ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, February 11, 1996 TAG: 9602090022
SECTION: BUSINESS PAGE: G1 EDITION: METRO
SOURCE: TRIP GABRIEL THE NEW YORK TIMES
To sell vitamins and shampoo to friends and neighbors, Sharon Killion Morton quit her job as an advertising sales representative for USA Today, where she made $110,000 a year and drove a company Mercedes-Benz.
Bill Dorr, who lost his job as a Wall Street investment banker in a cutback, now peddles a discount long-distance telephone service to former co-workers.
And Dr. Robert Greene, an internist, has had such success selling products like In-Vigor-Ol, an herbal energy tonic, that he plans on becoming a gentleman physician, seeing just one or two patients a day.
All three of these people are part of a most unlikely trend: professionals and white-collar executives who have joined the ranks of direct selling popularized by companies like Tupperware and Mary Kay Cosmetics.
Where once this work was the province of stay-at-home wives who added a few hundred dollars a year to the family income, the new recruits dream of six-figure earnings and freedom from the seismic upheavals that have riven the world of traditional work.
``We're seeing a much more highly educated group of people coming in,'' said Neil Offen, president of the Direct Selling Association, a trade group in Washington. ``We're seeing a lot of middle-management executives who've been laid off because of corporate downsizing. The American reality of `you work hard, play by the rules and your talent will get you to the top' is not true anymore in the corporate world.''
The number of Americans involved in direct sales rose 34 percent from 1990 to 1994, to 6.3 million from 4.7 million, figures from the Direct Selling Association show.
A sharp increase in the number of men in the ranks - the figure was 10 percent in 1992; by 1994 it was 24 percent - is evidence of the influx of white-collar workers, Offen said.
Most of the selling is done part time, usually from people's homes but increasingly in the workplace. White-collar recruits speak of wanting to cushion themselves from corporate job-slashing, provide for a secure retirement and enjoy more time with their families.
But many are likely to be let down; according to Offen's group, 90 percent of salespeople earn less than $5,000 a year. And many direct-sales companies have been accused by prosecutors of shady practices, including violating anti-pyramid laws and making false claims about ``miracle'' products.
``At first I was skeptical, but I kept hearing how much money has been made this way,'' said Dorr, a former managing director in the fixed-income department of Bear, Stearns & Co.
The appeal of direct selling to executives like Dorr comes largely from the earnings potential of multilevel marketing, a compensation system in which people profit not only from their own sales but also from the sales of others they bring into the company.
Dorr, 55, tries to persuade people to switch their long-distance carrier to Excel Telecommunications, a small company based in Dallas, and, more important, to become Excel sales representatives like him.
He earns commissions on the phone bills of the customers he signs up, as well as on the bills of customers signed up by the sales representatives he recruits, and their recruits' customers, and so on.
With a network spreading from the top down and commissions flowing to each person higher up the chain, multilevel marketing - MLM, in the industry shorthand - has created millionaires - but it has also drawn government lawsuits when companies have veered too close to illegal pyramid schemes.
Most states say an illegal pyramid exists when recruits do not go forth to sell a concrete product, but only to gather more recruits, who typically must pay a fee to join the company.
``Every illegal pyramid is an MLM company,'' said Robert Ward, a Michigan assistant attorney general. ``But not every MLM is an illegal pyramid.''
The ranks of multilevel marketers include the Fortune 500 giants Amway, founded in 1959, and Mary Kay, founded in 1963. Of the 140 member companies in the Direct Selling Association, the majority are multilevel marketers.
Shaklee Corp., a maker of nutritional and personal-care products sold through multilevel marketing, says that about 20 percent of its several thousand sales leaders come from the ranks of professionals and corporate executives.
``It's a factor of what's happening in the economy,'' said Karin Topping, a Shaklee spokeswoman. ``People are looking for alternatives, knowing there is no secure job.''
Morton, who resigned from USA Today to sell Shaklee products, complained of her old job: ``It was real frustrating. There was the constant pressure of sales quotas. They were always reorganizing sales categories and sales territories.''
Paula Cook-Ehrlich worked as an executive in the airline industry until 5 1/2 years ago, when she became a distributor for Nu Skin International, a maker of skin-care and nutritional products.
Cook-Ehrlich, 46, is a ``blue diamond'' distributor for Nu Skin, the highest sales level.
The company, which is based in Utah, says blue diamonds earn an average of $704,000 a year in commissions.
``In five and a half years, I'm living a lifestyle people couldn't imagine,'' Cook-Ehrlich said by telephone from her home on an island in Miami's Biscayne Bay.
She said Nu Skin had attracted many doctors to its sales ranks because of the way managed care was eroding doctors' incomes and autonomy.
Greene, the internist, said he began selling high-fiber weight-loss drinks and anti-wrinkle creams for Rexall Showcase International because he wanted the financial freedom to spend more time with his children, ages 10 and 16, at their home in Bedford, N.Y.
``It's the lifestyle that attracts me to this,'' said Greene, 49. Colleagues have taken to calling him "Mad Dog" because of the tenacity with which he solicits patients and friends to become Rexall distributors. A percentage of their profits, of course, would pass up to him.
``This is hot stuff,'' Greene is likely to tell patients who come in to his two Westchester County offices.
``I ask everybody, `Are you interested in looking at this?''' he said. ``If they say no, I say: `Fine, give me permission to call you back in three months. We never know where life leads us. You may be fired, your company may go out of business, and besides that, I'd like to share with you my success.'''
Until a year ago, Greene had been merely a doctor, not a salesman, but he said he had not found it hard to sell packaged goods. Any embarrassment, he said, is quickly dissipated ``just from the fact I'm $90,000 richer.''
That is the sum he said that he, his medical partner, Dr. David Ennis, and Ennis' wife, Laurie, had made together representing Rexall, which bought the name of the former drugstore chain.
Doctors and dentists who engage in multilevel marketing present a special case, medical ethicists say, because of the trust patients normally place in them. Some angry patients have been known to switch practitioners when asked to buy a product in the examining room.
New York State regulators say no state laws prohibit medical professionals from selling a line of goods out of their offices. Problems would arise, they say, only if a dentist, for example, recommended a remedy for an ailment that he was not licensed to treat, such as heart disease.
Dr. Lewis Kulik, a dentist in Manhattan who sells Rexall remedies, said he generally advised patients first to consult a physician for nondental ailments.
But in the case of a patient made anxious by dental work, Kulik offers Calmplex 2000, a Rexall herbal product that is billed as reducing tension. ``If they feel it will help them, they might want to purchase a box,'' he said.
The American Dental Association, in its code of ethics, says the sale to patients of dental products from which dentists profit is not prohibited. But last year, partly in response to the rise of multilevel marketing, the association warned dentists not ``to exploit the trust inherent in the dentist-patient relationship for their own financial gain.''
Companies that use multilevel marketing are hoping that the influx of distributors like Kulik and Greene will raise the image of the field, which has a history of scams and fly-by-night operators.
Ward, the Michigan assistant attorney general, says the average multilevel marketer remains in business just 18 to 24 months.
The field has also been known for inflating claims about its products and the earnings a distributor can expect to make.
``They often represent that they have miracle products,'' said Larry Hodapp, a senior lawyer at the Federal Trade Commission. ``This seems to appeal to MLMs, the fact that it's a medical breakthrough that will result in astronomical growth for the company.''
The maker of an herbal concoction called Juice Plus sold by multilevel marketing once employed O.J. Simpson to testify that it cured his arthritis.
In 1994, Nu Skin paid $1 million to settle charges by the Federal Trade Commission that it exaggerated the effectiveness of its Nutriol baldness remedy and Face Lift wrinkle cream, and that it overstated the income that distributors could expect.
Nu Skin released data showing that the bottom 70 percent of its distributors cleared an average of just $311 in commissions in 1994.
``One of the biggest problems in the field is outrageous earnings claims,'' said Offen of the Direct Selling Association, which requires members to adhere to a code of ethics.
Updated in 1993 in response to government cases against the industry, the ethics code prohibits income misrepresentation and ``inventory loading,'' the practice of encouraging distributors to buy a basement full of products in order to reap a higher sales commission.
Much of that merchandise never gets sold.
Offen said the turnover rate in multilevel sales is high; as many people drop out as join up in a given year. Based on a survey his trade group commissioned, only 6 percent of those in the business pursue direct sales full time. Of those, 1 out of 10 makes more than $100,000 a year.
``Anybody who says it's easy to make big money in direct selling is lying,'' Offen said. ``It takes hard work, lots of effort. But it is a wonderful opportunity, where 1 out of 10 who go full time are making $100,000.''
C. Steven Baker, the director of the Chicago regional office of the Federal Trade Commission, expressed skepticism.
``They tell you you can get into these things part time and as you go it'll become full time,'' he said. ``But people find no matter how hard they do it, they can't give up their day job.
Despite the industry's controversies, many experts expect its ranks to grow. ``Over the last five to 10 years, there's been a lot of downsizing, and people have been taking early outs,'' Ward said. ``They don't want to work for somebody else because that somebody else let them down.''
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