Amway model suffers, hits e-commerce hurdle
US direct-selling player Amway is confronted by two challenges in India. While its revenues in the Indian market have shrunk after hitting a peak of ~22.88 billion in 2012-13, sale of Amway products on independent ecommerce sites such as Amazon and Flipkart undermine its direct-sale model.
Talking of the first challenge, after five years of hitting a peak and with an economic downtrend reversing, Amway is now aiming to again hit the magic revenue figure of ~20 billion by the end of the 2018 calendar year. It is expected to have hit a turnover of ~17 billion in the 2017-18 financial year.
As for the challenge posed by e-commerce majors, sale of its products to consumers through third-party sites undermines the core of Amway’s direct-selling model, under which the products must be purchased from the company’s empanelled distributers.
Amway has put in place a clear strategy to address both problems. To increase its revenues, it is now making a major push into consumer durables, a category into which it had earlier made a cautious entry by launching premium cookware. Buoyed by its success — the company has already hit ~1 billion in sales — Amway is now planning to sell a few other products in the category, such as air purifiers (initially for cars and later for homes), home water purifiers, and so on.
Amway India Enterprises CEO Anshu Budhraja says, “We will not get into every consumer durables product, but only those that are within the health category. About 15 per cent of our global turnover comes from durables. We expect that will also be the case in India in a few years. We will be launching these products in 2019.”
The company has also made a big push in selling traditional herb range, with four of its products already registering ~1 billion in sales within a few months of launch. Interestingly, about 55 per cent of the buyers of these products are under the age of 35 years. To Indianise such products, the raw material is being extracted in various states of the country. Amway might look at these products’ export potential, too.
What has caused the drop in Amway revenues in the past few years? Explaining the reason, Budhraja says the drop was primarily because of a rethink in the firm’s strategy between 2013 and 2015 which entailed shifting from high-volume personal and home care products to nutrition and beauty products. “We decided not to make any fresh investments in personal and home care as we thought our strength and value lay in nutrition, which is the sweet spot, rather than products like soaps, which had become a commodity business,” says Budhraja.
Amway acknowledges the challenge its direct distribution system faces from e-commerce players. But e-commerce firms say they are a marketplace, so the onus lies on Amway to curb its distributors putting up products for sale on e-commerce sites in violation of the Amway distribution rules.
The company has, of course, found a way out. It has revamped its own online store and is investing $3-5 million in it. It is backing that up by offering oneday delivery in as many as 30 key cities of the country. It has also invested in software by which batch numbers of products being sold online could be traced back to the distributor for required action to be taken.
Budhraja says, “The move has helped us. Currently, 35 per cent of our sales comes from our online site, compared with 15 per cent 18 months ago. And the amount of sale that still takes place on other sites has gone down to 8-10 per cent from around 15 per cent earlier.”
To increase its revenues, Amway is now making a major push into consumer durables