Is Direct Selling Recession Resistant?
With unemployment reaching 5.7% in July, (up to 10.3% if you include those who are underemployed), many people are raising an age-old question in direct selling: is it counter-cyclical, recession-proof, recession-resistant or none of the above?
The full analysis is a bit more complicated, but it is instructive to look at the last documented recession, which lasted from November 2001 to November 2002. In 2001, direct selling companies reported an additional 1.2 million sellers over the prior year, with anecdotal reports indicating that many of those recruits came on board in the last quarter of the year, post 9/11. (The average increase between 1990 and 2006 was about 656,000 sellers per year.) Sales showed a similarly positive performance as 2002 sales were up $2 billion from the prior year, far outpacing the average increase between 1990 and 2006 of $1.2 billion.
Certainly the data from one recessionary period does not constitute a trend, but coupled with the steady growth pattern of direct selling over the past two decades, the numbers suggest that when the national economy sours, direct selling can be expected to demonstrate its recession-resistant tendencies. During more stable times, direct selling will track more closely with the economy, a fact that has become particularly evident since 9/11.
But back to the unemployment rate. A side-by-side comparison of direct sellers vs. the unemployment rate reveals that high unemployment doesn’t result in a mushrooming of direct sellers as a counter-cyclical argument would suggest. Instead, over the past decade the number of direct sellers has increased as unemployment has decreased, except for the 2001-2002 recessionary period following 9/11 when the number of sellers increased markedly during rising unemployment. This further supports the theory that a true recession causes a strengthening of direct selling numbers, whereas other economic situations result in a closer tie between performance of the direct selling sector and the economy.
So what about our current situation? Sales and salesforce numbers for 2007 showed the first declines in more than two decades. At the same time some companies are reporting solid sales and recruiting numbers while others are noting decreased sales. In addition, economists are still undecided if we are truly in a recessionary period. Can we predict that the worst is behind us, or is direct selling tied so closely to economic performance that we can expect the roller coaster ride to continue unless a documented recession occurs? Only time will tell.
Tags: direct selling, DSA, economy, MLM, recession, unemployment
August 28th, 2008 at 8:41 am
Amy…
Doesn’t sound like good news, but at least your post was informative. Seems as if you are asking whether or not we are in a recession based upon historical performances of MLM recruiting?
Most people would agree that we are in a recession, but the hoped for improvement in recruitment numbers has been down, not up.
It seem like your industry is entering into a new era, and at least the numbers have not been encouraging of late. The economy is indeed bad and many distributors thought that this would (as it has in the past) improved recruitment, which has not been the case. Might we now be living in the real computer age where people are so much better informed, and become resistant to something that has so much controversy surrounding it?
August 28th, 2008 at 9:34 am
Many people may think we’re in a recession, but the economists haven’t agreed on that yet, thus the “time will tell” ending to the post. What is confirmed though is that a number of companies have reported very positive second quarters, with both sales and salesforce numbers up. In fact I do believe we are entering a new era - no longer do people look to direct selling in larger numbers when there’s a sour economy - they are looking to direct selling during just about any economic climate so one doesn’t necessarily see the bump when there’s a poor economy. As I mentioned, over time we have moved from counter-cyclical to tracking with the economy. I think that’s a statement about the strength of this industry - it’s not just a fall-back anymore - it’s something people consider as an alternate income source at any time.