PETALING JAYA: Direct selling companies are expected to remain resilient in the present downturn on aggressive marketing activities and attracting more distributors.
OSK Investment Bank recently conducted a survey on consumers and found 13% of respondents were likely to take up part-time jobs to supplement their income and tackle the present slowdown.
Paul Yee ... It’s necessary to invest more in the business
Amway (M) Holdings Bhd, the largest player, expects sales for the financial year ending Dec 31, 2009 (FY09) to be driven by new products, aggressive promotions, new recruitment and new shops opening.
“People tend to pick direct selling as an alternative choice in a tough economy and, in a turnaround, consumers’ propensity to spend increases, which would also benefit Amway,” executive director Paul Yee told StarBiz in a recent interview.
Zhulian Corp Bhd group managing director Danny M.K. Teoh concurred, adding that many became aware of the benefit of self-reliance in a downturn and direct selling was one of the options.
Based on its experience in the past 20 years, the company tended to see higher recruitment during bad times, he said.
Meanwhile, Amway had adopted a slightly different strategy by opening shops late last year. The new shops in Seremban, Kuala Terengganu, Kota Baru and Batu Pahat would have full impact in the current fiscal year, Yee said.
“The shops make the brand more accessible. In the first five months, the new shops have generated a combined monthly average sales of RM2.5mil,” he said.
The shops have also spurred recruitment activities. “Applications from these locations are higher than prior to the shops’ opening. We have 195,000 distributors, and growing that will help,” he added.
Amway, which recently opened the fifth shop in Bintulu, plans to open the remaining three this year in Penang, Wangsa Maju and Klang.
“A capital expenditure of RM5mil was allocated for the shop from FY08 to FY10. We will have 13 regional distribution centres and 12 shops by the end of the three years,” Yee added.
Meanwhile, Hai-O Enterprise Bhd, whose earnings were driven by the multi-level marketing division in recent years, believed growth momentum would continue for the next two years on rising distributorship and new products, according to financial controller Hew Von Kin.
Hai-O Marketing Sdn Bhd managing director Ng Lip Yong said 3,000 to 4,000 new distributors were added every month while total members had crossed the 100,000-mark, thanks to brand awareness aided by more advertising and promotions (A&P).
The Chinese healthcare company’s food supplement, Nurich Series, launched in December, had received positive response while the new skincare range, La Face Series, introduced in March was picking up in sales, Ng said.
Similarly, Amway had also launched a new skincare range under its Artistry brand earlier this year, sales of which were within expectations so far, Yee said.
The beauty and wellness category remained the chief contributor to Amway with over 50% of total sales. The launch of new products under its Nutrilite brand was in the pipeline, he said.
Teoh said Zhulian’s new third plant, which catered mainly to the food and beverage production line, commenced operations last October. “Our productivity has increased since, enabling the company to launch more new products to meet rising demand,” he added.
Meanwhile, Amway’s profitability is likely to continue to be pressured due to higher costs and investments.
“It’s necessary to invest more in the business due to the slowdown. For this and next year, the A&P budget is RM30mil,” Yee said, adding that costs were also pushed by the headcount in the new shops.
Given the sensitive consumer sentiment, the Malaysian unit had yet to transfer new prices to the marketplace although there was an increase from its parent in the United States, Yee said.
Both Amway and Hai-O are facing pressure from the weaker ringgit against the greenback.
Hew said measures taken to mitigate the impact included partial hedging for near future purchases at “fixed” cost as well as renegotiating with suppliers for some subsidy while trying to source products locally.
Yee said efforts to be consumer-focused “will help in the long term as, in our line, people are important.”