The Avon Lady’s Makeover

JACI TISCHLER applies her Mary Kay lipstick in her Mary Kay T-shirt behind the wheel of her pink Mary Kay Chevy Cruze.

She’s come a long way from her freshman year at Texas Tech University, when she’d mark the days she was free to give her classmates facials on a dry-erase calendar on her dorm-room door.

“That’s really how I started my business,” she says. “We sell the most product and make the most income whenever we are at a party or a facial.”

That was three years ago. Today, the 21-year old, who graduated in December, leads a group of 50 women as a sales director for Mary Kay Inc. Her business funded her tuition and living expenses.

DITCHING DOOR-TO-DOOR SALES
Tischler is one of 3.5 million sales representatives worldwide who sell cosmetics for the company Mary Kay Ash founded in Dallas 54 years ago. Those reps get paid when they sell products; they earn an additional commission when each rep they’ve recruited sells something. Some reps have large groups of recruits working under them and earn commissions from them all.

That system, known as multi-level marketing, is the backbone of a $36-billion American industry, from cosmetics purveyors Avon, Arbonne, and Rodan + Fields to nutrition-supplement companies like Herbalife Ltd. and such relative newcomers as charm-jewelry company Origami Owl LLC. And increasingly, such companies aim to use it to recruit millennials, the better to sell to them.

That’s meant ditching door-to-door sales in favor of parties like Tischler’s — often in the form of online gatherings, hosted on Facebook Live — where reps’ friends can try, buy, and maybe even sign up to sell products. In this new world, Avon ladies no longer must ring doorbells, and with a model dubbed social selling, the industry hopes to adapt to the harsh reality of how millennials buy things.

The effort makes sense: Millennials are used to the gig economy, and selling jewelry and makeup on the side isn’t really so different from driving an Uber. But even as more millennials sign up as sales reps, that doesn’t mean others aren’t skeptical.

In 2015, more than 20 million Americans worked as direct sales reps, according to estimates from the Direct Selling Association, the industry’s lobby. Such companies made less than 1% of all American retail sales that year — but more than 8% of American adults were involved in the industry, a Bloomberg analysis of industry and retail sales data shows.

Millennials have an annual spending power of $600 billion, a number expected to grow to $1.4 trillion by 2020, according to market research by Accenture. But they’re also indebted and underemployed, and 62% have considered launching their own business — although 42% say they don’t have the financial means, a survey last year found.

Their entrepreneurial dreams and shallow pockets make them perfect sales-rep recruits.

“At that particular point in life, you get a little impatient about what you’d like to see happen next,” says Bill Keep, the dean of The College of New Jersey School of Business and one of the few independent academics who studies multi-level marketing companies. He suspects most millennial recruits were targeted by age. More bluntly: “You fish where the fish are.”

MILLENNIAL SELLERS
Becoming a sales rep can cost as little as a few dollars, but the commitment quickly grows. And few are anywhere near as successful as Tischler.

Marian Bull tried selling Rodan & Fields LLC skin-care products last winter and chronicled her experience. The 28-year-old New York writer invested about $300 in a starter kit and set about messaging Facebook friends to hawk her wares. “Young people can be very skeptical buyers,” she says. “That sort of compounds the difficulty of trying to sell things to your friends.” After a few months, she’d sold only a handful.

“In order to sell to millennials, you need millennial sellers,” says Bank of America Merrill Lynch research analyst Olivia Tong.

In 2015, millennials accounted for more than 40% of the sales reps who joined Mary Kay, bringing their share of the company’s entire sales force to a quarter. Millennials make up a third of sales reps for Arbonne International LLC, where they’re the fastest-growing chunk of its sales force, the company says. They’re also a third of the roughly 40,000 sales reps for Origami Owl. New Avon LLC — formerly the North American unit of Avon, spun off from its struggling parent company last year amid falling sales — declined to say what share of its reps are millennials.

Even as the industry aggressively courts millennials as sales reps, it faces challenges in trying to win them over as customers. Millennials make most purchases online and are more likely to be influenced by product reviews. A quarter of them go straight to Amazon, while just 7% seek friends’ advice, according to a recent ComScore shopping report.

“You’re dealing with a generation that is exposed to so many brands,” says retail analyst Candace Corlett, president of WSL Strategic Retail. “Avon and Mary Kay would have to do some very viral magic in order to catch up.”

FOCUSING ON SOCIAL MEDIA
That, she says, requires a focus on social media — rather than parties and in-person sales, which still account for most sales — and an online shopping platform with a seamless user experience. But that can be a tricky proposition for multi-level marketing companies, which risk undercutting their own sales reps with online sales.

“If you look at our successful millennials, they aren’t having in-home events,” says Brett Blake, Origami Owl’s chief executive officer. “They’re having online events. They have VIP groups. They have Instagram followers.”

To become an Origami Owl rep, the typical buy-in starts at $159, depending on the size of the starter kit; the cheapest is most popular. In October, the company tested a discount sign-up program: For $2, a rep could sign up, create a Web page, and sell jewelry to friends without keeping any physical inventory — an attractive option for millennials with little money to invest. About 5,500 people signed up.

For those sales reps in the industry who do have to keep an inventory, however, doing business is considerably more expensive — and should they choose to close up shop, they can be saddled with dead stock.

Mary Kay says keeping inventory isn’t necessary, and its buy-in is currently just $100. But many reps have far more invested. Tischler keeps about $6,000 worth of inventory on hand; Rachel Gildea, another Mary Kay rep, bought $1,600 worth to get started. Arbonne, whose buy-in is $79, and Avon also say they don’t require reps to keep inventory on hand — but Andrew Sussman, a 24-year-old Arbonne rep, spent about $1,000 on inventory to start.

Arbonne offers 100% buy-back, meaning it gives any sales reps who want out a 100% refund for any inventory they bought in the last year. The Direct Selling Association requires that all its members offer at least 90% buy-back. Both Mary Kay and Avon offer that 90%, which Mary Kay considers “one of the strongest selling points we have for new and tenured” reps; Avon also accepts returns within 120 days of purchase.

RETAIL AND RECRUITMENT
Keep argues that reps might be loath to use such programs, though. “It’s usually a friend or family member that involves you,” he says. “If you return the product, you really take money from your friend or family member, because their commissions will be adjusted accordingly.” (Mary Kay disagrees with his assessment. “We don’t see it that way at all,” spokesperson Pio DelCastillo said, adding that more than 7,000 reps used the buy-back guarantee in each of the last three years.)

It’s unclear how much money reps earn, on average. Most of the companies are privately held and don’t share that information. Active Arbonne reps earn, on average, about $674 a year, according to a compensation summary the company shared. And Keep estimates that active Herbalife reps make $627.55 a year on average, based on data from the publicly traded company — roughly equivalent to working two hours a week at the federal minimum wage of $7.25.

It’s also unclear how much of reps’ earnings come from hawking their products themselves, vs. from commissions earned on sales made by other reps they’ve recruited. Blake, the Origami CEO, said, “With so much of the Origami Owl business streaming through reps’ Web sites, the vast majority of the commissions the company pays out are for retail sales, not recruitment.”

Still, the rare success stories of reps such as Tischler convince others to join.

After racking up thousands in sales and a sizeable team, Tischler considered dropping out of college to pursue a full-time direct-sales career. She ultimately decided against it.

“I wanted to prove to college girls that you could be in school and sell Mary Kay,” she says. “Be successful and make good grades.” — Bloomberg