Despite a revival in consumer spending, online competition will inhibit industry growth
Los Angeles, CA (PRWEB) August 12, 2012
Reduced consumer spending caused recessionary conditions, damaging the Direct Selling Companies industry in the five years to 2012. Rising unemployment rates, combined with falling consumer confidence and disposable income, have forced households to cut back on discretionary products, which include many products sold by direct sellers. In addition, increasing competition from big-box retailers, department stores and e-commerce websites has further threatened the industry by increasingly providing a wider selection of substitute products at lower prices, says IBISWorld industry analyst Justin Waterman. As a result, revenue is expected to fall at an average annual rate of 1.8% over the five years to 2012. Recent improvements in economic conditions, however, are expected to relieve some of the industry's struggles; IBISWorld estimates that industry revenue will increase slightly by 0.7% in 2012 to $38.5 billion.
Despite declines in industry sales, news has not been all bad for the industry; poor economic conditions have actually rekindled some interest in direct selling. Because direct sellers have relatively low start-up costs, many Americans who lost their jobs in the wake of the recession established businesses to seek alternative income, says Waterman. As such, enterprises and employees have increased at average annual rates of 3.6% and 3.2%, respectively, since 2007. However, this rise in industry participants, coupled with falling sales, has resulted in declining average earnings. During the past five years, average wages for direct sellers have declined 1.9% annually, from $6,959.9 in 2007 to an estimated $6,323.1 in 2012. The Direct Selling Companies industry is considered to have low level of concentration. Alticor Inc. is the largest player in 2012. The industry is highly fragmented, characterized by a large number of small, individually owned businesses. In the five years to 2012, the industry is expected to have an influx of new entrants. Because the industry requires minimal startup costs, many Americans who have lost their jobs since the recession have picked up direct selling as a means of obtaining supplemental income. The numbers of establishments and employees have increased at average annual rates of 3.6% and 3.2%, respectively, over the five-year period. However, such growth in industry participation has heightened competition internally. Hence, IBISWorld expects underperforming firms to close operations in the five years to 2017. Through 2017, the numbers of establishments and employees are estimated to fall, causing concentration to rise.
Led by improved consumer confidence and disposable income, consumer spending is anticipated to pick up in the five years to 2017. As such, households are expected to increase purchases from direct sellers that they had curtailed throughout the recession, boosting industry demand in 2012 and 2013. This growth will be temporary, though, as the fast-growing e-commerce industry continues to steal some customer traffic away, capturing much of retail demand. Consequently, IBISWorld forecasts that industry revenue will decline over the next five-year period. For more information, visit IBISWorld’s Direct Selling Companies in the US industry report page.
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IBISWorld industry Report Key Topics
Direct selling is the sale of a product or service from person to person, away from a fixed retail location. People in the industry are known as independent consultants, distributors or representatives. Sales are usually done via home parties, workplaces, street corner carts and door-to-door. However, direct sellers of food for immediate consumption and fuel are excluded from this industry.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.