Get the Party Started

'Direct Sales' Model Helps
Entrepreneurs Put Their Products
In Customers' Hands

By Gwendolyn Bounds
Staff Reporter of The Wall Street Journal

Direct sales, an old-school marketing strategy long associated with Avon ladies and Tupperware parties, is making a comeback among small-business people. Instead of waiting for customers to come to them, these entrepreneurs take their products to the customer.

In an increasingly crowded retail landscape, the direct-sales model lets entrepreneurs get wider distribution for their products quickly without fighting big competitors for shelf space. "I don't have to go in and compete with Origins and a hundred other cosmetics companies for space," says Nadine Thompson, who runs Warm Spirit, a company that sells natural health-and-beauty products through a network of 9,100 sales consultants. "Now I'm banking on having 9,100 points of distribution, which is costing me much less than trying to get into 10 strategically placed department stores and then hoping someone walks by the aisle and the salesperson shows it to them."

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Get the Party Started Direct sales, an old-school marketing strategy long associated with Avon ladies and Tupperware parties, is making a comeback among small-business people. Instead of waiting for customers to come to them, these entrepreneurs take their products to the customer.

The Customer Isn't Always Right Each day, about 1.5 million customers come into a Best Buy store. Best Buy wishes some of them wouldn't. CEO Brad Anderson says he wants to separate "angel" customers from the "devils" The angels are customers who boost profits by snapping up HDTVs, portable electronics and newly released DVDs without waiting for markdowns or rebates. The devils are its worst customers. They buy products, apply for rebates, return the purchases, then buy them back at returned-goods discounts.

The Internet has helped in large part by making nationwide recruitment of sales reps easier and less expensive, while e-mail has facilitated marketing, training and selling. E-commerce has allowed direct sales to expand beyond the traditional house-party selling format by letting sales reps direct potential customers-who may live nowhere near them-to a company's Web site for purchases.

Over the past decade, membership in the Direct Selling Association has jumped 89%, to 227 companies hawking everything from tools and golf clubs to legal services and utilities. Total U.S. direct sales reached almost $30 billion in 2003, up 20% from 1999, according to the DSA. "It's great for entrepreneurs because they don't need a million dollars to get started," says DSA spokeswoman Amy Robinson.

As a former small-business man in the toy industry, Andrew Shure recalls the frustration of trying to negotiate precious shelf space for his arts-and-crafts line with mass-market retailers. "It was hypercompetitive," he says. "I felt like I would be spending the rest of my life trying to sell to one account in Arkansas."

Bare Bones

Mr. Shure recently launched a new line of natural pet lifestyle products including Aromutt Therapy spray and Devine Canine Breath Drops. From day one, Mr. Shure employed the direct-sales model, using the Internet to advertise for his first reps. He now relies on search engines such as Google and Yahoo, as well as word of mouth, to draw recruits to Shure Pets.

"In today's environment, it's as easy for people to find us in Nevada as it is Chicago," Mr. Shure says. He has already tripled the number of projected sales reps to 300-plus, and has distribution in 45 states. Corporate headquarters is a small, bare-bones space above a dry-cleaning shop in Chicago. The CEO employs only two other full-time employees plus one part-timer and expected 2004 sales to exceed $300,000. He's projecting sales could triple this year.

Most sales reps hold parties at their homes or other friends' homes, and often invite pets, too, so the reps can perform, say, puppy makeovers. New reps pay $99 for a "New Puppy on the Block" starter kit and then get 25% of each sale they make. They also are encouraged to recruit new sales reps and thus receive a percentage of that recruit's sales for their effort.

Mr. Shure says his savviest representatives market themselves using everything from grass-roots fliers to the Internet to boost their sales. Because customers can order products off Mr. Shure's Web site-so long as they have a Shure Pets sales rep's ID number-the reps can earn commissions without opening up their front door.

Party On

Still, the party format remains the most popular direct-sales method, in part because it allows companies to coach consumers on how to use products. Consider Tomboy Tools, a line of tools ergonomically designed for women. The company's founders knew they couldn't count on selling women a caulking gun unless they taught them what it's for. "I don't see how that would happen if we sold our tools through stores at retail," says Janet Rickstrew, chief operating officer.

Instead, the company trains its sales consultants in person and via video and CD-ROM on simple home-improvement projects-such as repairing drywall or replacing a running toilet's flapper. The 200-odd reps then give demonstrations at parties where they receive a percentage of tool sales. Tomboy Tools had roughly $500,000 in sales in 2003 and was expecting 15% growth last year.

Direct sales isn't without distinct challenges. Inventory control, for instance, can actually be harder. Tomboy Tools employs five main manufacturers to make its private-label tools and must pay upfront for the merchandise. That means relying on some guesswork as to how much reps will sell.

Ms. Rickstrew says that in 2001 her company bought inventory for the summer months based on the sales reps' strong spring sales performance. But the summer was dead with reps going on vacations and so tools just sat gathering dust in the warehouse. The staff took pay cuts to get through the slump.

Shipping on time is also critical. "We try to ship out in 24 to 48 hours," says Mr. Shure. He says he's often up at night helping pack boxes of product himself. "If they don't get it quickly, they've lost interest in it."