China lifts direct sales ban

By Simon Pitman

- Last updated on GMT

The doors have been opened to direct sales cosmetics players such
as Avon and Oriflame, as China lifts a seven year-old ban. Freeing
up the market from December 1st, the news means roll-outs will have
to be fast in order to carve out a decent slice of this lucrative
market.

The Chinese government announced that it was lifting the ban last week, a move manufacturers have been expecting for some time and one that has already led to big plans for leading players.

Direct sales were banned in China in 1998 because of the then widespread popularity of pyramid schemes, peddled on a door-do-door basis. Consumers losses were heavy and because many were said to be confused between genuine direct sales companies and the pyramid scams, the government took the decision to introduce a total ban.

This means that players such as Avon​, which were already established as a direct sales company in the country, had to revert to selling its products through retail outlets.

The new rules for direct sales are said to be tighter, stipulating that any foreign firm wishing to set up direct sales in China must have had at least three years of experience in doing business overseas.

Foreigne companies must have a minimum of CNY 80 million (€8m) in registered capital and make a deposit of CNY 20 million to set up the business, stipulations that restrict the establishment of new direct sales businesses to larger established companies.

In a recent interview with the Wall Street Journal, Avon CEO Andrea Jung said that she was pinning hopes of a financial turn around on the company's operations in China over the next few years. With the market in direct sales now re-opened, those hopes now look better placed.

Other direct sales cosmetic companies waiting to tap into the market include Amway, NuSkin, BodyShop and Oriflame. Nuskin currently has 150 retail outlets in China, while Amway has 160. Meanwhile, both the Body Shop and Oriflame have made major investments over the past couple of years that aim to get their direct sales campaigns up and running as soon as the ban is lifted.

The sheer size of the China populace combined with the fact that economic prosperity is continuing to develop at phenomenal rates gives many industries reason to believe that there are significant opportunities. For cosmetics companies in particular, huge opportunities are in the offing. Currently the market for cosmetics is valued at $4 billion, but with growth rates continuing to skyrocket, some industry experts believe that this figure will have grown ten times by the year 2010.

This, combined with the fact that the vast majority of China's population remains outside the primary industrial and economic zones, and consequently out of reach of the major retail centres, gives many industry experts reason to believe that direct cosmetics sales could be a major growth industry.

Avon's Jung sums up the new-found enthusiasm for the China cosmetic market after the ban is lifted: "In my mind, there's not going to be a bigger opportunity for this company than China,"​ she told The Wall Street Journal.

Related topics: Market Trends

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