Is Direct Selling The Next Driver Of Startup Commerce Companies?

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Editor’s note: Jeremy Liew is a managing director at Lightspeed Venture Partners. Follow him on Twitter @jeremysliew.

The April 5 edition of The Wall Street Journal had two articles about direct selling. One notes that the key driver of Coty’s takeover attempt of Avon is the ability to move additional product through Avon’s dominant direct sales channel in Brazil.

Avon’s door-to-door sales force in Brazil has given it a leading role in the country. Rivals who sell through traditional stores — such as L’Oréal and Procter & Gamble — have struggled for as much traction.

Coty Chairman Bart Becht said in an interview he would like to use Avon’s direct-sales channel to push his company’s lower-end, mass-market brands such as Adidas and Playboy colognes. The company’s main business is designer and celebrity fragrances.

“A key win for Coty is to get into Brazil,” Mr. Becht said. “Door-to-door is a key way of getting into the market.”

The second article is about Tupperware’s direct sales efforts in Latin America, also with a focus on cosmetics.

Tupperware Brands Corp., the maker of plastic food containers, has a surprising path to sales in Latin America: perfume and skin cream.

After realizing about a decade ago that consumers in the region spent more than 20 times on beauty products than they did on containers for leftovers, Tupperware altered its strategy.

In 2005, it bought six beauty brands, spending $557 million. Since then, the beauty business has quietly grown to account for 26% of Tupperware’s total revenue.

In 2011, Tupperware’s revenue totaled $2.6 billion. Sales for South America increased 50%, largely driven by Brazil. And about half of Tupperware’s $711 million in sales in Latin America came from the beauty products category.

As my partner Bipul Sinha noted in a post last year, direct selling is one of the most interesting opportunities in commerce in the time of social. Direct selling is being invigorated right now, not just in Latin America, but also in the US, due to three key reasons.

The first is the economy. In this slow economy, people are more willing to supplement their income (and seek alternative career paths) than they have been over the last few decades. Direct sales is one of the most attractive and accessible ways for people to supplement their income. The last golden age of direct sales was during a period when women had few traditional career path options. As more women found success in the mainstream economy, the labor pool available to direct sales diminished. In this slow recovery, with unemployment still high, more people are willing to explore direct sales.

The second is the birth of social media. Twitter, Facebook, Pinterest and even email help all of us maintain our weak social ties as well as our strong ones. According to the Washington Post:

The average Facebook user has 245 friends. But the average friend on Facebook has 359 friends. …

One thing to note ahead of the Timeline switch: Users can reach an average of 150,000 other people through friends of friends,

When you add Twitter and Facebook, that is a tremendous reach for an average person. Direct selling is all about selling through your network – friends and friends of friends. The social networks make this whole network far more visible, and accessible, than ever before.

The third reason is tablets and the internet. These devices, combined with lightweight SaaS ERP, CRM and SFA software, dramatically improve the productivity of direct sales reps. In the old days, a direct sales rep would call on the people that they remembered to call on, host a party when they got around to it, and had to have physical samples, or page through catalogues, to show what they had in stock. They took orders on handwritten forms and faxed them in to the main office. And making repeat sales meant going back to each customer in person.

Today, a sales rep can get prompted on their iPad with who they should be calling on. Perhaps because the prospect has shown a propensity to “like” other similar products, perhaps because they clicked through on a FB post, or perhaps because it’s been two months since they last bought something. They can manage their activity to industry best practices, making sure that they are splitting their time appropriately between calling on new customers and servicing existing ones. They have an infinite catalogue, with video and color photos from multiple angles for each item, available on their tablets. They can take orders on the spot, swiping a credit card through a dongle. And happy customers can self-serve and place new orders directly on a website, without the sales rep having to go back to see them in person. This is a massive increase in productivity.

We’re starting to see a new generation of direct selling companies emerge, including companies like Thirty One Gifts, Stella and Dot, Chloe and Isabel, Gigi Hill, Miche Bags. and J Hilburn. At Lightspeed, we’re tremendously excited about the opportunity to build very big commerce companies in this space.

What next generation direct selling companies have I missed from this list?