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Avon calls; China now answers

With Beijing easing a ban on door-to-door sales, companies are training armies of salespeople to tap a huge potential market.

December 09, 2006|Don Lee | Times Staff Writer

SHANGHAI — Eight years after banning door-to-door sales for wreaking social turmoil, China is reopening its doors to the Avon lady and her rivals from Amway and Mary Kay.

Hundreds of thousands of Chinese -- women and men -- are beginning to hit the streets and go online to plug the latest face cream and lip balm in flavors such as green tea.

On a recent afternoon near a giant statue of Mao Tse-tung, college senior and Avon sales rep Gu Binbin spread samples of cosmetics on the ground outside the student cafeteria at East China University of Science and Technology here. The 22-year-old Gu also posted ads on his school's bulletin boards, advertising the Avon eye serum, lotions and anti-wrinkle agents that clutter his dorm room.

He thought he could score a few sales by hanging around outside the women's dorm.

"This month we have a special discount for Christmas. It's a great deal," he said to two students. "For winter you can buy lip balm for a discount. Green tea and strawberry flavor are the most popular."

The young women did not buy but left with glossy Avon brochures.

In 1998, China banned door-to-door sales, saying it encouraged pyramid schemes that fleeced poor people. Political analysts said the ban by the ruling Communist Party was intended to prevent companies from creating cult-like followings that took their messages directly into people's homes.

China has been relaxing the restrictions, bowing to international pressure to open its markets to foreigners. This week Amway Corp. and Mary Kay Inc. were awarded licenses to sell directly to Chinese consumers. Avon Products Inc. secured similar permission several months ago. Herbalife International Inc., headquartered in Century City, is awaiting approval to enter the China market.

Avon has recruited an army of 300,000 Chinese, including many college students, to take its products straight to the masses. Amway says its Chinese sales force is 180,000 strong. Mary Kay declined to comment.

With the official approval, Avon, Amway and Mary Kay see a golden opportunity to tap the nation's 1.3 billion people, with their surging incomes and strong social networks. Experts say China's direct-sales market may be worth $50 billion a year.

"The Asian emphasis on family and personal relations makes [direct marketing] very suitable here," said Wang Yi, a professor at Beijing Institute of Business Management. It's also attractive for another reason: "It provides jobs for laid-off workers."

But if Gu's experience is indicative, don't expect to see a lot of pink Mary Kay Cadillacs on Chinese roads anytime soon. The computer science major was detained by campus security after he and his girlfriend solicited sales outside the cafeteria. Officers confiscated their cosmetic samples and forced them to write a letter criticizing their actions.

Many Chinese consumers are wary of buying brand-name goods from strangers or outside of legitimate stores because of rampant piracy. Others, including government officials, remain suspicious of door-to-door salespeople.

What happened in towns such as Xingsha, near Mao's hometown in Hunan province, caused Beijing to ban door-to-door sales. Long Jian, a 30-year-old local resident, remembers the commotion in the mid-1990s when villagers got involved with chuan xiao, Chinese for marketing in which people recruit other sellers and collect royalties from their sales.

It's not clear who started the scheme in Xingsha, but Long and media reports at the time said tens of thousands of people flooded the town to buy and sell all kinds of goods -- food, clothes, elixirs, even VIP cards for teahouses.

"For about a year, it was so crowded here," said Long, a car repairman. "In restaurants, hotels and streets, there were many strangers from other provinces. There were lectures everywhere" about this new, get-rich-quick scheme.

It didn't last long. One person after another started complaining about not getting the goods they paid for or being bilked. Some arrangements turned out to be Ponzi schemes. Rioting broke out.

"There was a lot of cheating; it was very bad," said Long, who said he stayed away from the sales networks.

"Many lost all their savings and became homeless in town. And it was really bad for security here."

When Long heard that Beijing was easing restrictions on direct sellers such as Amway and Avon, he said: "They should be different, right? I heard they are very famous brands."

After the 1998 ban, Avon continued to sell its goods through about 6,000 stores that it opened throughout China. Amway also set up some storefronts, and it bolstered its relations with authorities by investing more than $200 million in a factory in Guangzhou and advertising widely in the streets of cities such as Shanghai.

With restrictions on sellers recruiting other sellers in China, Amway, which is based in Ada, Mich., allowed salespeople to become company employees or operate as "independent business owners" and thus be able to profit from sales of agents recruited by them.

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