Some dip, others dive into selling

Thousands in the region are involved in multilevel marketing to some degree

The Times Union/August 24, 1997
By David Orenstein

Thousands of Capital Region residents are overcoming their inherent caution and skepticism and diving into multilevel marketing as a result of economic pressures and industry promises of easy, supplemental incomes earned from the home.

The state Labor Department estimates that 1,140 people are employed in the region in vending, soliciting and door-to-door sales, a category that includes MLM distributors.

But the category does not include the vast majority of people who are involved in MLM to a small extent. According to the Direct Selling Association, only 1 in 10 of those pursuing direct selling and multilevel marketing do so full time. If only half the 1,140 Capital Region residents in the state's vending category work in MLM, that ratio would bring the total number of MLM distributors in the region to 5,700.

Former MLM business owner Keith Raniere of Clifton Park estimated that 5 percent of the region's households have been involved at some point. Somewhat more than 1 percent are involved currently, he estimated. That would put the minimum number involved at 3,000.

Excel Communications Inc., a fast-growing MLM company, claimed 2,320 distributors in the 518 area code. With more than 82 percent of the area code's population in the 10-county greater Capital Region, the company could have as many as 1,900 local distributors. Excel said it has 21,987 distributors statewide.

Telecommunications competitor Destiny Telecomm, which in May settled a case in which state Attorney General Dennis Vacco's office accused it of violating the law aimed at halting pyramid scams, has 7,500 distributors across the state.

Mary Kay Cosmetics estimated that its statewide presence is 17,000. Local Mary Kay sales director Kate Slattery Schwan of Albany said she is one of about 20 directors between Warren and Ulster Counties. A sales director has a network of at least 30 people. Not all of the people in Schwan's network are from the region.

Andrew Kandel, head of the Investor Protection Bureau of the New York state attorney general's office, said the state has seen an increase in illegitimate pyramid schemes in recent years but also has seen growth of legitimate companies.

''Working at home has become very attractive,'' he said. New products, such as phone cards, have given rise to MLM activity.

Upstate New York's interest in MLM and similar business opportunities exploded in 1996, according to Better Business Bureau in Buffalo, which covers all of upstate except the Hudson Valley. Inquiries soared to 963 last year compared with 304 in 1995.

There are only a handful of homegrown direct-selling companies. The Capital Region is home for Friendly Home Parties on New Karner Road in Albany. A spokeswoman for the company described FHP as a ''party plan'' distributor of gifts and toys that operates in a similar way to Tupperware.

Party plan companies use a direct sales model in which recruiting plays a more limited role than in MLM. Representatives convene informal groups in which they present and take orders for merchandise.

Raniere, now an MLM consultant, the founder of the defunct Consumers Buyline Inc., said that MLM and MLM products are tough sells in the Northeast and the Capital Region in particular.

''I think (the area) is less than receptive,'' Raniere said.

Even with 250,000 distributors companywide, he said, Consumers Buyline always had fewer than 1,000 in the Capital Region.

''MLM (companies) do very well in rural and suburban areas,'' he said. ''They don't do well in urban areas. People are skeptical.''

MLM, which is basically informal, one-on-one selling, thrives on friendliness. In the Northeast, people are not as likely to say hello to strangers as in other areas of the country, Raniere said.

The Capital Region also has a heavy complement of government employment. The state work force's security, which has been jarred but is still relatively sound, does not inspire too many of its members to seek out potentially risky business opportunities, Raniere said. ''New York is not a hotbed for MLM,'' he said.

MLM distributors in the area say they encounter both skepticism and the occasional colleague who is competing for the same sale.

''The issue of pyramids does come up,'' said Joe Montemorano, a high-ranking ''emerald'' distributor for Amway. ''There is a perception out there. Our job is to clear that up.''

When he or one of his recruits encounters another Amway distributor they offer encouragement rather than competition, he said.

''I don't see it as a problem so far,'' he said.

Schwan said the area is receptive to Mary Kay, which prefers to be called a direct-sales company.

Area women are career-focused, she said, making them customers with purchasing power and a daily need for cosmetics. They also are a good crop of potential recruits, she said, especially if they are looking to leave the 9-to-5 work force to spend time with their children or are looking to make the transition back into the work force.

Skepticism among Capital Region residents even about legitimate MLM companies may have been fueled by a constant supply of news about firms accused of going astray.

Since January 1996, according to Kandel, the attorney general's office has investigated 40 MLM companies in New York state that it suspected of operating improperly. So far, 12 of the cases have been settled, generating fines of about $ 500,000. A new investigation starts every couple of weeks.

Destiny Telecomm case paid a $ 350,000 state assessment to close the case brought by the attorney general -- a figure the company can cut in half if it comes into compliance with the settlement conditions. The fine set a state record for the amount a company accused of being a pyramid has had to pay. The company denied it operated illegally and admitted no wrongdoing in its settlement with the state.

Destiny Telecomm announced a day after the settlement it would continue to operate in the state under the settlement's conditions.

Destiny spokesman Paul Shinoff said that had the state shut the company down it would have hurt a lot of people in the state who have signed on to earn extra cash, not to get rich quickly.

David Polino of the Better Business Bureau in Buffalo agreed that business opportunities such as MLM often appeal to economically disadvantaged people. He said that upstate New York may be increasingly interested in MLM because of the economy's shakiness.

Many MLM advocates dismiss the notion that it is an opportunity that only dislocated workers seize upon. Amway President Dick DeVos said women who want to spend time with their families join, as do people from white-collar professions. ''People are coming to me from all walks of life,'' he said.