Sunday, December 9, 2007

Amway UK Case makes News in Oz

The current UK DBERR case against Amway has now made news in Australia:

Amway may be the first to trip in direct selling merry-go-round

James Kirby
December 8, 2007

DIRECT selling might just be on its death bed: a British investigation into Amway has dug up so much dirt that the British Government has applied to wind up the company "in the public interest". Amway - one of the biggest direct-selling organisations in the world - is suddenly in the spotlight.

And there's plenty at stake. Amway Australia has been uniquely successful, racking up $140 million in sales per year.

It seems every neighbourhood in Australia harbours Amway hopefuls - often stay-at-home mums- who think they can make some money from paying for the right to become an Amway agent. There are 50,000 agents nationwide.

But the British investigation of that country's 12,000 agents found that only 10% make a profit from selling the group's products, which range from water cleaning products (eSpring) to jewellery (Emma Page).

In other words, many Amway agents can end up with a stack of unsold stock and nothing to show for it.

And it's not as if the revelation that questionable selling practices at Amway - or any other mob in the direct selling game such as Avon, Nutrimetics, Tupperware, Mary Kay or Herbalife - should come as a shock.

Amway was originally cleared of "pyramid selling" in the US in 1979. But today it faces official probes in three countries.

There is also a government investigation of Amway in India and a class action was filed against the group in California earlier this year.

At the heart of the matter is whether Amway is really a selling organisation or something more like a merry-go-round where the real money is made in signing people up for the dream of making money "on the side". There are also serious questions about "motivational materials" in which the company makes money from motivational CDs and other gimmickry.

Amway Australia charges more than $100 a time for joining Amway as a so-called independent business owner. In Britain the company has already promised to scrap this controversial joining fee. No such luck in Australia, where direct sellers are under the eye of the Australian Competition and Consumer Commission. A spokesperson for the regulator says Amway has been examined in the past and it was not breaking any Australian laws.

I asked Tony Greig, chief legal counsel for Amway Australia, whether the group would now change its ways. Greig defended his turf, suggesting Amway Australia was a very different company from the British unit. He said the joining fees - which include product - were the only way to get the agents to understand the products they were selling.

My own sense of it is that direct selling in Australia - especially the foot-in-the- door style of Amway - is fading. Company records of Amway Australia show the revenue, at $140 million, has been relatively flat; it was as much as $120 million five years ago.

With low-cost Chinese manufacturing pumping out cut-price goods, it's increasingly difficult to buy anything for less than you might pay at Kmart or Spotlight or your local discount store. In fact, intermediaries like selling agents just add to the price. And with the internet allowing you to buy direct, you no longer need your neighbours trying to flog something over the garden fence … no wonder most of them don't bother.

A few surprising bits of info have come out of the article, but that this made news here in the first place is surprising in itself!

In one of our earlier blog posts (Some Numbers To Ponder), we stated that in the year 2000 there were 100,000 IBO's in Australia and currently, according to Amway Australia's own website the number of IBO's in Australia and New Zealand combined is 80,000. We then came up with an estimate that Australian IBO's made up about 65,000. Note that the article states that there are "50,000 agents nationwide". Now the reporter did not quote the source of this figure but if it came from Amway itself, it seems were being a wee bit generous with our estimate. A 50% decrease in sales force numbers hardly reflects a growing and thriving business.

Although Amway has caught the attention of the ACCC previously and "is not breaking any laws", Amway has now caught the ACCC's attention again and they could be watching this case with closer interest now. There is some speculation about on the net that the ACCC has already recently received some formal complaints since the UK case has been brought to the publics attention.

Amway Australia says it "was a very different company from the British unit". Ummm well it is now since Amway made changes to it's business model because of the UK investigation, but prior to that, how "very different" was it?....not much at all we think. Let's see, same company, same coreline products, same compensation plan and pin levels, both have training and motivation provided by the AMO's for starters. So if there's any UK readers out there, please feel free to enlighten us on just how different your business is (pre-DBERR case of course) compared to here. Even better would be to hear the perspective from any aussie IBO's out there.

No surprise that Amway is "defending" their turf and won't change it's ways. So there will be no free joining or renewal fees, no drastic retail price reductions (as much as 70%) on selected products, no mandatory training and certification required before being able to recruit others, no minimum retail sales to customers (non-IBO's) requirements, no reforms on the marketing of "tools" and no reigning in of the AMO's practices. Nup, it's business as usual for all you aussie IBO's.....until if the time ever comes, that the ACCC might see fit that it needs to defend you.

Regarding the UK case, the latest news is that the court proceedings have finished and judges decision will be known within the next couple of weeks.


Anonymous said...

What was the decision of the U.K. court? said...

Have no idea one else in blog land seems to know yet either...

The silence regarding the outcome of this case is deafening.

We'll post the outcome as soon it is known.