Direct hit

Written by Neha Pal | Neha Pal | Updated: Oct 7 2012, 08:58am hrs
The direct selling segment in India is growing at a CAGR of 20% and has tripled in the past five years, with online sales giving it a massive impetus. With big names like Sahara coming in, things can only get better...

When Subrata Roys Sahara India recently unveiled its plans to sell self-branded products under the brand name of Q Shop using the direct selling platform, it brought the focus back on this segment, which has been steadily growing even in these times of economic distress.

Not many know that the direct selling sector in India has almost tripled in the past five years, with a distributor base of 45 lakh people, say estimates by Ernst and Young (E&Y) and Indian Direct Selling Association (IDSA). And, backed by affordable prices, money-back guarantee, home delivery and convenience, the segment can only just grow. Says Chavi Hemanth, secretary general, IDSA (self-regulatory body of direct selling in India), The direct selling sector is growing at a compounded annual growth rate (CAGR) of 20% and is expected to reach R7,120 crore in 2012almost triple of what it was five years ago at R2,520 crore. Hemant adds that brands like Tupperware are part of almost every kitchen today and Amways health supplements like Nutralite are among the market leaders.

Which explains why big brands like Sahara are jumping into the fray. As Subrata Roy, chairman, Sahara India, tells FE, We would use the direct selling model for this venture and are targeting revenues of R20,000 crore in 18 months. The Q Shop venture will be rolled out in 60 towns across Uttar Pradesh, Rajasthan, Bihar and Jharkhand. The company would be using its network of one million financial product sellers who would also be the direct sellers for Q Shop products.

Existing players in the segment, like Amway, Avon and Oriflame, are also sitting pretty. The slowdown has not deterred consumer sentiment, which reflects in their high growth rates. The smart consumer of today prefers 100% money-back guarantee schemes and door-to-door services, says Yoginder Singh, senior VP, legal and corporate affairs, Amway India. Talking about the financial performance of the company, Singh adds, Amway clocked a turnover of R2,130 crore in 2011 and is targeting a growth of 20% this year.

And with online retail picking pace, sales of these companies have shot up phenomenally. The festive season particularly spells good sales as these companies come out with generous offers, with home delivery as an added advantage. Says Singh, Online sales pick up during the festive season as consumers order several of their gifts this way.

Amway, which has an online tie-up with Microsoft, gets 30% of its annual revenues from online sales, whereas cosmetic company Oriflame India draws about 85% of its revenue from online sales.

To broaden its network in India, cosmetic firm Mary Kay has developed personal e-commerce sites for its independent beauty consultants, e-catalogues and online virtual makeovers for consumers. One of the largest direct selling companies of the world with $3 billion of annual wholesale sales worldwide, Mary Kays growth in India has been on a consistent path. Says Hina Nagarajan, country manager, Mary Kay Cosmetics, India, Mary Kay had entered the Indian market in 2007 with a initial commitment of investing $20 million over a period of five years, which was followed by an additional $10 million of investment announced last year.

Plastic utensils major Tupperware has been in direct selling since it was perceived as an unconventional business, but as Asha Gupta, managing director, Tupperware India and president, Asia-Pacific, tells FE, It is no more like that as many companies are turning their focus towards this business model. Tupperware has witnessed a strong double digit growth in the past 16 years mainly because of it quality and strong network.

Tupperware is a women-centric organisation that gives its dealers opportunity to work in shifts, both full-time and part-time, without considering their educational background. Unlike other companies, we dont ask for any investment from the direct seller and also give free training to them, adds Gupta.

Health remains the leading category by value, with 47% contribution to overall sales, whereas personal care emanates as the second largest segment with 32% contribution.

Even leading company HUL has a direct selling business arm known as Hindustan Unilever Network (HULN). Under HULN, health products are marketed by Ayush Therapy in collaboration with Arya Vaidya Pharmacy, beauty products by Aviance and male grooming by DIY. Similarly, the KK Modi Group has a direct selling division called Modicare that offers products in the categories of personal care, home care, nutrition, food and beverage and health and wellness.

Says Manoj Shirodkar, country head, ForLife Trading India, a three-year-old company in India, The good part about direct selling is that the initial investment is less whereas the reach can be manifold. Direct selling works out to be the best platform for companies that have to introduce a new product in the market and get customer acceptance.

Another advantage that direct selling has is its reach in small cities and remote villages, apart from tier-I, II and III cities. A survey by Ernst and Young in 2010 had revealed that metros and tier-II and III cities contribute equally to the overall market. US-based beauty care direct selling company Avon, which has a global turnover of $11 billion, is growing at a CAGR of 40% in India. The company is focusing on the eastern part of India and is on an expansion mode in areas of Darjeeling, Kalimpong, Siliguri and Jalpaiguri.

At the other end of the spectrum is the employment opportunity direct selling offers to people, especially women, who can work from home as per their convenience. The success story of Swati Sharma, a 56-year-old direct selling professional based in Noida working for Avon, is a befitting example. Swati started selling Avon products about 16 years back and today has two cars of her own and is able to pay for her sons higher education without taking any loan for it. Moreover, the business allows her flexible working hours.

She tells FE, The commission that a direct seller draws from an order is around 15-30% depending upon the amount of the order she gets. When asked why people would buy such products, she responds, Because it is value for money. The quality of lipstick that you get for R375 in the market would be available at a price of R200 just because there are no middle costs involved. Also, a direct seller is very cautious while selling his or her products unlike a shopkeeper, because they wants to sustain a relationship with the customer for the future and even strengthen it further by getting more recommendations.

A Class X passout, Mahalaxmi is a 34-year-old direct seller in Meerut for Forlife Trading Products. She says, I started direct selling about four years back to earn extra income to support my family of five children and in-laws because my husbands income of R8,000 wasnt enough. I started working part-time for two hours everyday, of which I could easily earn R4,000-5,000 per month. Now, I spend more time and earn an average of R10,000-R12,000, which is more than what my husband earns. Not only can we have a better lifestyle, but we can also provide good education to our children now.

Sell-ability

* Direct selling sector growing at CAGR of 20%; expected to reach Rs.7,120 crore in 2012almost triple of what it was five years ago at R2,520 crore

* Sahara targeting revenues of R20,000 crore in 18 months with Q Shop

* Amway had a turnover of R2,130 crore in 2011; targeting growth of 20% this year

* Avon growing at a CAGR of 40% in India

* Mary Kays initial investment in India was $20 million; additional $10 million announced last year

* Health, leading category by value with 47% contribution to overall sales; personal care second with 32% contribution

* Amway gets 30% of its annual revenues from online sales, Oriflame India draws 85%