ATLANTA — Direct and in-home selling that bypasses retailers has grown from the province of Tupperware parties and the Avon lady into a multibillion dollar industry.
The channel has become an enticing retail alternative because of unmet consumer desires for service and personal attention, convenience and a sense of community, combined with a business climate challenged by consolidation, higher costs and a changing workforce.
Personal care items top the varied product range, which includes clothing, jewelry and accessories. Any product that lends itself to demonstration, a sense of pampering or fun with friends, is likely to work in home settings, from scented candles to sensual body lotions.
Bill Blass, Jockey International, The Body Shop and Aerosoles are among the big players in fashion, personal care and footwear that have direct sales divisions. Others are considering doing the same. For example, Soma by Chico’s, which focuses on lingerie for Baby Boomers, has had success with in-store parties hosted by customers and may expand the program to in-home events.
Selling products directly through independent sales reps, often through in-home parties, can be an effective addition to a brand’s multichannel arsenal, while typically netting smaller numbers than retail stores and catalogues. Cheaper and less risky than opening stores, direct and home selling often create fierce consumer loyalty in a grassroots alternative to traditional advertising.
“If it works well, you get evangelical people pumped up about the product, which is better than advertising to reinforce a brand,” said Cynthia Cohen, president, Strategic Mindshare, a Miami marketing and branding consulting firm. “In stores today, there’s more product and much less service, so in-home sales edits product, explains and personalizes it for consumers.”
Demographics may also support continued direct sales growth as Baby Boomers of retirement age look to part-time direct sales jobs for the income, flexibility and socialization they provide, Cohen said.
But the business model, with its volunteer army, can also be fraught with challenges.
“To replicate store sales you need five to 10 times the number of independent reps,” Cohen said. “There’s a huge fallout and turnover in sales reps after two years. With startup costs, infrastructure, legal contracts, training, recruiting and keeping sales people, it’s an interesting but not an easy solution.”
The U.S. direct sales industry, which includes in-home selling, has almost doubled in the last decade to more than $30 billion a year. Annual growth averaged 7.1 percent in the last 10 years, outpacing traditional retail’s average yearly gain of 5.5 percent, according to the Direct Selling Association, a Washington-based trade organization representing 180 active member companies. Direct sales of clothing, lingerie and shoes total about $800 million annually.
“Lots of companies are looking at direct sales to new markets and enhancing their retail efforts in a multichannel approach,” said Amy Robinson, spokeswoman for the association. “Wall Street has undervalued this industry because of perceptions about companies not being aboveboard, or associations with multilevel pyramid schemes. The negative associations have impacted legitimate companies.”
Last month the association kicked off a yearlong publicity campaign to improve its image with consumers and investors with a series of double-page ads in USA Today and business magazines, such as Fortune.
In fashion circles, direct sales is a distant cousin of the trunk show, which can also generate high sales without the risk and cost of opening new stores. Based on the success of trunk shows, which are 60 percent of sales for the Bill Blass designer line, the company decided to take the leap into direct sales, said Michael Groveman, chief executive officer of Bill Blass Ltd. Bill Blass New York, a 100-piece bridge collection, was introduced in 2004, and is sold exclusively through a direct sales team.
“We were intrigued by it — it’s quirky, and not a crowded field,” Groveman said. “It does well in places where there’s no Saks or Neiman’s. We have high expectations.”
Though the number of players is only a handful, direct sales clothing lines, such as Worth By Design, are multimillion-dollar operations with hundreds of independent sales reps who sell through in-home trunk shows on a one-on-one basis. The high-end lines attract affluent women.
Worth By Design recently took steps to update its business strategy to attract a younger following. In 2001 it launched Worthwear, a line priced 50 percent less than the collection, with more updated styling and casual options. This year a virtual store, available to sales reps, was started for sales between trunk shows along with a print fashion ad campaign in Town & Country magazine to raise the line’s profile for both consumers and sales recruits.
With constant customer complaints on retail service and the number of independent specialty stores that once served the carriage trade in decline, direct and in-home sales is positioned as a potentially attractive option.
“Small boutiques aren’t here anymore,” said Caroline Davis, ceo of Worth By Design. “There’s only a handful on Madison Avenue and they have designer names.”
Worth Collection’s 550-piece bridge collection, with prices as high as $1,000 for a shearling jacket, is sold exclusively through independent sales reps and at in-home trunk shows. With a separate sales force, Worthwear is projected to double sales of the collection within a few years. Total company sales are $85 million.
In Atlanta, Lorrie Crawford, 35, buys 70 percent of her wardrobe — spending $2,000 to $3,000 per season — through trunk shows in the home of her mother-in-law, Betsy Crawford, one of Worth’s top independent sales reps. Now that the Worthwear line offers everyday clothes, she buys everything but jeans and exercise clothing from Worth.
“I never shop department stores,” said Crawford, a former advertising executive raising two children with her husband. “I can call Betsy, and she knows my size, she knows me. I like quality, and gladly pay for it. I don’t want to pay for someone’s designer logos or advertising, which mean nothing to me.”
She’s only one of Crawford’s 400 customers. The 14-year Worth sales rep is the ceo of her own business, Elizabeth Enterprises LLC., with six employees. She transformed the downstairs of her home in Atlanta’s affluent Buckhead section into a showroom where she sells more than 2,000 units a year through trunk shows. Crawford buys the inventory, pays shipping and sales tax, and makes about 25 percent commission. It’s her job to know each client, their tastes, sizes and the events they attend.
“Our salespeople need to have connections — it’s more important than their financial status,” said Bonnie Spitalnick Sachs, senior vice president, Juliana Collezione, a bridge-price line sold by 300 independent sales reps through home trunk shows. “Recruiting the right people to be our ‘fashion consultants’ is a big challenge, but getting easier as we become known.”
The daughter of apparel industry veteran Irving Spitalnick, who founded the Spitalnick line in the Eighties, Sachs started Juliana Collezione a decade ago when manufacturers began to feel squeezed by big retail.
“Retailers started to compete by breaking price earlier, then manufacturers couldn’t make sell-throughs and couldn’t afford markdowns,” she said. “Now there are only five big retailers, and they all have number crunchers at the top telling buyers what to buy. Manufacturers can’t go out on a limb, and they lost control over product.”
Direct sales goes straight to the consumer via sales reps who also are often customers, Sachs said. Production is more efficient, based on sales, and she’s less affected now by financial swings and retail consolidation. Annual sales are estimated at $20 million.
Sales reps, recruited through print ads and online, pay a sign-on fee of slightly less than $2,000, with another $300 per season, in addition to buying grids and supplies. Salespeople work on commission with no employee benefits such as increasingly expensive health care. Top salespeople earn $250,000 a season, Sachs said.
The potential of big bucks is a lure, but few in direct sales reach that level. Only 8 percent earn more than $50,000, and more than half make less than $10,000 a year, according to the Direct Selling Association.
For women, who constitute 80 percent of the total direct sales force, freedom, flexible hours and even discounted or free product may be as motivational as money.
Kim Salvatore, 46, a Peachtree City, Ga., mother of three, left her accounting job in 1994 to raise her children and still wants to stay home with them. But with payments for college educations and a new car looming, she needed extra money.
Last October, she heard about Lia Sophia jewelry through a sister who sold the line in New York. As one of the first reps in Georgia, Salvatore paid the $99 entry fee and began hosting Lia Sophia parties in her home. In the past year, she’s recruited 20 people, with her commission increasing for each new rep. She is on track for her sales goal of $50,000 this year. Along with stay-at-home moms, her recruits include ex-teachers and those laid off or burned out by corporate America. Sales at parties average $700; hostesses get 30 percent of gross sales and 40 percent after they recruit two people.
Lia Sophia jewelry was created by Tory Kiam, son of the late Victor Kiam, who owned the Remington shavers company and became well-known as a spokesman in television ads. Tory Kiam’s family-owned company, located in Bensenville, Ill., near Chicago, had been involved in jewelry production and direct sales before launching Lia Sophia, named for his two daughters, in 1986.
Today 5,300 reps sell the 500-piece fashion jewelry line. With colored stones, vintage-inspired looks and sterling silver pieces, the line reflects fashion trends. At an average price of $35, the jewelry is affordable and accessible, which has helped sales grow to $60 million, he said. Sales have increased 100 percent each year since 2001. Kiam projects a sales force of 50,000 in four years.
He said the model appeals to consumers because it allows women to share personal experience and service not available in any other retail channel.
“Internet shopping offers convenience, but no hand-holding, and department store shopping offers no service,” Kiam said.
As a business owner with a history in retail, direct sales is a buffer to the hard realities of today’s retail environment.
“Dealing with retail giants — Wal-Mart and Federated — if the buyer doesn’t like you, it can kill your year,” Kiam said. “The vendor/retailer connection used to be more personal. My father used to talk about telling a joke with Sam Walton.”
The biggest challenge to growth is building a sense of community with the sales force, said Kiam, who described himself as “president and chief hugging officer.” Motivational and training seminars are frequent.
The trend has spawned entrepreneurial initiatives.
A company started three years ago in New York by Victoria Colligan, called Ladies Who Launch, is intended to help women develop, start and sell their own products. Ladies Who Launch includes a Web site and e-mail network, where an estimated 10,000 members can post and sell products for $30 on a Launch Pad list and sign up for weekly newsletters of resources and information.
Ladies Who Launch hopes to grow and motivate members through national events, such as the second annual Ladies Who Launch Live scheduled for Oct. 20 at Lotus, a Manhattan club. With 1,000 preregistered attendees, the event will feature speakers such as Stila cosmetics founder Jeanine Lobell, and panelists including Nell Merlino, founder of Take Your Daughter to Work Day, along with networking opportunities and a trunk show for up-and-coming artists and designers.
Among the company’s efforts is the Incubator, a four-week intensive project development program that has expanded into 20 cities. For $250 each, participants meet in groups limited to 12 to develop and clarify visions and goals and then complete marketing, sales or distribution strategies.
A majority of Ladies Who Launch projects are fashion related, including Sassy Tails, ponytail holders sold in Claire’s Boutiques, and Crave Parties, a multivendor party concept with spa and personal care products that allows women to indulge in pampering in a social setting.
Home parties allow women to multitask, by shopping while spending time with friends. Although socializing has always been key, the latest parties go way beyond cookies and punch.
Girls Night In Inc., an Encinito, Calif., company started in 2002 by two former corporate marketing executives, creates theme parties, such as Poker Nights and Ex-boyfriend Swaps, where women also can buy pajamas, slippers, personal care and home decor items from a variety of vendors. Product, which is also available through a Web site and catalogue, has to stay “edgy, fresh, fun and young” to stand out from a growing number of competitors, said Deanna Strickland, who founded the company with Lani Hines.
“We’re not just selling product, we’re selling women bonding,” Strickland said. “We let women stop their busy lives and connect with their inner girlfriend.” Sales in 2005 were $200,000, with $350,000 projected for 2006.
Like e-commerce, direct sales allows companies to reach beyond the geographic limits of stores. An example of multichannel sales and marketing working synchronistically is The Body Shop, a personal care product company in New Hampton, England, which has 2,050 stores in 53 countries, with 300 in the U.S. E-commerce began in 2004, and The Body Shop At Home, begun a decade ago in the U.K. and two years ago in the U.S., is the fastest-growing division. With estimated 2005 sales of $82.3 million, gains for the at-home division run 8 to 12 percent, compared with 2 to 5 percent for stores, which had 2005 sales of about $1.23 billion.
Beyond sales, the at-home division builds the brand in a more visceral way than traditional advertising, said Bill Eyres, global communication director.
“It spreads our message with strong relationships,” Eyres said. “With three channels — the Internet, stores and at-home sales — the brand message is continuously spread.”