Source from: https://www.newstatesman.com/politics/2020/08/many-lose-work-pandemic-multi-level-marketing-schemes-spot-recruitment-opportunity
“CORONAVIRUS PANIC,” began one Facebook status written by a young woman in mid-March. “If any mums are panicking about not being able to go to work or having any money, I have an amazing online opportunity.” Three days later, another woman wrote in a Facebook group for mums: “I know many of you are wondering how you might be able to pay your bills if they lock down the UK. I have an opportunity.” These are just two of thousands of posts attempting to recruit people into multi-level marketing schemes (MLMs).
Multi-level marketing is a business model in which unsalaried individuals earn money by selling a company’s products, and by recruiting other people to sell these products too. Beauty brand Avon is an MLM – its distributors earn a cut every time they sell a make-up item, but also when their recruits (or their recruits’ recruits) make a sale. On paper, MLMs can end up looking a lot like pyramids, with a handful of sellers at the top-earning money from thousands at the bottom. (By definition, pyramid schemes – which are often illegal – are businesses that don’t sell a product, while MLMs do.)
You’ve likely heard of Avon, but you may not be familiar with other UK MLMs. Younique, Forever Living, Arbonne, Herbalife, Juice Plus, and Nu Skin are among the companies allowing people to sell lifestyle products directly to others. While “Avon ladies” distribute physical catalogs, most newer MLMs use social media to sell. The Direct Selling Association (DSA), the sector’s main trade body, estimates that there are more than 500,000 direct sellers in the UK. This number is likely to have risen in recent months, with Avon reporting a 114 percent surge in recruits during the lockdown.
“When the pandemic first hit, there was a massive influx of people saying they’d been preyed upon by MLMs,” says John Evans, a 40-year-old IT manager from West Sussex who runs a Facebook group for MLM skeptics, the 16,000-member “MLM Lies Exposed”. At the time of writing, 173,000 UK citizens have been made redundant because of Covid-19. In May, research from the Institute for Fiscal Studies found mothers are 47 percent more likely than fathers to have lost or quit jobs. It is easy to see why women make up the majority of MLMs’ recruits – 74 percent of direct sellers in the US are female. Justine Roberts, the founder of parenting forum Mumsnet, says the website has seen “a noticeable spike in users reporting that friends and acquaintances are taking up MLM jobs during lockdown”.
Why is this a problem? According to a 2011 report by the US’s Federal Trade Commission (FTC), 99 percent of MLM participants lose money. Last year, the Guardian investigated an MLM that said recruits could earn up to £1m a year – finding that its sellers earned an average of £12 a week. Mumsnet bans people from advertising MLMs on the site – Roberts says this is due to “misleading recruitment practices” in which people are led to believe they can earn large sums of money easily (many MLMs warn sellers not to inflate their earnings).
Sellers often lose money because many MLMs require them to buy starter kits to join, and then hit sales targets to retain their seller status. Some MLMs require sellers to buy the stock they sell, meaning people can be left with items they can’t shift. Michael (not his real name) is a 21-year-old whose then-girlfriend signed up for a cosmetics MLM in mid-April. She spent around £200 in sign-up fees and later asked Michael to buy products so she could meet her sales targets. “She offered to pay me back the money if I bought them from her,” Michael says. In March, the BBC reported that “a number of people” recruited by a utilities MLM failed to recoup their £400 joining fees.
Michael’s ex-girlfriend has long-term health issues and is shielding during the pandemic. He believes stress and loneliness left her “susceptible” to the tactics of recruiters. “I think [the MLM] provided something new and exciting to help deal with the stress,” he says. “She was very excited at the prospect of being able to make some extra money.”
In June the FTC sent letters to MLMs regarding coronavirus-related earning claims. The agency warned that companies are responsible for claims made by their participants – one seller’s post said: “people out there who have lost income” could make “$1,000 a month or more”. In the UK, no similar initiatives have been taken by Trading Standards, as it operates on a local level, though director Wendy Martin said: “We strongly advise people to be extremely cautious about joining organizations that make claims about potential income when that income is largely reliant on recruiting other people to work for you.” She added: “If it looks too good to be true, it usually is.”
Via email, a spokesperson for the DSA said: “The overwhelming majority of the 563,000 people working with DSA member companies in the UK have positive experiences and find the additional income that this form of earning can provide extremely valuable. I am, however, concerned to hear of people who have not had such positive experiences and would strongly encourage anyone affected to make use of the DSA’s formal complaints procedure.”
A day after Michael expressed concerns about the MLM to his girlfriend, she broke up with him. Evans, the Facebook group admin, has been disturbed by recruitment practices he’s seen recently. He cites one status from a woman about to lose her house due to coronavirus. “Someone in the comments said, ‘I can recruit you into my MLM’,” Evans says, “It was gross, it was very, very offensive.” Evans finds these posts so upsetting that he is taking a step back from his Facebook group. “It makes me want to cry,” he says, “reading this stuff all the time, reading people trying to prey on people, it gets too much.”
