Amway poised for Internet pitch

Quixtar links buyers directly to products, removes stigma of layered-sales technique

The Detroit News, August 29, 1999
By Jon Pepper

GRAND RAPIDS -- The company name is different. The method of operation is different. Even many of the salespeople, attracted by the get-rich-quick allure of the Internet, are different.

The pitch, however, is pretty much the same one Amway Corp. representatives have been making for 40 years: You can start your own business, make some money and take charge of your own destiny.

All you have to do for a piece of the action is to direct customers to the the Web site of Quixtar, an Amway creation that opens for business Wednesday. The venture, which comes a year after a shocking drop in sales, promises to change fundamentally the way one of Michigan's largest, most successful and controversial companies does business.

"I heard about this a year ago and knew it was something I had to get involved with," said Terry Craycraft, a 44-year old salesman from Zeeland, who attended a Quixtar meeting in Grand Rapids last week.

"I missed the industrial revolution. I missed the distribution revolution, where everyone went to on-time delivery. I'm not going to miss this one."

Amway's revolution is based on the Internet and its so-called "e-commerce," the gold rush of the late 1990s. Inspired by the phenomenal public investment in companies such as Amazon.com, retailers are placing big bets on the Internet for future prosperity.

For the privately owned Amway, its 12,000 employees and 75,000 distributors in the United States, Quixtar offers more than an opportunity to stop its sales skid, get a jump on the competition and entice new customers from a younger generation. It's also a way to make a break with Amway's reputation, which executives have struggled to enhance with only mixed success.

"Amway's entry into e-commerce has altered dramatically historical perceptions," said Dick DeVos, who is president and co-chief executive of Amway with Steve Van Andel. "We're trying to shine a brand new light on what Amway is about."

Amway's product line often has been at the cutting edge of social trends through introductions of environmentally friendly cleansers, nutritional supplements, herbal medicines and, more recently, therapeutic magnets. It is Amway's multi-layered sales compensation program and the aggressive techniques of some of its distributors, however, that has often overshadowed its products and drawn harsh criticisms in the public and press.

Quixtar moves the products to the front of the store and nudges Amway to the back. While independent sales agents for both companies will retain the same financial incentives to find new customers as well as other agents, Quixtar's expansive Web site puts more of the buying decision in the hands of the consumer.

Amway executives are trying to keep a lid on expectations for the untested Quixtar, which they suspect will experience some start-up difficulties. At the same time, they want to avoid pronouncing last rites for Amway, which is likely to remain a preferred way of business for some agents and customers. Even so, some analysts have predicted it may only take a year for Quixtar to account for half of the enterprise's sales, which were $5.7 billion last year.

The issue that's bound to surprise the fast-growing world of e-commerce the most is that the privately held Quixtar will make money from day one. Typically, the heavy investment in Web retailing has not been rewarded by profits. That's because Amazon.com and other companies have had to spend heavily on pre-launch costs, distribution infrastructure and advertising to push customers to their Web sites.

Quixtar's start-up costs were paid for by internal cuts from other departments at Amway Corp. Quixtar will also benefit from the direct distribution network that's been well-established by Amway. And Quixtar's advertising budget is zero, because traffic to the Web site will be directed personally by "Independent Business Owners", media coverage and word of mouth.

If all goes according to plan, Quixtar could be The Blair Witch Project of retailing.

"A lot of e-commerce start-ups spend a huge chunk of money on advertising to drive people to their Web site. We won't do that," said Ken McDonald, an Amway senior vice-president in charge of North American business. "Our No. 1 strategic advantage is that we combine high-tech with high-touch. It's friends, neighbors, relatives and co-workers that will help people get to the Web site and learn how to use it. That's our niche."

It all adds up to the most radical invention at Amway since founders Rich DeVos and Jay Van Andel started marketing biodegradable cleaners from their basements in suburban Grand Rapids in 1959. The two men, who still own the houses they built next door to each other more than 40 years ago, became billionaires off of Amway and regularly topped Forbes magazine's list of Michigan's wealthiest people.

While the company they founded eventually saw its U.S. sales go flat, an aggressive push into the fast-growing economies of eastern Asia and Europe helped a rejuvenated Amway triple sales from 1990 to 1997. The collapse of Asian economies and a temporary ban on direct selling in China, however, caused a harrowing 18.5-percent drop in sales last year that sent shock waves through the Michigan headquarters.

"We started to see years ago that we were going to have to do a shift," said Dick DeVos, the company president and son of the co-founder. "It wasn't that our business was terminal. Steve (Van Andel) and I saw an opportunity lost if we didn't pursue e-commerce. As an organization, you have to reinvent yourself.

"It was fortuitous that the organization got a bit of a smack. We got our wake-up call. Now this organization's psychology and its approach to business is dramatically different than it was two years ago."

Early intrigue on the part of potential distributors has been overwhelming. A preliminary Quixtar Web site has drawn 1 million hits a day. And an introductory discussion of Quixtar last week at DeVos Hall in Grand Rapids produced the biggest Web broadcast in history with 140,000 registrants signed on to computers across the United States.

The audience at DeVos Hall, primarily comprised of traditional Amway distributors, was warned prior to the broadcast that the early days of Quixtar may be a bumpy ride as the inevitable kinks of a start-up are worked out of the system. Most of the distributors, however, embraced the presentation with Amwaysian applause.

"It's like our grandparents telling us about the industrial revolution," said Cathy Cook, a full-time Amway distributor in Liverpool, N.Y., who has signed up for Quixtar. "We will be able to tell our grandkids that we were there at the beginning of the internet revolution and that we maximized our opportunity."

E-commerce is still in its infancy, and it shows. Quixtar's promotional Web broadcast was reminiscent of the early days of phonographs, radios and TVs, with an announcer explaining the medium as well as the message.

Quixtar's proponents believe, however, that the exponential growth in the internet will soon make Web commerce as accessible for a mass audience as the radio. In the meantime, they understand that there's a risk that goes along with being a pioneer.

"I suspect we may find ourselves tripping over potholes or puddles, or end up with arrows in our back," said Steve Van Andel, the chairman and co-chief executive. "But we think we're in the right place, doing the right thing."

They'll know soon enough if it's the right time, too.