Direct-Selling Gains an Edge in Recession

Companies including LMS Fragrances are generating growth, in part, by appealing to the personal side.
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As the economy shrinks and more Americans lose their jobs, some people are turning to direct selling to bring in a little extra cash. And, in this case, what's good for the consumer is very good for the seller.

"For most people, direct selling is a part-time endeavor, a supplement to an already existing income," says Amy Robinson, vice president of communications and media relations at the

Direct Selling Association

, a national trade group representing more than 200 companies. "It's a couple hours per month, and in a tough economy, it offers a little extra padding to their bank account."

Those couple of hours can add up. In fact, direct-selling revenue tends to reflect the economy, except during recessions. According to the Direct Selling Association, the direct-sales industry operates at 5% higher growth than gross domestic product when the economy contracts.

In 2008, companies like

Herbalife

,

Silpada

,

Cutco

,

Immunotec

,

National Companies

and

Private Quarters

all have generated growth despite the economic downturn.

One direct-sales company that has more than doubled revenue and the number of its consultants during 2008 is

LMS Fragrances

. The 4 1/2-year-old company is adding 100 to 150 consultants a month, bringing the number to about 2,500. LMS Fragrances aims to triple its consultant base in the next year.

LMS Fragrances' oval atomizers, which are filled with perfume.

LMS, which specializes in high-end perfumes, is different from larger rival

Avon

(AVP) - Get Report

. It doesn't do inventory or require consultants to buy a monthly minimum of products. Consultants sell based on a starter kit, and LMS ships the product directly to the buyer. This means LMS doesn't operate on credit risk. Products are shipped once it receives cash. And it's a commission-only business.

There's a human side that offers incentives to both the buyer and seller.

"During tough economic times," says Susan R. Suh, president and co-founder of LMS, "people may be looking to stay away from the stores. But if you go to see a sister or a friend at a social gathering in their home, you may be more likely to buy."

Moreover, says husband and CEO B. Robert Suh, LMS has chosen the right items to sell. "Our product is fun," he says. "Fragrances, candles, body lotions. During hard economic times, people are looking for things to cheer them up at an affordable price."

LMS Fragrances' perfume in a classic bottle.

The Suhs spent 20-plus-year careers working for other people and decided they wanted to build their own business. Direct sales offered the opportunity to pursue their own legacy.

LMS also afforded the Suhs the chance to implement some of their own ideas regarding proper business practice, which they say gives them an edge over other direct-sales companies. By keeping consultants happy, more potential customers will be exposed to the products. According to Susan, the industry attrition rate in direct sales is 35 percent to 40 percent. LMS operates at less than 20 percent.

"The average human being just wants to do a little bit better," says Susan. "And this is a powerful tool."

Nate Herpich is a freelance writer and editor living in Brooklyn, N.Y. He has also written for the Wall Street Journal, the Christian Science Monitor and Sports Illustrated.com.