Amway to Cut 11% of Its Work Force in Restructuring
Amway Corp., which built a billion-dollar success story through a friendly neighborhood sales force, announced sweeping job cuts Wednesday, part of a major restructuring to compete in the faceless world of the Internet.
The direct-sales giant said it will cut nearly 11% of its global work force, or 1,300 jobs, including an undisclosed number of positions at its Nutrilite division in Buena Park, a move designed to save $300 million annually. The Buena Park operations, which employ 500 workers, make vitamins and food supplements.
Michigan-based Amway, which thrived on a business model now considered quaint, said it is making the changes to adjust to an economy being transformed by the Internet.
Closely held Amway is the nation’s largest so-called multilevel marketing company, relying on about 3 million distributors worldwide to peddle its products. But sales have slumped the last two years, which Amway attributes in part to economic woes in Asia.
Amway and other multilevel marketing companies have struggled in recent years to expand their sales forces as unemployment stayed low and the World Wide Web provided new ways to build businesses.
In 1998, battered by a temporary ban on direct selling in China and Asia’s economic downturn, Amway’s sales fell 18% to $5.7 billion.
Last year, Amway made its foray into e-commerce, launching a company that allows consumers to buy Amway cleansers, cosmetics and other products via the Internet.
But the online venture, Quixtar.com, still is rooted in Amway’s traditional sales system. Before making their first electronic purchase, customers must enter the sales number of a Quixtar representative, who receives a commission on all purchases.
This feature may turn off some online shoppers, said Scott Moore, a University of Michigan Business School professor.
While Amway grew through the efforts of a mushrooming sales force that continually enlisted new “independent business owners,” Internet shoppers may prefer a more unencumbered method of shopping, Moore said.
Amway maintains that its sales force remains the heart of its enterprise and that the Internet simply presents more efficient ways of doing business and provides new opportunities.
“If Internet sales are indeed impersonal, what we offer is a chance for people to combine high-tech with high-touch,” Amway spokesman Mark Bain said.
A Quixtar spokesman agreed that the link between the company representative and the buyer is vital to the company’s success.
“It’s our commitment to our independent business owners that we’re not going to skirt around them, so we make sure that they benefit from any sale made on Quixtar,” Robin Luymessaid. “They are the key strategic advantage to driving traffic to the site.”
Indeed, Quixtar distributors can recruit new members electronically in a business that relies on a steady stream of new recruits.
Neither Amway nor Quixtar run ads to promote sales, Luymes said. During its first 200 days in operation, Quixtar recorded sales of $250 million, surpassing expectations, he said, noting that customers need only log the representative’s number during the first visit to the Web site.
Amway’s total sales slid to $5 billion last year, down 29% from their peak in 1997. So far this year, sales are slightly ahead of last year’s pace, Bain said.
On Wednesday, Amway said about 900 jobs will be cut at its world headquarters in Ada, Mich. A total of 260 jobs will be slashed overseas with the remainder of the cuts coming from Amway’s California Nutrilite Operations in Buena Park and Lakeview, which together have 750 employees.
Management began informing employees of the job cuts early Wednesday in memos and meetings. The cuts, which will take place over the next 15 months, will involve mostly management and salaried employees. There will be a “limited impact” on manufacturing workers, Amway said.
“This was extremely difficult, and we know that this is a difficult time for each of our employees and their families,” Amway Chairman Steve Van Andel said in a prepared statement. “But this restructuring is absolutely necessary to secure our company’s future in the fast-changing global economy.”
It’s the second round of cuts in 18 months. In November 1998, Amway said it was cutting 10% of its U.S. work force, including 65 jobs in Orange County, a response to the Asian economic crisis.
Amway said it plans to divide its worldwide operation into three business units, essentially creating “a new organization for the wired world.”
One unit, for example, will focus on Amway’s worldwide business and Quixtar’s operations in North America.
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Amway Slide
Direct-sales giant Amway Corp. has seen its sales decline the last two years.
Year: Sales (Billions)
1995: $6.3
1996: 6.8
1997: 7.0
1998: 5.7
1999: 5.0
Source: Amway Corp.
