but party plans are popular for some products, such as women's clothes. A sales representative will host a party in her home, inviting a group of women to spend an evening being shown the clothes and trying them on in a relaxed atmosphere. As every woman knows, communal changing-rooms in fashion stores are at best uncomfortable and at worst downright embarrassing. 'Customers appreciate being able to try on clothes in private,' said Maureen Phillips of The Dee Group.
This is particularly true if they are the kind of clothes sold by Ann Summers. Though perhaps still best known for its Soho sex shops, Ann Summers now generates 94 per cent of its sales through parties. These achieved sales of over pounds 35m in 1991, with 80 per cent coming from the kind of lingerie you would not want to try on in a communal changing- room, and the rest from 'sex-orientated products'. Party-plan selling, whether of cookware or underwear, has an added entertainment value. Jacqueline Gold, a director of Ann Summers, confirmed: '(We) provide quality and choice to women within a comfortable yet exciting, ladies-only atmosphere. The 'fun' factor has proved to be the cornerstone of the success of the parties.'
Ann Summers also demonstrates another strength of direct selling, the market research readily available from contact with customers. As a result of feedback from parties, Ann Summers launched two new ranges in January - swimwear and lingerie for larger women. Since then, sales have increased by a record 43 per cent.
Perhaps it is this interaction with customers that enables direct selling to succeed while contradicting the modern marketing gospel of narrow client targeting. Direct mail employs ever more sophisticated selection techniques to identify people with desirable traits, such as 'opportunity- seekers' or 'cat-owning ABs with green front doors', yet the take-up rate from mail-shots is only about 2 per cent. Betterware, on the other hand, has a response rate of 20 per cent. 'It's not that we don't target customers,' contended John Lloyd, the managing director, 'just that our target criterion is a lot wider - it's if you can see the front door from the road.'
Direct-sales companies seem to be bucking the retail trend because they are selling actively. Ms Phillips said: 'We are going direct to customers, not waiting for them to come to us.'
Mr Berry believes that the strength of direct selling while retail sales are weak may have widespread implications for the economy. 'Many people are not spending because they are afraid. In a sense, it's auto-suggestion - they keep reading that people are not buying in the High Street, so they think they shouldn't. But when salespeople actually go and talk to people they find that there is a strong demand.' The Chancellor take note: maybe the Treasury should ditch its economic advisers and hire a few psychologists instead.
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