On grocery store bulletin boards, in mailboxes, and even on Facebook newsfeeds, companies are telling women to strive for more: “Earn money, make friends! Throw parties, get rich! Write your own success story!” Direct selling companies like Mary Kay, Avon, Scentsy, and even Tupperware are hiring — and more than 360,000 North Carolina women are clocking in.
Direct selling— any business in which independent contractors sell goods door-to-door, at parties, or on the web — is a $30 Billion industry. Companies promise their salespeople extraordinary profits with minimum effort. In a time when nearly 1 out of 10 women in North Carolina is looking for work, a guaranteed job with high pay, flexibility, and no boss seems nearly too good to be true. And according to industry experts, it probably is.
Amy Robinson, a spokeswoman for the Direct Selling Association, says that women make up more than 80% of these companies’ independent contractors. And although the internet is rife with stories of women making more than six-figure salaries selling candles, jewelry, or tote bags, the truth is that for most women, participating in these businesses comes at a steep cost.
J. Andrew Petersen, Assistant Director for the Center of Integrated Marketing and Sales at UNC’s Kenan-Flagler Business School, says that sellers tap their social networks and rely on friends for financial gain.
“You’ll exhaust your friends’ wallets and patience with you if you oversell,” Peterson said. “It can ruin friendships. It brings business into personal.”
The number one direct selling company in the world, Avon, relies on more than 6.5 million sellers to reap its $11.3 billion annual sales. But those sellers don’t fly solo. Like many direct selling companies, Avon relies on a multi-tiered sales structure to keep profits flowing. Once a saleswoman has a few sales under her belt, she is encouraged to recruit more sellers to work under her. She earns a small profit from those recruits’ sales, and from any made by anyone those sellers introduce to the company.
If this sounds familiar, that’s probably because it mirrors the classic pyramid selling scheme in which scam artists make money solely by enrolling others into a scam. Multi-level marketing—recruiting sellers into a network and profiting from their sales—differs from Pyramid schemes in that there is an actual product being sold. But even though it’s legal, it’s not necessarily a safe investment, warns Robert FitzPatrick, who produced a report investigating the costs and benefits of ten major multi-level marketing firms.
In that report, FitzPatrick writes that the majority of commissions for sales are sent to the very highest levels of the sales chains, leaving most salespeople with less than $10 a week. In addition, inventory maintenance costs often strip away any profits for most salespeople, leaving many operating at a loss.
Other critics of the direct selling industry have called for the Federal Trade Commissions to establish regulations, including requiring these companies to disclose commission structures, average seller income, and rates of turnover. FitzPatrick claims that more than 60% of sellers leave these companies every year, the majority of whom never earned a commission.
The Direct Selling Association says that many people who become sellers never intend to make a profit, and are, instead, people enthusiastic about a brand and who see an opportunity for discounts. The average annual salary of a direct selling representative is only $2,400, according to the DSA, who says on average these sellers work fewer than 10 hours a week and often have other jobs.
Many direct selling contractors are women with small children. In North Carolina, more than a quarter of women with children under 18 stay home. In contrast, only 6% of men with children under 18 are voluntarily unemployed. For many of these families, the few dollars they earn selling cosmetics or kitchenware provide a welcome addition to an already robust household budget. But for others—such as women who are involuntarily unemployed — these businesses can threaten their household’s stability.
Unlike working at a store or for a company, an independent seller assumes all the risk for their operation. All inventory costs, marketing materials, and promotional outlays are shouldered by the seller. And since the business depends on word-of-mouth, women have to continually press their friends for referrals, which often can dry up. And if a company turns out to be participating in fraudulent activity or is reported to be a scam, individual sellers will be the ones who lose.