Avon wins first direct sales licence
(China Daily)
Updated: 2006-02-28 09:21

The Ministry of Commerce (MOFCOM) on February 22 approved Avon's application on direct selling, allowing the company to hire independent promoters to sell products directly to consumers, the department of foreign investment administration of MOFCOM said on its website.

Customers buy Avon products at a commodity fair in Zhengzhou, Central China's Henan Province in this November 18, 2005 file photo.[newsphoto]

The ministry also granted certificates to seven of Avon's employees, allowing them to train door-to-door vendors for the company.

"We are still waiting for the government's formal notice on the licence approval," said Sun Changqing, vice-president of Avon (China) Co yesterday.

Sun said it has no comment on the possible influence of the approval on its business before it knows more details from the government.

Information on MOFCOM's website shows Avon is the only company approved for the direct selling business so far.

Direct sales in China * In 1998, the Chinese Government banned direct sales due to widespread pyramid schemes and other social problems. * In April 2005, Avon was approved for a pilot programme, which allowed the company seeking 3,000 sales promoters to directly sell products to consumers in Beijing,Tianjin and Guangdong. * In September 2005, the State Council issued new regulations on direct sales, opening the business from December 1, 2005. * On February 22, MOFCOM issued the first direct sales licence to Avon.

Other foreign direct sellers are still preparing applications or are undergoing the application process.

US-based Nu Skin Enterprises, for instance, has sent its application to the Ministry of Commerce around two weeks ago and is waiting for approval, a company official told China Daily.

Meanwhile, Amway, a US company selling cosmetics and nutrition products, is still under the county-level application process.

"We need to get the approval from the commercial offices of most of China's 2,300 counties as the first step," said an official from the company, who declined to be named.

The company will then hand in materials to the provincial governments, and finally to the Ministry of Commerce.

"It will take time," said the official from Amway.

China is allowing foreign-funded companies like Amway, which has been adopting a business model of selling goods through retail outlets and "non-employee" sales representatives since 1998, to continue their current practice till December 1, 2006.

Because of this, some companies are thus not rushing to get licences.

"We will do it step by step, and we are confident we will get the licence within the year," said the Amway official.

These foreign companies are experiencing troubled times, as they adjust their business practices according to the new regulations on direct selling issued last September.

Companies like Avon, Amway and Nu Skin all saw business decline in China last year.

Avon said its revenue in China fell 22 per cent in the fourth quarter as its Beauty Boutique owners placed smaller orders in anticipation of direct selling return in the country.

Avon's business in China has kept falling since it started a pilot direct selling scheme in April 2005.

The company posted a year-on-year 19 per cent decline in revenue for the second quarter and a 16 per cent decrease for the third quarter.

Nu Skin said in its fiscal report that revenue in Greater China was US$55.5 million for the fourth quarter of 2005, compared to US$62.8 million for the same period in 2004.

Its number of active distributors was down 17 per cent in 2005, and executive distributors decreased 19 per cent compared to the prior year, primarily as a result of declines in the mainland.

"It is unavoidable during the business restructuring period," said the Amway official, who did not reveal the company's performance details.

However, these companies are confident they will weather troubled times and are hopeful for the Chinese market prospects.

"We expect sales in China will grow at least 10 per cent this year," said Nu Skin.

In addition to foreign companies, domestic firms like Tiens, a Tianjin-based health care products seller, are also preparing for the licence applications.

It is uncertain how many licences the Ministry of Commerce will issue this year.