Amway boss defends direct selling, touts ‘Made in the USA’
Amway surpassed Avon Products (AVP) in 2012 to become the world’s largest direct-selling company, thanks to a steady, drama-free international expansion over the years into key markets like China, a bigger focus on nutrition products, which are less prone to sales fluctuations than beauty products, and the ability to attract and keep sales representatives (whom Amway calls ABOs, for ‘Amway Business Owners,’ and who now number 3 million.)
In 2013, its sales rose 4.4% to $11.8 billion, helped by growth in China, its biggest market, and one where Avon’s business has collapsed since a big bribery scandal hit that company a few years ago. (Avon’s business is struggling in almost every key market.)
As a privately owned company, Amway has been spared the drama that has slammed some of its other direct-selling peers that faced regulatory and investor scrutiny: personal care products maker Nu Skin Enterprises (NUS) was fined earlier this year by Chinese authorities over its product claims, while nutrition company Herbalife (HLF) is in the throes of a battle with activist billionaire investor Bill Ackman, who claims it is operating an illegal pyramid scheme.
Amway Chairman Steve Van Andel, the son of one of the company co-founders, recently spoke with Fortune about criticisms of the direct-selling business model, its China success, and the next step in Grand Rapids, Michigan-based Amway’s international expansion. Van Andel, who recently served as the Chairman of the U.S. Chamber of Commerce, also addressed the value of “Made in the U.S.A.” and the prospects of more manufacturing coming back to the U.S.
What is Amway’s take on some of the attacks on the direct-selling model?
“Every industry has its critics, but a lot of the talk that happens today is more of a financial thing. Somebody’s looking more at how to drive a stock price up or down, than it really has to do with the business itself.”
“We continue to have thousands and thousands more (sales representatives) come on every day, so there are a lot people who really like the business and the business model for the industry.”
You have begun to do clinical trials on some of your nutrition products (which make up 45% of sales compared to 25% for beauty and 24% for home goods)—in the absence of medical claims, you are not required to, so why do it?
“We’re even starting to do clinicals on a lot of our nutrition products in much the same way that the healthcare industry does clinical trials—to show efficacy, and it’s something that no one’s ever really done before.”
China is your biggest market. Some other direct sellers, notably Avon, have stumbled badly—what did Amway do right?
“Not only are the employees Chinese, but the face of the business is Chinese too. We always took the approach from the beginning that we need to make to sure that when people look at our business, even though they know it’s a U.S. business, they know it’s been adapted to China.”
You get 90% of your sales abroad—what are some of the still untapped markets for Amway?
“There are a couple of areas where we could do better—particularly in Latin America. We’re not doing as well as I think we should do. Our focus in the last decade has really been Asia—there continues to be a lot of opportunity in Asia, but at least we are now well grounded there, whereas we may be not as well grounded in Latin America.” (Brazil is now Avon’s largest market and a fast growing one for beauty products in general.)
How about Russia, a notably promising beauty market but a turbulent place for Western companies?
“Anybody that’s in Russia or Ukraine right now, it’s always a little bit tenuous—and it’s a little bumpy—that’s part of doing business there, You have to accept that.”
Amway is opening four new U.S. manufacturing facilities– why is ‘Made in the USA’ important?
“We listen to our customers, and when it comes to nutrition products, they like nutrition products that are made in the U.S.”
“For us, Michigan is just a natural place to go. Sure we can look at different places in the U.S., but nutrition is not an easy thing to manufacture—and we’ve already got some based there.”
Put on your U.S. Chamber of Commerce hat for a minute—can U.S. manufacturing come back in a big way?
“They’ve lost more manufacturing jobs by becoming more productive. Everybody’s way more productive now in the facilities they have. I’m not sure that that will ever come back- I think people are going to try to be as efficient as they can.”