Amway Corporation

views updated

Amway Corporation

7575 Fulton Street East
Ada, Michigan 49355
U.S.A.
(616) 676-6000
Fax: (616) 676-8140

Private Company
Incorporated: 1959 as Amway Sales Corporation and Amway Services Corporation
Employees: 7,500
Sales: $2.20 billion

“Don’t let anyone steal your dream” is a popular rallying cry for many Amway distributors, independent businessmen and women whose goals of financial independence have led to the success of the Amway Corporation. The slogan indicates that this company is more than just a business; it has some traits of a social movement. Amway is well-known as one of the largest network, or multilevel marketing (MLM), firms in the world. Its own products and services and brand-name goods from other companies are marketed by approximately one million self-employed distributors in the United States, Canada, Europe, United Kingdom, Asia, Latin America, and a number of Caribbean and Pacific islands. Unlike many other MLM firms, Amway offers a wide variety of items, ranging from cleaning products, cosmetics, and vitamins to prepaid legal services, discount car purchases, and catalog merchandise. Its rapid growth, zealous distributors, unusual corporate culture, and certain political and legal controversies have made Amway a well-recognized name since its founding in 1959.

Amway’s independent distributors are different from sales forces for more traditional, retail companies. Credentials, such as education and work skills, are irrelevant to becoming a distributor. Sociologist Nicole W. Biggart, in her book Charismatic Capitalism, quoted an Amway distributor to illustrate this point:

It still gives me goose bumps just to think about how a person could come in with no experience in business or sales [and succeed]. I’ve listened to chicken farmers—I mean chicken farmers —the guys don’t have any teeth. They can’t speak with any etiquette at all, and they get up on the stage and they’re crown direct distributors. And they say, “Aw, hell, me and Mabel, we just decided we needed some money one day.” And they’re multimillionaires. Really, I mean seriously.

Relationships among distributors are based on cooperation, unlike the competition needed to climb the typical corporate ladder. Emotional rallies and close interpersonal relations in a family-like atmosphere contrast with the impersonal usual corporate world. Last but not least, charismatic leadership and few bureaucratic rules characterize Amway.

Amway’s history is a recent chapter in the long history of direct selling, which began in America’s colonial period with unorganized Yankee peddlers selling tools and other much-needed items door to door. By the 1800s, direct selling decreased with the advent of mass merchandising, such as department stores and mail order sales. In the later 19th century and early 20th century, however, some manufacturers found direct sales had advantages over the sales of their products in large stores. They preferred the personal touch, with salesmen making home demonstrations of only their products. By the 1920s door-to-door salesmen were marketing brushes, cooking utensils, and other products. Retail stores fought back with local laws on peddlers. The federal government’s regulations of company-employee relations led to the independent contractor solution. As independent contractors, salesmen were no longer employees: they were independent businessmen who bought products for resale. The first network marketing began in 1941 when two men created a mechanism to distribute Nutrilite vitamins. Within this mechanism, in addition to making money in retail sales, distributors earned a bonus on the sales of those individuals whom they personally recruited.

Amway’s story began with the friendship between two youths who would become the founders. Jay Van Andel, born in Grand Rapids, Michigan, in 1924, and Richard M. De Vos, born in the small nearby community of Ada in 1926, became friends when De Vos got rides from Van Andel to Christian High School in Grand Rapids. Their common Dutch heritage of hard work, thrift, and entrepreneurship drew them together.

Both served in the Army Air Corps during World War II. Back in Michigan after the war, they founded Wolverine Air Service to teach flying. After selling Wolverine and a couple of other small businesses, the two young men bought a schooner and sailed off to see Latin America. The vessel sank in the Caribbean, but the two spent the next six months in South America. Back in Michigan they started the Ja-Ri Corporation to import and sell Caribbean handicraft.

In 1949 they became distributors of vitamins for the Nutrilite Company of California. They enjoyed modest success from their own retail sales and from bonuses earned on the sales force they created in the Midwest.

Increasing government regulations and an internal conflict in Nutrilite, however, led Van Andel, De Vos, and several other leading Nutrilite distributors to start their own venture. In April 1959 they created The American Way Association, later renamed the Amway Distributors Association, to protect the independent distributors. They chose as their first product a biodegradable liquid organic cleaner made by a small Michigan firm, the kind of high-demand merchandise that easily could be sold by MLM. By September 1959 the Amway Sales Corporation and the Amway Services Corporation were begun to assist the distributors. Van Andel and De Vos, with the help of their wives and a handful of employees, began operations from offices in their basements. Van Andel created sales literature and supervised new product development. De Vos motivated and trained new distributors.

The company rapidly expanded. The first full year of operations in 1960 resulted in gross sales of $500,000. That figure doubled in each of the next two years, and in 1964 it reached $10 million. Thousands of distributors signed up each month. The expansion was so rapid that as soon as they moved into new facilities, they were already crowded. In the company history, Commitment to Excellence; The Remarkable Amway Story, De Vos said, “We were always scrambling, just trying to catch up on back orders, working to train people adequately.”

In 1964 the business underwent a major reorganization. The three divisions, sales, services, and manufacturing, were merged to create the Amway Corporation, with Van Andel as chairman of the board and De Vos as president. Major business decisions were always made jointly by the two founders.

A laundry detergent, S-A-8, was introduced in 1960. Amway’s reputation for selling soap is based primarily on its experience with this product. Other products included a dishwashing liquid, aerosol shoe spray, cookware, hair products, and cosmetics. In 1962 Amway started international growth, with its expansion into Canada. In 1968 the Personal Shoppers Catalog allowed distributors to sell merchandise made by other companies. Catalog sales increased thereafter.

The 1960s also brought some false starts and problems for the new firm. It began marketing underground fallout shelters, for example, in an era when civil defense against atomic warfare was a priority, but gradually consumers lost interest in the shelters. Other short-lived products included 110-volt automobile generators and water-conditioning units. It is not surprising that some items were not successful, for by 1968 the company was selling more than 150 products through its 80,000 distributors.

In July 1969 Amway’s aerosol manufacturing plant burned completely to the ground. Losses were estimated at $700,000. The next day plans were made for a temporary substitute supplier and a new facility. Six months later the new facility was completed and the company moved in.

The 1970s began with a change in corporate structure. Van Andel and De Vos remained board chairman and president, respectively, but four vice presidents were added to handle the daily burden of a rapidly expanding firm. In addition, 30 regional warehouses were replaced by seven new regional distribution centers in Georgia, Michigan, Texas, California, New Jersey, Washington, and Colorado.

Overseas expansion in the 1970s began with Australia in 1971, a choice that was partly influenced by the common culture and economic system. Operations in the United Kingdom began in 1973. Other European operations began with West Germany in 1975, France in 1977, and the Netherlands and the Republic of Ireland in 1978. The Asian market was opened with ventures into Hong Kong in 1974, Malaysia in 1976, and Japan in 1979.

Diversification and acquisitions marked Amway’s experience in the 1970s. In 1972 the company purchased Nutrilite Products, Inc., the firm that had introduced Van Andel and De Vos to direct selling.

To reward and train its key distributors, the company acquired a yacht, Enterprise II, to serve as a floating conference center. A luxury resort and hotel complex on Peter Island in the British Virgin Islands was purchased in 1978, another amenity used to motivate Amway distributors. To house distributors coming to corporate headquarters, the firm bought the dilapidated Pantlind Hotel in Grand Rapids. The hotel, renovated and renamed Amway Grand Plaza Hotel, along with the newly constructed adjoining Grand Plaza Tower, marked a significant addition to downtown Grand Rapids.

Amway’s growth has been predicated on the success of its independent distributors. Lacking formal control over the distributors, Amway has relied on bonuses and incentives to motivate them. As the company grew, distributors built larger and larger sales organizations. Their status and income increased and were marked by achievement levels identified as “pin levels.” The first major milestone of a successful distributor is reaching the level of Direct Distributor (DD), thus buying products and literature directly from the corporation instead of from a sponsor or other DD. Soon after Amway’s origin, it began recognizing further sales milestones by using the names of jewels in achievement awards. The first Ruby DD was awarded in 1962, followed by Pearl, Emerald, and Diamond, in each instance the award including a decorative pin in which the specific stone was mounted. In 1966 the first Double Diamond level was reached, the Triple Diamond in 1969, Crown in 1970, and the highest level, Crown Ambassador DD, in 1977. By Amway’s 25th anniversary in 1984, there were 24 Crown DDs and 15 Crown Ambassador DDs. Almost all of these 39 distributors were couples; 28 were in the United States.

The corporation keeps in touch with its distributors through a monthly magazine, the Amagram, and provides a wide variety of sales literature, audio cassettes, and video-cassettes. Although much of the product promotion is done by distributors, since 1965 Amway has sponsored advertising in magazines, newspapers, radio, and TV. Its advertising costs are much less than other corporations, however, and this factor allows Amway inexpensively to introduce new products.

Amway’s most important legal battle was its successful defense against the allegation that it was engaged in an illegal pyramid scheme, characterized in part by making money on recruiting new distributors. Pyramid sales are a variation of chain-letter frauds. The Federal Trade Commission (FTC) in 1969 began investigating several companies, including Amway and Nutrilite. In 1975 formal charges were filed against Amway. Three months of FTC hearings began in May 1977. A ruling by the full FTC in 1979 declared Amway’s MLM plan legitimate. The decision was based on findings that distributors were not being paid to recruit new distributors, that products had to be sold for distributors to receive bonuses, and that the firm was willing to buy back excess distributor inventory. Lawyer Rodney K. Smith in his book Multilevel Marketing, after reviewing several cases, concluded, “Amway is not and never has been an illegal pyramid scheme.”

In another legal controversy the Canadian government charged Amway with not paying millions of dollars in customs duties on goods imported from the United States. In 1983, after pleading guilty in the criminal case, Amway paid a C$25 million fine in an out-of-court settlement. Maclean’s, Canada’s weekly newsmagazine, reported in its November 21, 1983, issue that the fine was “the largest sum that a Canadian court has ever levied and one of the heaviest criminal penalties ever imposed against any corporation in the world.” A separate civil case was continued by the Canadian government to collect the duties it should have been paid in the 1970s. Amway again settled out of court, this time in 1989 for C$45 million, 40% of the amount the Canadian government tried to collect.

Other serious problems occurred in the first half of the 1980s. For the first time Amway sales declined. Some of the major distributors sold their businesses, and a substantial number of top executives either quit or were demoted or fired. The pyramid allegations surfaced again, not against the corporation, but against certain distributors who advised their sales groups to downplay retail sales, buy Amway merchandise for their own use, and purchase many motivational items, such as tapes and books, from the distributor.

One new corporate executive, William W. Nicholson, formerly appointments secretary to former President Gerald R. Ford, has been a key player at Amway headquarters since 1984. Under this chief operating officer, Amway introduced many new goods and services. According to Nicholson, a turning point was reached in 1985 when MCI decided to market its long-distance telephone services through Amway. By 1990 Amway was gaining more than 40,000 new clients per month for MCI. This record proved Amway was primarily an alternative distribution system, not just a manufacturing company.

In the 1980s discount purchases of new cars was an Amway innovation. By 1988 this service competed with five other discount auto-buying services, including the American Automobile Association. Other new items in the Amway inventory included Visa cards, prepaid legal services, real estate, and Tandy computers. The increase in high-tech merchandise and services was a dramatic shift for Amway, but the bulk of its sales remained in traditional products such as home care items. Amway’s transition to include more services reflected the generalized U.S. movement from a goods-and-manufacturing economy to a service economy.

Not all new ventures worked for Amway. The Mutual Broadcasting System (MBS), with its hundreds of affiliated radio stations, was purchased in 1977. De Vos explained that Amway’s inexperience, unfulfilled goals, and lack of profitability led to the sale of MBS, except for its satellite division, in 1985. For a few years Amway manufactured and sold satellite dishes, but the last unit was sold in 1989.

Probably the most publicized Amway activity in the late 1980s was its failed bid to take over Avon Products, Inc. Amway and corporate raider Irwin L. Jacobs in 1989 jointly acquired 5.5 million Avon shares, 10.3% of the company’s stock. A week later Amway, without Jacobs’ cooperation, offered to buy Avon for $2.1 billion in cash. Although a billion dollars in debt, Avon rejected the bid, citing Amway’s evasion of Canadian customs duties and an incompatible corporate culture. In May 1989 Amway withdrew its bid. Business Week, in its May 22, 1989, issue, said Amway was “flexing its muscles for the first time.” Although the bid failed, it was a good indication of Amway’s financial strength.

Since 1980 Amway had continued its international expansion. European efforts were extended to Switzerland and Belgium in 1980, and to Spain and Italy in 1986. Panama in 1985 was the first Latin American nation with Amway operations, followed by Guatemala in 1986. Amway de Mexico began in June 1990 with headquarters in Monterrey and distribution centers in Mexico City, Guadalajara, Tijuana, and Juarez.

Amway and its founders have influenced more than just their employees, distributors, and customers. Amway has been a major sponsor of the arts. In 1982 Jay Van Andel chaired the Netherlands-American Bicentennial Commission. Amway sponsored an art exhibit at Amsterdam’s Stedelijk Museum. The corporation has also supported tours of the Hong Kong Children’s Choir and the Malaysian Youth Symphony Orchestra. In Grand Rapids it has helped fund the Art Museum, Arts Council, and the Gerald R. Ford Presidential Museum. Amway received in 1983 the Business in the Arts Award.

Amway has promoted the cause of free enterprise even to those not associated with the firm. The founders have given many presentations to promote free enterprise. Amway’s headquarters in Ada, Michigan, at one time called the Center of Free Enterprise, housed the Free Enterprise Institute with outreach programs for students and teachers throughout the nation. Van Andel was the first chairman of Citizen’s Choice and the president of the U.S. Chamber of Commerce. Both he and De Vos have been associated with many business organizations and causes.

The vision of businessmen De Vos and Van Andel from the 1959-beginning of Amway has included concern for the environment. Several Amway products are biodegradable, and its S-A-8 detergent is available in a phosphate-free formula to limit pollution of waterways. Products are concentrated, reducing the amount of packaging that ends up in landfills. After chlorofluorocarbons were reported to damage the ozone layer, Amway modified its aerosol products to delete those compounds. In 1989 Amway was a main sponsor of the two-month-long Icewalk, an expedition to the North Pole, designed to focus attention on environmental issues. In cooperation with the American Forestry Association, Amway participated in the Global ReLeaf Program, to plant 100 million trees by 1992. On June 5, 1989, Amway received the United Nation’s Environmental Programme’s Achievement Award for Excellence, one of two corporations to gain that honor. The same day the firm announced it was ending all animal testing in its research programs and that it would not cooperate with the Cosmetics, Toiletry and Fragrance Association’s campaign against the ban on animal testing.

What evidence is there that Amway has become a household word? Comedians, politicians, and reporters have made jokes about Amway. Gary Larson in a “Far Side” cartoon compared dividing amoebas to Amway distributors recruiting others. Jane dreams of become a Double Diamond DD in a recent version of the Dick and Jane readers. Millions saw the “60 Minutes” program on Amway in 1989.

Amway has been a leader in the rapidly expanding direct selling industry. According to the Direct Selling Association (DSA), total retail sales were approximately $9.7 billion in 1988, up 10.3% from 1987, and Amway accounted for about 16% of the total. A 1976 Harris poll of U.S. households found that 16% of the respondents had tried direct selling. One MLM salesman, after working with many firms, was quoted in the June 1987 issue of Money as saying that he hoped his current firm will be the “Amway of the future.”

The boom in direct selling in the 1970s and 1980s was influenced by employment factors. First, more women had moved into the workplace, and were selling Amway products. The DSA reported that in 1988, 81.4% of all salespeople were women. Further, instability of corporate employment influenced more individuals to look at alternative vocations.

In other nations, Amway’s success partially depended on its accommodation to local conditions. In Japan, for example, a small induction range made by Japan’s Sharp Company, ideal for the small homes of Japan, sold well when demonstrated in the home by Amway distributors. Previously, it had not sold well in stores. Perseverance and high quality goods resulted in 1988 sales of $536 million for Amway (Japan) Ltd. It is Amway’s largest overseas subsidiary.

Based on rapid international expansion, the position of Amway’s founding families still at the helm with new blood in upper management, and Amway’s good financial condition, the company should have a bright future in the 1990s. With the failure of socialist economies in Eastern Europe and in other nations, Amway’s promotion of free enterprise may become increasingly noteworthy in the years ahead. It is significant that Van Andel and De Vos in 1977 began training their children to become corporate leaders. By 1984 seven of the eight children of the founders held administrative positions in the company. Only time will tell, however, if Amway will remain a firm owned by two close families.

Principal Subsidiaries

Nutrilite Products, Inc.; Amway Gesellschaft m.b.H. (Austria); Amway of Australia Pty. Ltd.; Amway Belgium Company; Amway (U.K.) Limited; Amway France; Amway (HK) Limited (Hong Kong); Amway Italia s.r.l. (Italy); Amway (Japan) Limited; Amway (Malaysia) Sdn. Bhd.; Amway Nederland Ltd. (Netherlands); Amway of New Zealand Ltd.; Amway de Panama, S.A.; Amway (Schweiz) AG (Switzerland); Amway De España S.A. (Spain); Amway (Taiwan) Limited; Amway (Thailand) Ltd.; Amway GmbH (Germany); Amway de Mexico; Amway Communications Corporation; Amway Hotel Corporation; Amway Global, Inc.; Amway International, Inc.