Direct-selling firms in China look to new retail channels amid tough market environment

By Tingmin Koe

- Last updated on GMT

A number of direct-selling firms in China have branched into e-commerce retail. © Getty Images
A number of direct-selling firms in China have branched into e-commerce retail. © Getty Images

Related tags Direct selling MLM China

Direct-selling firms in China have adopted new sales models as the regulatory framework tightens and consumers’ perception becomes less favourable.

Some of these firms, such as Infinitus, have turned their focus to cross-border e-commerce (CBEC) and social commerce, an industry expert pointed out.  

‘The direct-selling industry has been declining in the past few years. The current public discourse surrounding the direct-selling enterprises are not very positive too,’​ Charles Diao, regulatory manager at US-China Health Products Association said in response to queries from NutraIngredients-Asia.

This is amid a more stringent regulatory framework and a less favourable public perception towards direct-selling, Diao pointed out.

Since last year, the direct-selling industry have to deal with greater scrutiny as China’s regulator, State Administration of Market Regulation (SAMR), commenced the ‘100-day operation’.

Herbalife​ and Usana​ were two of the direct-selling firms that have suffered a sales dip. The former said in last August that volume in China had declined by 37% since the operation, while the latter said the crackdown had damaged consumer confidence, with sales dipping by 15%.

Negative publicity for the direct-selling industry resurfaced earlier this month as the founder of Quanjian, Shu Yu Hui, was jailed nine months​, for leading organised MLM.

Diao pointed out that consumers have become less trustful towards the direct-selling model.

‘The logic behind direct-selling differs from the mainstream health supplement industry. In the earlier days, there is a greater degree of trust among people, which makes the direct-selling model very effective.

‘In contrast, consumers these days generally have a greater sense of autonomy to come to their own decisions. Moreover, there has been negative news about the direct-selling industry every now and then.’

He also felt that the younger generation of consumers’ level of trust towards the direct-selling model has been dipping.

These group of consumers would rather spend time and effort to research on the products that they need, he said.  

As a result, many direct-selling firms are already transforming its operation model, he said, pointing out the example of Infinitus.

However, he also did not discount the possibility that ‘going through a business transformation could be (the firms’) strategy to the ongoing market trends.’

Infinitus said in a press release​ last September that it had established its e-commerce business to expand its existing channels, which was also a response to an ever-changing commercial environment.

It said it had selected 32 products for sale on its e-commerce platform and it would also launch a CBEC business to bring in products from other parts of the world.

The company stressed that its core operation model ‘remained unchanged’​ and the benefits for its business partners would not change.

Amway China has also started its CBEC and mobile social commerce operations since a year ago – a move which the firm said was to ride on the waves of the booming e-commerce market.

Quanjian is not the only one

Quanjian is not the only MLM firm that claims to be doing direct-selling.

Diao pointed out that most of the times, these firms introduce unknowing consumers to the MLM model through the selling of products, including dietary supplements.

 ‘These opportunists have no regard for (product) standard and their entry has brought a pretty big damage to the (dietary supplement) industry.

‘Quanjian is not the only firm doing such things,’​ he added.

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