Apr 7, 2008

Here We Go Again...

I heard over the weekend that direct sales company, Top Line Creations (TLC) has pulled the rug out from underneath all their consultants by shutting down the multi-level part of their business to become strictly a discount buyers club. I doubt the proverbial check is in the mail. I think they just said, "Too bad for you" and did it. The check is never in the mail. Just ask the Scrap In a Snap and Leaving Prints consultants when their final checks arrived...

In the words of Gomer Pyle - "Shame, shame, shame, shame, shame..."

That's the problem with direct sales. Not all direct sales companies are going to do this to you but this seems to be a pattern in this industry. And, if the pattern stays true, someone will rise from the ashes and try to set up another direct sales company. Leaving Prints came from Scrap in a Snap and My Creative Life (which has gone nowhere from my perspective) came from Leaving Prints. Please, don't even think about doing it. The climate for this is all wrong and has been for some time.

Here's why starting a direct sales company is a bad idea these days and why they were more likely to work several years ago.

Industry research from about 2001 showed that a pretty good percentage of the industry (around 10%) was getting their supplies from consultants. At that time, there were fewer online stores and not everyone had a bricks and mortar store near them. The supply of products was also much smaller and it was easier to stand out in the crowd. Therefore, there was opportunity to offer variety and convenience to local customers through direct sales.

Fast forward to 2007 research. The percentage of scrappers buying from consultants vs from online stores has nearly flipped. Now over 10% of scrappers use online stores and something like 4% buy from consultants. Online stores are everywhere. Many people have at least a chain craft store near them and there is so much variety in the industry that it's hard to stand out with an exclusive product line. Local crops are plentiful so women have the opportunity to get together to scrapbook more often than they did 6-7 years ago.

Price is another issue - often, direct sales companies raise their prices to cover the many levels they must pay. So, if they are selling common goods at 15-20% MORE then they can be bought elsewhere, consumers will catch on quickly.

The bottom line is that it's hard for a direct sales company to make a profit. And, in turn, it's hard for a direct sales consultant to round up customers.

That being said, there ARE companies that are old enough with enough "critical mass" to keep their momentum. There also are companies with products unique enough to interest customers (such as digital scrapbooking). I don't believe ANY company has escaped the reality of the industry, though. They have all taken a hit to some degree in the last 6 years. My prediction is that another one (besides TLC who hasn't officially shut down, but...)will bite the dust by the end of this year

Just once, though, I'd like to see someone do it with class and without hurting the very women who built them up in the first place.

Know the warning signs. TLC was bouncing checks at one point (well over a year ago) and messed with shipping non-stop. If a company bounces checks, bounce yourself right out of there ASAP without asking another question. ALL of these defunct companies started down the path to their demise with bounced checks, shipping issues and commission adjustments.

Don't be a Zobo (Zombie Business Owner) if you intend to move on to another direct sales company. Open your eyes and keep one foot near the door. Or, just get out of the mess by joining ScrapBiz and starting a business that no one can take away from you. I could close tomorrow and no one would lose their business.


funfelt said...

Wow that is really upsetting. I am not with a SB company but I am with a company whose products can't be found in stores - nothing even close to it. I think it's important to go with a company who either has something truly unique or that has a customer loyalty (addiction). LOL Best of luck to all the TLC reps out there.

Rayven said...

This is the main reason I stress to all those in Direct Sales that they cannot put all their income eggs into one basket.

1. Research company thoroughly
2. Diversify

Hope all those consultants are not out too much time and money.

This really stinks.