Tuesday, February 18, 2014

Bad Propaganda: Avon was NOT a sterling example of MLM success

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Avon logo  (Photo credit: Wikipedia)
When trolling for new members, the recruiters for MLM often cite Avon, Amway, and until recently, Herbalife as sterling examples of network marketing. But are they really?

Since Amway is a private company, I have no stock data to show you, and Herbalife prices are crazy because some hedge fund managers are having an ego trip by playing with HLF stock. That's not a good indicator of the confidence in the company.

But Avon, that company had been around for over 100 years. How did it do?

If you enter AVP into Google, you'd find that Avon had been in STEADY DECLINE for the last ten years... since it adopted MLM. That's right, Avon did NOT adopt multi-level marketing until 2005. And it had been FAILING every year.

Avon Products, as of 18-FEB-2014
The stock chart is clear: for the last 10 years, S&P 500 had gone up 71%, while Avon stock price had gone DOWN 52%.

And one of the MAJOR change during that decade is Avon adopting MLM in 2005.

Please recall that MLM was started in 1979 when Amway survived an FTC challenge in court.

It took 25 years for Avon to go MLM, after MLM was created, and 100+ years AFTER the company was founded.

And it had done steadily WORSE every year, ever since.

Think about that. What do the stockholders know that we don't?

(And why would MLM defenders cite Herbalife's stock price rise since Ackman's challenge as proof that MLM is thriving, while ignoring Avon's price drop?)


When you hear the name "Avon", what do you think of?

"Avon Ladies" who come to your door demonstrating and selling cosmetics, probably?

Here is the Avon compensation plan, as per Jeff Babener of MLMLegal. It's multi-level.

Did you know sales records of Avon? According to its SEC filings per Q2 2011, it's $2.8 billion generated by 6.5 million salespeople. That's Avon’s sales to its own sales force. Like other MLMs, Avon does not track the actual retail sales by the salespeople to retail end-users, as required by Amway safeguard rules.

If you divide 2.8 billion by 6.5 million sales people, divide by 3 months (remember, it's just one quarter)... you get an average of just $144 a month of purchases per salesperson.

How much profit do you think there is for $144 purchase, esp. if there's a bit of self-consumption? Let's assume for a moment that the modern MLM Avon Ladies have retained most of their direct sales roots, and only 10% of the products were self-consumed, and average retail profit is 25% per item.

144*0.9*0.25=32.4 per month profit

If MORE than 10% of products were self-consumed on the average, then average profit would be even LOWER. (and of course, if average retail profit is higher...)

Apparently Avon had lost its will to retail as well. And Avon admitted so in 2009, when its North American president Geralyn Breig, was quoted by USA Today, ""Right now, our direct-selling opportunity is really the No. 1 product that we have to sell,"  Instead of selling their products, they're selling their opportunity.  And they picked a very conspicuous venue... Superbowl Commercial, where spots goes for $1 million USD or more. Their ad highlighted their opportunity, NOT their products.

Avon North America sales force reached an all time high in 2009, but sales revenue continued to dip since the 2005 high. And it has dropped EVERY YEAR ever since.

Avon's switch to MLM is clearly a disaster, while other MLM companies have enjoyed 300% growth or more in share prices, several times that of S&P 500 during the same period.

Which is why you only hear Avon mentioned as "So you think Avon's a scam too, eh?" and never "I'm in Avon and I'm making bazillion bucks".

Yet you don't hear "Avon was a cult and I lost my life savings" either.

Makes you wonder about all the OTHER MLMs, doesn't it?  On why are those companies making bazillion bucks, their top reps earning bazillion bucks, but they are also suspected to be pyramid schemes?

Could it be, that in order to be really successful, MLM have to screw over the lowest level members, and Avon had not been willing to do that?

Could it be that MLM has nothing to do with direct sales?
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3 comments:

  1. You opened my eyes with this amazing article. Now I understand why Herbalife is doing so well and my friends converted to them.

    ReplyDelete
  2. You know your projects stand out of the herd. There is something special about them. It seems to me all of them are really brilliant!
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    ReplyDelete
    Replies
    1. I have no beef with Avon's products. I simply question their move to MLM.

      Delete