web_Doorstep selling

The doorstep is lonelier than before. Where encyclopedia salesmen, “consultants” offering lipstick, and sellers of utilities jostled, there are fewer cold callers. Without package couriers and Jehovah’s Witnesses, who are not paid on commission in the usual sense, there might be solitude.

Doorstep selling is so beleaguered in some countries that the crisis at Provident Financial, the UK subprime lender that tried to shrink its network of agents and found that business promptly fell apart, has a cheering quality. “That will disappear in the brave new world,” Peter Crook, former chief executive, promised in February. Instead it was he who disappeared from the helm.

It turned out that Mr Crook was foolhardy, dazzled by a vision of commission-based agents who offered and retrieved loans to the lower-paid being replaced by staff carrying computers. Without the self-employed sellers of the “Provvy” calling regularly, customers ceased being reminded to repay and collection rates plunged. There is something to the human touch.

The Provident’s story is captivating partly because it is unusual. Direct selling by agents on commission is in gradual decline in mature markets, while growing by double digits in places such as Indonesia, South Africa and Kazakhstan. Sheri McCoy is stepping down as chief executive of Avon Products after failing to halt the slide of the iconic cosmetics direct seller.

Good riddance, the average Financial Times consumer may reflect. Those with strong credit ratings do not need doorstep loans and the “deals” offered by many sellers are dubious. Large UK energy suppliers abandoned doorstep selling after an outcry about high-pressure tactics. There are better cosmetics bargains on Amazon, or through Beauty Pie, a discount members club.

Direct selling is partly tainted by association with customers who lack another choice — those who borrow from Provident or other subprime lenders are often shunned by banks. As their incomes and credit ratings rise, people can shop around. They also tend to have more options in developed markets with dense store networks and sophisticated online retailers.

Long established US direct selling companies such as Tupperware now have more success in Latin America and Asia than at home. Emerging markets sales represent 66 per cent of Tupperware’s total and have been growing by 11 per cent annually for a decade. Even so, Avon is outsold in Brazil by both Natura Cosméticos, which has 1.7m sales consultants, and O Boticário.

A second taint is the suspicion that some direct selling groups are akin to pyramid schemes — agents can earn more by recruiting others to join up and buy stock than from selling to customers. Herbalife, the nutritional supplement group, paid $200m to settle with US regulators last year and its shares fell this month when Chinese officials cracked down on pyramid selling.

The line between customer and an agent can be fuzzy — 15m of the 21m people described by the US Direct Selling Association as “involved” in the industry are customers who join for discounts, not sellers. Even those who do sell often earn relatively little: the median income of non-Hispanic US direct sellers last year was $3,300.

But there remains a place for direct selling, even if it has shrunk. People can still explain complex products and services better than machines: Provident customers are not the only ones baffled by finance. As long as you realise what you are paying for — in the case of the Tupperware party, some entertainment and education wrapped into the price of the utensil — it has a value.

The enduring value lies in the service rather than the sale. It is inescapable that buying from a direct seller tends to be more expensive, since someone has to pay the sales commission. From the seller’s point of view, this helps: it is harder for customers to compare prices of products on the doorstep than when shopping online or in a store.

For home credit, that price can be very high. In February, the total repayment cost of a 12-month £1,000 loan from Provident was £1,872, according to Citizens Advice (an HSBC personal loan today would be £761 cheaper). Anyone with a top-tier credit rating would be crazy to borrow like that.

Provident offers a service, though, to judge by the disruption when it tried to change. “When you’re sitting in someone’s home, you learn a lot about their circumstances,” says John van Kuffeler, chief executive of Non-Standard Finance and former chairman of Provident. “If there is no human contact, you lend to the wrong people.”

Human contact is less vital in selling cosmetics and household goods but it can still carry weight. If anything, the importance of personal recommendation is growing in the age of social media. Younique, a cosmetics group in which Coty bought a majority stake in January, sells through a network of 825,000 “presenters”, who hold virtual parties for friends and others.

At a time when marketing and advertising is under pressure from online commerce, when brands find it harder to lure people, direct selling can still work. The sales representative is not dead, just digitised.

john.gapper@ft.com

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