Sunday, December 02, 2007

British government seeks to close Amway

When DeVos was running for governor last year, supporters threw their weight behind him because they believed he could bring good paying jobs to Michigan like those at Amway, the company his father helped found and DeVos ran for a period of time. I wonder what his supporters think of this news from the London Times:
John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform, seeks to close the company in the “public interest”. [...]

The Government has claimed that the sales people were persuaded to join Amway on the basis that it provides “easy money” or requires “minimal effort”. It also alleged that the business’s primary aim was to recruit staff rather than sell products.
Those terms "easy money" and "minimal effort" are actually pretty flattering compared to what was recently said in court by Mark Cunningham, Queen's Counsel. I highlighted the pertinent descriptive terms.
The British subsidiary of one of the world’s biggest marketing groups was accused yesterday of breaking company law by “selling a dream” of unachievable wealth.

Amway, which had 39,000 selling agents in Britain during 2005-06, is “inherently objectionable”, operates as a lottery and is trading unlawfully, the Companies Court was told. [...]

The Government investigation claims to have revealed that just 10 per cent of Amway’s agents in Britain make any profit, with less than one in ten selling a single item of the group’s products. It claims that Amway’s main activity is encouraging other people to join its salesforce so that they pay the registration fee and buy marketing materials.

Mr Cunningham said that Amway attracted new agents, known as Independent Business Owners (IBOs), by offering “substantial financial rewards or easy money”. He said that promise of wealth was “illusionary” and amounted to “dream selling”.

The group, which has been operating in Britain since 1973, claims that agents can earn a substantial income from selling its range of dietary supplements, cosmetics, jewellery and water purifiers. They are also offered bonuses for recruiting other agents. However, an investigation by the Department for Business, Enterprise and Regulatory Reform showed that only 6 per cent of agents bought Amway products to sell on, the court was told.

Mr Cunningham said that the vast majority of products offered by Amway to its agents were overpriced even before they were expected to add a further 20 to 25 per cent for retail. “The unattractive pricing explains some the graver vices that are at the centre of the winding-up application,” Mr Cunningham said.

Agents were encouraged to buy instructions on how to grow their businesses by attracting new agents. The material contained images of success such as luxury cars, boats and foreign holidays.

Mr Cunningham told the court: “The prospect of substantial rewards and easy money has been at all times, and remains, illusionary.”

The investigation discovered that 71 per cent of agents made no income from Amway in the year 2005-06 and that 90 per cent had made a loss after paying the £18 fee to renew their registration. In fact, just 101 of the agents shared 75 per cent of the bonuses.

“The reality of being an IBO is that a substantial majority make minimal financial returns,” Mr Cunningham said. “Our case is founded on the selling of the dream on one hand and the loss or minimal financial return on the other.”

Mr Cunningham told the court that Amway operates a “pernicious” scheme, which encourages agents to recruit family, friends and colleagues to the group so that they themselves could move up to “that very narrow group that makes any money”.

He said that the Amway scheme involved targeting the “gullible”, “deluded” and “vulnerable” to join the scheme and accused the group of “dream selling.”
Those are pretty serious claims, but the Times provided numbers to support the reality behind those "good paying" Amway jobs:
  • 39,000 - agents working for Amway [in Britain]

  • 27,000 - (71%) had no income

  • 11,410 - (30%) earned something

  • 7,492 - (of the 11,410) received average of £13.53 [about $27] per year

  • 101 - agents received 75 per cent of bonuses

  • £116K - paid to top earner Trevor Lowe

  • 26 - number of years Mr Lowe was an agent

  • Of course, the DeVos family made out pretty well - they're worth billions of dollars.

    The case is still ongoing, but if the court rules against Amway, the company will be no longer be allowed to operate in Great Britain. Either way, this case just collaborates what citizens have been saying for sometime now - Amway jobs don't help people achieve the American Dream.

    (Cross posted at BFM.)


    abi said...

    But Kathy, targeting the “gullible”, “deluded” and “vulnerable" is the American Way - Amway!

    I remember being pitched on Amway decades ago by a dreamy-eyed friend of a friend with tales of easy wealth. And all I had to do was impose on my friends and relatives to buy stuff they didn't want and couldn't use, and then sucker other poor saps to be my distributors. Even as a kid, it wasn't hard to see it for a pretty shoddy enterprise.

    Larry said...

    Amway has always been shady and elusive as when they had MCI Telephone and practiced the art of "slamming" to steal unsuspecting customers from rival companies.

    Kathy said...

    Abi, I was never approached to sell Amway, but I once helped a neighbor down on his luck by buying his Amway products. They were over-priced and nothing special. I would have been better off handing him the cash so he could keep the entire amount and use it where it helped him the most.

    Abi, I vaguely remember something about MCI doing that, but I didn't realize it was Amway. If a company has to "steal" customers, that should tell the consumer something.