Avon and Tupperware Thrive in Economic Downturn

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With people looking for some extra cash to soften the blow of the holidays on their bank accounts, direct-selling companies, like Avon Products, Tupperware and Popular Club are seeing a recruitment boom.

The companies, which allow consumers to purchase products straight from the distributor, are often seen as a good way to both make and save money during tough economic times. But their surging popularity may not be the windfall one would imagine.

While the struggling economy and rising unemployment have driven more people to get involved in this type of business, the companies themselves are facing some setbacks, most notably from the strengthening dollar.

Look at Tupperware for example. Even though the company topped analyst estimates for the third quarter, it lowered expectations for its fourth quarter. In October, the company said it expects sales to fall between 4 percent and 6 percent, and operating earnings to be between 79 cents and 84 cents a share. That compares with a prior fourth-quarter forecast of 91 cents to 96 cents a share.

J.P. Morgan analyst Dara Mohsenian does not find this surprising given the negative currency trends and a hefty fourth-quarter tax rate of 28 percent.

But Tupperware raised its long-term forecast to annual local-currency sales gains of between 6 percent and 8 percent, up from a prior range of 5 percent to 7 percent growth.

“We view Tupperware’s 2009 guidance as too aggressive given it assumes a rebound in organic growth in developed markets to the 1-2 percent growth range versus a third quarter decline, despite a deteriorating economic outlook,” Mohsenian says. “Tupperware believes that higher unemployment typically leads to greater sales force recruitment trends…However, similar to what we have seen recently in developed market, we expect slowing consumer demand will more than offset greater recruitment.”

Photo by box of lettuce


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