CHICAGO (MainStreet) -- Is it possible to mix business with pleasure? Tupperware (TUP) - Get Report built a multinational company based on that very proposition. By calling their sales events "parties" and distributing their products through pre-Facebook-era social networks, Tupperware pioneered the business model known as direct selling.
Today, when more and more consumer products are bought online or at discount megastores, direct selling may seem like a holdover from the pre-digital past. But some small retail start-ups continue to choose direct selling as their distribution model. And in certain cases, the tough economic times actually helped fuel their growth.
Tupperware built a multinational company based on direct selling. Does it work in an age of digital social media?
For a new business owner, direct selling has clear cost benefits. You don't need to lease retail space or pay employee salaries. Independent sales consultants, who work on commission, market your products through word of mouth, which saves on advertising costs.
But the party model rests on the assumption that consultants will be able to attract potential buyers to their sales events -- buyers who will become so attached to the products that they convince their friends to buy as well. At a time families are worried about unemployment or being underwater on their mortgages, aren't they less likely to show up to a "party" where the central focus is on spending money?
That depends on what's being offered. American consumers are still willing to spend on smaller, "treat" items, especially if they feel their purchase is making a positive difference in someone else's life. Buying a necklace at a jewelry party may be a relatively affordable way to update an outfit, but the purchase can also be a show of support for the sales consultant and her family.
"People like to associate with companies that have a broader mission," says Amy Robinson, senior vice president and chief marketing officers at the Direct Selling Association, which has 200 active members. "Almost all direct sellers started with a single entrepreneur at home, with a very specific reason for why they started. One of the first things you learn in Direct Selling 101 is that people are attracted to that story. You have to give them something to relate to."
The gloomy employment situation has also meant that there are more people out there looking for alternate sources of income. The vast majority of sales consultants (about 90%) work part time, spending less than 10 hours a week on their business and making a median annual income of $2,400 a year. The goal is not to support the whole family (although some super-sellers do), but to pay for the kids' summer camp or a vacation.
For some struggling families, though, those few thousand dollars can mean the difference between making a car payment and having that car repossessed. Sales consultants whose spouses are out of work, or whose children have moved back home after college because they can't find jobs, may find that friends and neighbors are happy to buy their products because they want to help out. In a recent survey conducted by the Direct Selling Association, respondents said the highest motivator for buying products through direct sellers was to support a small, local business.
The direct-selling start-ups that have thrived over the past few years are those that sell affordable luxuries: treat-yourself items that can be bought on impulse but also have a practical function. Idaho-based
, which specializes in wickless candles, was founded in 2004. Since then, it experienced explosive growth, with revenue climbing to more than $500 million last year. That continued growth has been driven by the company's expansion into other scent-related products, such as bath gel and laundry fragrances.
was founded in 2003 by an Ohio mother who began sewing purses in her basement. The company now has more than 60,000 consultants, who sell a range of bags and home organization products in bright, stylish patterns. The company's name refers to a Bible passage that describes a hard-working, well-respected wife and mother, and the company's roots in the Christian community has helped it spread through church-based social networks.
Another recent start-up has grown despite the relatively high price of its products: the skin-care line
Rodan + Fields
, started by the two dermatologists who created the anti-acne treatment Pro-Activ, was launched in 2008. The line is definitely high-end; a four-product anti-aging regimen costs almost $200. But even in tough economic times, there are plenty of women willing to pay for better skin.
It's also been easier to recruit consultants with high-level sales experience. A look at the top consultants profiled on the company's website shows that many came from industries that have been hard-hit by the recession, such as real estate and public relations.
We may get fewer invitations to Tupperware parties these days, but jewelry parties, handbag parties and candle parties continue to take place across the country. For some people, Robinson says, the idea of buying from and selling to friends will always be appealing. "People tend to go out less now, but they still want to see their friends," she says. "They are looking for an escape."
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.