As indicated by typical sales data, the growth in revenue of most of regional markets has slowed down as the size of sales force pool shrinks in those markets. Under the help of increased sales incentive and product promotion, China market presents a huge developing potential due to large availability of sales recruiting.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. Data indicates that the revenue of direct selling companies has slowed down, in matured and relatively smaller markets recently, as sales force in those markets shrinks when lacking more incentives and new available products. Facing such a market climate, companies have felt the increasing difficulties in offsetting shrinking unit sold by raising price.

2. China has presented huge potentials in helping bring revenue for companies in this sector due to its size of potential sales force pool. And, correspondingly, companies frequently use strategy such as launching new products and increasing incentives to developing China market.

3. Unfavourable environment of economy adds more costs on companies in recruiting sales.

Causes behind the trend

1. Availability of sales force in the direct selling distribution mode has been determined by economy situation especially by the unemployment rate. Gradual recovery of economy from recession in matured and developed countries slowed down growth in sales force of those companies.

   The large unemployment rate in urban population of China may be the major reason for those companies to increase their sales force pool and thus the revenue in China market.

Industry Future

1. Slowing down growth in matured and smaller countries may continue since unfavourable factors in those markets will still exist.

   New products may be the key for companies to grab market share in China market while increasing sales costs are expected.

General Financial Performance of Companies In the Sector

It seems that, except china market, the market for direct selling products has been very mature and revenue has reached maximum in the recent years as indicated by the gradually declining sales pool and thus sales volumes in US and most of Asian markets. We have seen 2-3% decrease in sales force in those markets and companies are probably going to face increasing difficulties in offsetting the decreasing revenue by raising price.

China, while increasingly tough regulation, presents an example of a much larger market size in terms of developing sales force. This has been indicated by the fast growth of revenue (15-20% annual growth) and of sales force, stimulated by incentive and product promotions, in the past several years in China market.

We have seen a slight declining in typical companies ‘gross margin (about 70% in 2017) and the flat SG&A as percentage of sales (about 61% in 2017).  Therefore, the typical operating margin went down to about 130 basis points to about 8% since 2014.

The typical average stock price/cash flow ratio is about 18 ranging from 14 to 22.

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