It used to be officials knocking on doors across China to ensure political zeal. Today, it is more likely to be a small army of direct-sales agents peddling lipstick in the name of profit.
Door-to-door selling is making a cautious comeback in China after an eight-year ban. In March, Avon was granted the first direct-selling business license. Amway, Nu Skin and Mary Kay Cosmetics are expected to follow as the country’s Ministry of Commerce gradually revives the distribution channel.
The green light will allow such firms to unleash sales agents on a burgeoning pool of consumers. But the jury is out on whether direct sales will be much of a trump card as firms vie for a slice of the market.
Chinese consumers spent $10.3 billion (?8.3 billion/£5.8 billion) on cosmetics and toiletries in 2005, an increase of 11% over 2004 and a rise of 68% on five years ago, according to market research group Euromonitor. Beauty retail sales are forecast to hit $17 billion by 2010.
But the future of direct selling looks basic. The new regulations allow only a single-level scheme where earnings are restricted to agents’ own work, in contrast to a more complex set-up where staff can also make cash from the people they recruit. Spooked by such “pyramid” schemes of the past, mainland officials are wary of multi-layered sales.
At the height of the direct-selling boom prior to 1998, more than 2,000 beauty firms were involved in door-to-door sales. The ban came as a hefty blow to those who had aggressively waded into the market.
“Amway really suffered a lot,” said Leo Sin, a professor at the Chinese University of Hong Kong’s marketing department. “Before 1998, the central government encouraged them to come and do business here. So it developed very fast.”
In 1998, Amway’s sales fell to 320 million yuan (?32.3 million/£22.3 million/$39.9 million) from 1.5 billion yuan the previous year. Then it turned its focus to retail outlets.
Avon entered the market in 1990 and now sells its products through a network of 6,000 beauty boutiques and 1,000 beauty counters across China.
Companies such as Mary Kay did not branch out into the retail sector on the same scale as Avon, and to market experts like Paul French, Mary Kay has pinned a lot on the resumption of direct sales.
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“The jury is still out on whether it’s going to work,” said French, a Shanghai-based director at market-research firm Access Asia. “There are questions over the suitability of direct selling.”
He explained that in China, women don’t tend to share beauty tips with each other; girls don’t shop together much, and people are generally wary of inviting others into their homes.
“There’s not really a culture of people coming into your house,” he said. “And there are issues about trusting people with cash.”
The very act of large groups of people gathering at a home could, moreover, prove politically sensitive.
“[The authorities] have recently cracked down on home churches and bible study,” said French. “Anyone gathering anywhere for anything is a problem.”
Direct sellers such as Mary Kay and Amway were reluctant to talk about their future plans in China as they await the outcome of their license applications. Avon also declined to talk about its strategy.
Analysts such as Freda Tong at the Li & Fung Research Centre believe direct selling may give companies an advantage in more remote rural areas. She warned, however, “It will depend on your position and your network in the rural area.”
According to a 2005 Li & Fung report, 60% of the Chinese population lives in rural areas but has low disposable income.
“Word-of-mouth works well in China,” said Access Asia’s French. “The question is…when they don’t have electricity and live on $1 a day, I don’t know if they are all waiting around for the Avon lady to call. It’s so up in the air at the moment.”
This article appeared in WWD Beauty Report International, a special publication to WWD.