Amway UK to be Shutdown? Part 2

(http://business.timesonline.co.uk/tol/business/industry_sectors/media/article2951266.ece


Parts of the article is reposted below with our comments noted in purple.



The Government investigation claims to have revealed that just 10 per cent of Amway’s agents in Britain make any profit, with less than one in ten selling a single item of the group’s products. It claims that Amway’s main activity is encouraging other people to join its salesforce so that they pay the registration fee and buy marketing materials.


So 90% of IBO's failed to make any profit and an even greater percentage (94%) failed to sell one single product. When we were prospected, we were told that we "did not have to sell anything", just buy from yourself (your Amway business) and teach others to do the same (known as BFYTODS). It seems that the "opportunity" is being pitched in the UK the same as here in Australia, thus these figures aren't surprising at all if that is the case. Looks like there's a whole lot of self-consumption going on. Now if the retailing of products to customers (non-IBO's) was encouraged and taught in the UK systems, then these dismal figures speaks volumes as to the pricing and saleability of Amway's products.


Mr Cunningham said that Amway attracted new agents, known as Independent Business Owners (IBOs), by offering “substantial financial rewards or easy money”. He said that promise of wealth was “illusionary” and amounted to “dream selling”.

Yep, the "opportunity" was presented to us as making $50,000+ per annum (residual income) within 2-5 years by working 10-12hrs pw and with no selling involved. It did sound easy indeed. The pitch focused on our dreams and goals and how this business could make us the kind of money to turn them into a reality. We were being sold the "dream" of being financially free. We didn't buy it.

The group, which has been operating in Britain since 1973, claims that agents can earn a substantial income from selling its range of dietary supplements, cosmetics, jewellery and water purifiers. They are also offered bonuses for recruiting other agents. However, an investigation by the Department for Business, Enterprise and Regulatory Reform showed that only 6 per cent of agents bought Amway products to sell on, the court was told.


Although on it's website Amway Australia does market it's "business opportunity" where income can be earned from selling the products to retail customers, again, it is not how the "opportunity" was presented to us. As stated earlier, we were simply told that we did not have to sell anything. All we had to do was just redirect our household spending and get a 30% discount by doing so (the 30% discount is hogwash, more on that later in another blog post). By recruiting others to do exactly the same, we would earn commission on their purchases. We have since learnt that not all AMO's (Amway Motivational Organisations) promote the Amway business this way, but most do, like IDA here in Australia does.

Mr Cunningham said that the vast majority of products offered by Amway to its agents were overpriced even before they were expected to add a further 20 to 25 per cent for retail. “The unattractive pricing explains some the graver vices that are at the centre of the winding-up application,” Mr Cunningham said.


This is one of the biggest criticisms of Amway, it has been for decades. It is no wonder that the opportunity was not pitched to us with the focus being on the selling of products to retail customers. You only have to see Amway's retail prices to understand why. We'll do a separate blog post about the pricing in the near future. Anyhoo, it's nice to see a government body confirm what many prospective recruits and customers, critics and IBO's themselves have been saying for years.

Mr Cunningham told the court that Amway operates a “pernicious” scheme, which encourages agents to recruit family, friends and colleagues to the group so that they themselves could move up to “that very narrow group that makes any money”.


Ouch....."pernicious" a very strong word indeed, meaning "injurious", "harmful", "destructive" "malicious", "wicked". Having family members that are IBO's under the IDA system and the damage their involvement has done to our relationship with them and others, we concur totally with this.


He said that the Amway scheme involved targeting the “gullible”, “deluded” and “vulnerable” to join the scheme and accused the group of “dream selling.”


Some very strong words here too but we believe that anyone and everyone is a target, it is after all pitched as the "opportunity for everyone". No matter what one's socio-economic status is, most people want for a better life. Nothing wrong with that at all. When we criticised the Amway business to our family member IBO's, they responded by saying that "how can it be a scam when there's doctors, lawyers and other professional people doing it". Which implied that doctors and lawyers etc are smarter than the average person and smart people don't get conned. Ludicrous. The "dream selling" techniques that the AMO's have had decades to perfect is extremely powerful and appeals to people from from all walks of life.


However, Amway’s own records showed that only Trevor and Jackie Lowe, and Jerry and Mandy Scriven among its agents earned more than the £78,000 required to place them in the top 2 per cent of earners, the court was told.


So in over 34 years of operation in the UK, of which tens of thousands of people have joined Amway and in all that time, only two couples have managed to achieve a substantial income. (equivalent to $180,000 AUD). Wow, what an embarrassing revelation that is.


The records showed that it takes at least 14 years to make it into the top 20.


So much for the 2-5 year plan, especially when we see the next claim by the DBERR:


The top 12 new joiners since 2001 earned an average of just £164 a week, said Mr Cunningham.


The average weekly wage in the UK is about $457 per week. So after 7 years in the business, these Top 12 IBO's earned an average of $293 less than the average weekly wage earner. A 2-5 year plan to financial freedom indeed.....not.


The “snapshot” of Amway’s records showed that of the 25,000 agents operating at that time, just 37 made more than £25,000 a year.


So not 10%, not 5%, not even 1%, but in fact a paltry 0.15% of IBO's made more than the average annual full-time income ($457 x 52 = $23764GBP).

Amway has claimed that it has substantially changed it business model since the department lodged its petition to wind up the company in April.


Amway has indeed made sweeping changes to it's business model. But after operating in the UK for decades, it is damning that it took a government investigation for any substantive reforms to be made to address pricing issues and it's AMO's practices. Issues that the Amway Corp would've been fully aware of long before now. Had it not been for the investigation, we believe without any doubt that it would've been business as usual for Amway UK. Should the DBERR win, the ramifications across the globe could be huge.

There is plenty of anecdotal evidence from former and even current Australian IBO's that mirror the DBERR's claims, particularly in regard to the practices of the motivational organisations.


So what percentage of Australian IBO's earn any income? How much did the average Australian IBO earn last financial year? How much does the top 10 or 20 Australian IBO's earn? What is the average monthly PV per IBO? What percentage of the Amway sales are made to actual retail customers (non-IBO's)? How many Australian Platinums, Emeralds and Diamonds are there? How long did they take to achieve these levels on average? What percentage of Australian IBO's renew after their first year? second year and so on?


How we would love to know the answers to these questions, Amway Australia certainly knows them. But all that we basically know is that there are 80,000 IBO's in Australia and New Zealand combined and according to Amway literature, the average "active" IBO from around the globe earned (USD)$115pm gross....in 2001 mind you. Now, how can a person thinking about joining Amway assess the "business opportunity" thoroughly enough based on this? How does one verify that the potential income levels as presented in the plan have actually been achieved in reality and by how many and within what time frames? They can't.


Perhaps the UK case might prick the ears of our own ACCC (Australian Competition and Consumer Commission)? It is likely that only then, will accurate and current figures regarding the Amway business will be revealed. We don't think Amway will ever disclose them under their own volition. In any case it is clear that the UK case has sparked major changes to the business model there which Amway say will be rolled out across the globe. If it's practices, prices and the promotion and marketing of the business by the AMO's are similar or the same as the UK in other countries, then it has no choice but to change or face similar government action.