Are Direct Sales Companies Like Stella & Dot Empowering Or Exploitative?

Jen Donald first heard about Arbonne a few years ago. A dental hygienist in Oakville, Ont., she was in the middle of scaling a patient’s teeth when she noticed her amazing skin. When Jen asked about her beauty regimen, her patient raved about products from Arbonne, a health and beauty direct sales company that claims to use a botanically based formula and premium ingredients. (Though not everyone agrees — nutritionist Meghan Telpner believes Arbonne’s marketing materials count as “healthwashing.”) Donald began buying Arbonne products, which range in price from $44 for cleansers and $88 for night cream to $364 for the company’s complete suite of anti-aging products, from a friend who had recently joined the company, but never really considered signing up as a salesperson herself.

Then, in 2016, she had her daughter, Mia, and went on mat leave. Bored — and making only part of her usual salary — she asked her former patient to meet up. She became a consultant before they’d finished their coffee.

How multi-level marketing works

Arbonne and other multi-level marketing (MLM) companies, like Stella & Dot, Isagenix, doTERRA and Scentsy, are big business in Canada. For the uninitiated, these companies operate through a pyramid-shaped commission model. Sellers — self-employed “distributors” or “consultants” as they’re commonly known — are usually required to pay a start-up fee or purchase a start-up kit, which usually rings up at $100 to $200 and contains a complete product catalogue, business manual and training materials, then buy their merchandise at wholesale prices. They earn money either through commissions based on sales they’ve made, or commissions based on salespeople they have recruited (known as “downlines” in MLM parlance) have made.

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For example, when a hypothetical 20-something, Priya, buys skincare, makeup and bath products from Arbonne at a discount and sells it at the suggested retail price, she earns a commission of about 15 percent. But Priya can also earn a percentage of commission on whatever Sarah, a friend she recruited to the company, sells. Word-of-mouth is one of the key strategies in direct sales, so both Priya and Sarah are likely reaching out to their friends and families — and, increasingly, online social networks — to both move product and recruit for their respective sales teams.

And it’s working. In 2015, MLM companies generated $2.55 billion in sales, a 10 percent increase from a decade before, says Linda Herron, the interim president of the Direct Sellers Association of Canada (DSA). These businesses are overwhelmingly female: 83 percent of the direct sellers in Canada are women, something you’ve likely noticed if your Facebook feed looks anything like mine.

This style of business gets a bad rap — but is it fair?

Despite their popularity, this type of company doesn’t exactly have the best rep. Though pyramid schemes are illegal in Canada, the perception that all MLM companies have pyramid-like qualities is a lasting one, aided in part by rumours of sketchy business practices and bad press about the industry. For example, LuLaRoe, which reportedly requires new consultants to purchase $5,000 worth of inventory when they join, was hit with a $1 billion class action lawsuit last October that says, according to the Chicago Tribune, “the [California] firm encouraged women who wanted to sell its leggings, skirts and other clothing to take out loans, run up credit cards and even sell their breast milk, then left some in financial ruin with unsold goods… As many as 80,000 people paid thousands up front for inventory.”

And bigger companies are feeling the heat, too. Last year, Herbalife narrowly avoided being branded a pyramid scheme (the U.S. Federal Trade Commission instead opted to cite the company with a less-serious “unfairness” charge). But, it did have to pay a $200 million fine to the FTC and was required to restructure its operations so that it “tracked and rewarded sales that ended in purchases by consumers” — as opposed to rewarding employees for bringing in new recruits. And of course, there’s an oft-cited report by consumer advocate Jon Taylor, which claims that 99 percent of people who participate in MLM actually lose money on their businesses.

But advocates of the industry, including Derek Hassay, a marketing expert and professor at the University of Calgary’s Haskayne School of Business, say MLM’s bad rap is unfair — especially in the Canadian marketplace, which is light on U.S.-style MLM horror stories.

“It’s micro-entrepreneurship,” he says. “[Multi-level] marketing is just a form of direct selling. And it’s really about compensation. There’s single-level or multi-level, and that doesn’t mean anything other than how I get [paid]. People get all hung up on, ‘Well, it looks like a pyramid, so it must be a pyramid.’ But every company in the world looks like a pyramid!”

Hassay isn’t wrong. Pyramid schemes require participants to recruit new members who have to pay to play, and they use income from those new members to compensate older recruits. Often, there are no sales of actual product; it’s all about reeling in rookie sellers, often with the promise of amazing sales incentives: cars, trips, six-figure salaries. Incentives play a role in MLM, too — Arbonne consultants can earn a monthly cash bonus towards the lease or purchase of their own white Mercedes-Benz, while Rodan + Fields sends top sellers on trips to pretty amazing destinations, such as Maui or California’s wine country. But sales are key, says Hassay, so while there is recruitment, it’s not the primary focus of the business. In that way, successful “uplines” resemble mini-CEOs, driving strategy while someone else does the hands-on selling.

Newsflash: many women don’t feel exploited

Of course, there’s an even better indicator that these companies might have been unfairly maligned: the women who have actually joined them. Despite the dismal stats, many women say they’re making money and actively contributing to their household’s bottom line — and they don’t feel exploited. Like, at all.

Clearly, there’s a disconnect between what most people think about MLM and what the women who are actually participating in these companies experience. And we may be doing a disservice to these business owners by characterizing all MLM companies as scams.

FLARE spoke to a handful of young Canadian women, most of whom said they make money on their businesses. For some, this additional income covers “extras” they might not have been able to afford on the paycheque from their day jobs. Take Stella & Dot stylist Elyse Berendson, a 29-year-old preschool teacher who joined the company to supplement her income.

“We have used extra money and income to buy our first home, pay off some debts… This year, Stella & Dot will help pay for my wedding,” the Barrie, Ont. native says.

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And Donald, who has cut back on hosting Arbonne parties since her mat leave ended, says she still makes about $200 a month thanks to her e-commerce site and regular customers. “It’s not a lot, but that’s just from people going online and buying products themselves. So it’s extra money I’m not doing a lot to make,” she explains.

Berendson and Donald aren’t unique. While some women have turned their direct sales businesses into careers, many more think of it as a side gig.

“Most people aren’t in it to replace income. Most people are in it to make additional income,” says Hassay. “If you could give me $1,000 that I don’t have right now, my life would be a heck of a lot better. And that’s what most people are doing. There’s a wonderful group of women who join in September or October, buy Christmas presents for their family, quit in January and join again the next year.”

In some cases, of course, direct selling does replace full-time, salaried gigs. That was the case for Sarah Millar, a 25-year-old personal trainer from Ottawa who joined Stella & Dot because she wasn’t making a consistent enough income on her fitness biz. Since signing up in January 2016, she’s paid off her student loans, gone on two vacations and started saving for a down payment. (She and her high school sweetheart are aiming to buy a home this spring.)

“The fact that it was a low investment to join was very enticing for me,” she says. “And last September, I left my job as a full-time fitness coordinator to focus on my business. I still teach a few classes a week, but majority of my time is dedicated to Stella & Dot.”

It’s no wonder being able to make money without having to work a traditional 9 to 5 is super appealing. Full-time permanent employment is increasingly hard to find, and research confirms it. According to two 2015 studies, one by the Organization for Economic Co-operation and Development (OECD) and the other by the United Way of Toronto, the economy is increasingly dependent on precarious employment — which disproportionately affects young people aged 15 to 24, particularly women and people of colour.

In fact, Hassay draws a link between MLM’s popularity and the employment opportunities (or lack thereof) available to women. “If you look at ’40s and ’50s, which was the heyday of direct selling, women could be teachers or nurses. There were no other opportunities,” he says. “So, if you wanted some independence, direct selling Tupperware or Avon was all there was.” Unsurprisingly, considering the challenging realities of the job market today, Hassay believes we’re in the midst of a second MLM heyday right now.

The appeal of camaraderie shouldn’t be dismissed

More than professional success or flexibility, though, community might be one of MLM’s biggest draws. Like Donald, “a lot of women will join direct selling companies when they become a mom,” Hassay says. “They’re looking for something to do to get out of the house. That one party a week is a significant contributor to mental health, income, a sense that they’re contributing to the family.”

That sense of camraderie often starts with a love of the product. Jen Marie Rowsell, a 33-year-old Canadian arachnologist-turned-Arbonne area manager who now lives in Texas, wasn’t even interested in joining the business at first — she fell in love with Arbonne’s product line, which claims to be pure, safe and effective. But, much like the other women FLARE interviewed, she quickly realized that if she was excited about about Arbonne products and telling her friends anyway, it only made sense to actually sell them herself. And that’s when she really began to benefit from the company’s famously tight-knit sorority.

“The community I’ve found within Arbonne is unlike any other I’ve encountered,” she says. “I previously worked in science/research/education, where there is a lot of job scarcity, competition and uncertainty. In our community, we all assist each other and lift one another up, as we have a common goal of sharing what we love.”

That self-help-tinged speak is a common thread among MLM companies. Arbonne’s tagline is, “transform your life and the lives of others.” Part of Stella & Dot’s appeal, says Berendson, is that, “the [company] name stands for the CEO and Chief Creative Officer’s grandmothers, and the business is all about empowering women and creating a business her way on her own time.” But that enthusiastic brand loyalty might be part of the reason for the persistent negative perception of MLM companies, which have sometimes been described as, “cult-like.” If you’re not in the community, that much enthusiasm can be off-putting.

Multi-level marketing isn’t immune to sexism

However, it wouldn’t be surprising if being a female-dominated industry also contributes to MLM’s less-serious reputation.

Traci Costa, Chief Executive Officer, President and Director of Peekaboo Beans Inc., can speak to that disparity. Not long after Costa founded her company, a kids’ clothing retailer, in 2005, she realized she needed to rethink her sales strategy. She’d tried the boutique route, but found the experience impersonal, and she didn’t feel like she could compete in the online space. That left only one viable option: direct sales.

It turned out to be a savvy choice. In her category, two major competitors have recently declared bankruptcy, while Costa’s company has seen astronomical growth. “There’s a retail disruption happening,” she says. “Traditional bricks-and-mortar is suffering big time.” Peekaboo Beans, on the other hand, is thriving — by 2015, it employed 700 consultants, had paid out $1.7 million in commissions and its revenue had grown by an average of 70 percent every year.

But the rest of the business world didn’t always take her seriously: “I took my company public on my own, raised millions on my own,” she says. But “it’s very challenging being a woman in the financial industry trying to raise money for a kid’s clothing company. Investors would ask, ‘Do you sew the clothes?’ Or say, ‘You have a home party business.’ All I do, all day long is prove myself.”

On the seller side of things, it’s also somewhat demeaning to imply that women who join MLM companies are doing so blindly. Jamie Clarkson, a 28-year-old Arbonne executive regional vice president from Winnipeg who joined the company as a 22-year-old university student, says she didn’t sign anything until she’d done her research. “It was really important to me to do my due diligence on the business and the industry before starting this opportunity,” she says. “What really drew me to Arbonne was the fact that they are a member of the DSA, which has a strong code of ethics and high standards for business practices.”

“You can’t open your doors and expect to be rich tomorrow”

To be fair, MLM isn’t the business style for everyone. You do have to look at your personal network as a potential customer base, which requires a delicate balance — one that not everyone enjoys. That was the case for Nadia Manes, a 34-year-old from Oakville, Ont., who recently dabbled in selling Arbonne. “​Did I like the product? Yes,” she says. “Did I like harassing people and convincing them to sign their paycheck over to me so they can get a new face wash? Absolutely not!”

Manes invested about $4,000 into her Arbonne business, which she maintained for a year. By the end, she’d only made $600. “I had vendor shows, so I had to purchase product for display. Obviously, I used the products that didn’t sell… but I wouldn’t have initially bought them,” she says. “I also felt pressure from my upline to purchase more to make the business successful.​ It was constantly said that you should have the latest products and try everything before you sell it.”

But for those who do excel at sales — or who want to use a small direct sales business as a tester for future entrepreneurship — there seems to be something to recommend the MLM model.

“Right now, I make more doing hygiene than recommending products to people, but maybe in four or five years I could retire as a hygienist,” says Donald. “Because people don’t realize that you actually have to work and put in a good few years before you start seeing money — it’s like any business. You can’t open your doors and expect to be rich tomorrow.