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Avon unveiled an implementation plan for its direct-selling trial yesterday, a move signaling the start of a milestone testing programme proceeding the opening of China's highly monitored direct-selling sector.
The cosmetics giant will recruit 3,000 sales promoters to directly sell products to consumers in Beijing, Tianjin and Guangdong Province.
But before entering the market, Avon China must take responsibility for training and issuing temporary certificates to sales promoters. Profiles of the promoters will be reported to and filed with regulatory bodies, including the Ministry of Commerce and State Administration of Industry and Commerce.
Students, teachers and civil servants will not be allowed to become promoters, and the proportion of payment to sales promoters will not exceed 25 per cent of the income generated from sales.
Whenever training more than 100 promoters at any given time, Avon must apply for a licence from a local regulatory department. The firm will not be permitted to host large-scale training activities with more than 500 participants.
As part of the trial regulations, Avon must deposit 20 million yuan (US$2.41 million) in an account at China Merchants Bank.
Avon announced last Friday that it had got the official nod to start a pilot programme in selected areas that could help the central government draw up rules to streamline the sector. Other international and domestic direct-sellers, such as Amway and Tianshi Group, failed in the battle to be selected for the trial.
Experts believe the move represents a return to Avon's efforts to shift its business model to retailing boutiques, after the government banned pyramid-selling - a business that was not easy to differentiate from direct-selling in 1998. Pyramid-selling became a very popular business in the mid-1990s, which led to huge economic losses and social disorder.
But 10 foreign direct-sellers, including Amway and Avon, have been allowed to continue business in China as long as they adapt their retail models.
Speaking about fears of possible drops in sales sparked by the go-ahead, Kao said: "All retail stores will remain independent...and their profit margins will be bigger than those of promoters."
Compared to the profits of 25 per cent for sales promoters, profits for retail outlets will remain at 30 per cent.
From Avon China's sales volume of US$220 million in 2004, about 70 per cent was contributed by beauty boutiques. "We will ensure our retail business remains strong and efficient," said Smith Chen, Avon's chief operating officer in China.
Having debuted in 1990, Avon has now established a sales network of more than 6,300 beauty boutiques and more than 1,700 beauty counters nationwide.
"The pilot programme is small in scale, so we do not rely on much economic returns from the test; it will be more like a reference for the making of the regulations," said S.K. Kao, president of Avon in China region.
(China Daily April 20, 2005)
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