[비즈한국] Companies sometimes make decisions that are difficult to explain based solely on money. Understanding the laws or regulations hidden within those decisions allows for a deeper insight into the inner workings. ‘Useful Business Tips (Al-Sseul-Bi-Beop)’ introduces clues to help understand business trends.
According to announcements by the Korea Fair Trade Commission (KFTC), the total revenue, total sponsorship allowances, number of multi-level marketing businesses, and the number of multi-level sales distributors in the 2024 market have all decreased compared to the previous year. Total revenue dropped from 4.9606 trillion won to 4.5373 trillion won, total sponsorship allowances fell from 1.6558 trillion won to 1.5099 trillion won, and the number of multi-level sales distributors shrunk from 7.2 million to 6.87 million. These figures represent declines of 8.5%, 8.8%, and 4.6%, respectively, compared to the previous year. The number of multi-level marketing companies decreased slightly from 112 to 105.
The total revenue of the multi-level marketing market hit an all-time high of 5.4166 trillion won in 2022. Since then, it has consistently declined, dropping by nearly 1 trillion won in just two years to reach 4.5373 trillion won in 2024. What are the reasons behind this shrinking market size?
First, there is the lingering impact of the COVID-19 pandemic. Face-to-face sales were suspended and sales organizations collapsed, and even after much time has passed, the industry has not recovered from the aftermath. Rebuilding sales organizations requires new investment, but due to the economic downturn, it is difficult to attract the investments needed to restore these organizations.
Second, while the core of the domestic retail market has shifted from offline to online, the multi-level marketing industry has failed to adapt due to existing operational inertia. Most multi-level marketing organizations have a relatively older demographic who are more accustomed to offline interactions than online ones. Although it is necessary to target online channels or younger demographics for the future of the business, doing so creates a problem of neglecting the existing offline sales organizations.
There was a time when some sales organizations targeted the younger generation via online channels. However, before long, the negative side effects of "online work-from-home side jobs" and "social media-based quasi-multi-level schemes" were reported extensively, and attempts to expand online went underground.
I have observed the rise and fall of online sales organizations firsthand. The online transition of the multi-level marketing industry is a trend of the times. However, it is also true that many controversies were caused by ignoring existing regulations and prioritizing enthusiasm over caution. The domestic multi-level marketing industry is wandering, unable to find a middle ground between compliance and exploring new markets.
Third, for those in the sales organization who are solely interested in financial gain, the multi-level marketing industry is no longer an attractive channel. It is possible to earn much higher income by engaging in unregistered or quasi-multi-level schemes or illegal deposit-taking businesses. Because of this, instances of capable operators or sales teams leaving legitimate multi-level marketing businesses have been increasing recently.
From my perspective, multi-level marketing businesses that comply with the Door-to-Door Sales Act are actually subject to double and triple layers of regulation from local governments, the police, and the KFTC. It is not that regulation itself is bad, but we need to consider the "balloon effect" of such regulations.
Unregistered or quasi-multi-level businesses and illegal deposit-taking firms are operating actively as well; because they are not registered with regulatory agencies, their current status remains unknown, and they do not face significant regulation until the "hot potato" game ends and numerous victims emerge. For this reason, those who take risks for profit choose to jump into these illegal or quasi-schemes, reap the rewards, and escape quickly before problems arise.
It is not just my personal conjecture that legitimate multi-level marketing is dying out in the Yeoksam, Seolleung, Samseong, and Cheongdam areas while unregistered and quasi-multi-level schemes are running rampant. You can see the stark reality in the book "Straw Society" written by a sitting judge. I am not sure what the point is in tightening regulations on legitimate multi-level marketing businesses while leaving these unregistered and quasi-schemes unchecked.
Fourth, the polarization in the multi-level marketing market is so extreme that it is difficult for new entrants to gain a foothold or introduce new types of businesses. According to data released by the KFTC, most of the top 10 multi-level marketing companies are foreign-owned. Foreign companies possess greater capital and technology compared to small domestic companies. Furthermore, they have more flexibility in areas such as IT infrastructure and the payment of sponsorship allowances.
Anyone in the industry knows what the following means: IT infrastructure is the core of a multi-level marketing business. Even if everything else collapses, if you have your IT system secured, you can make a comeback. That system is safer abroad than it is within Korea.
Additionally, with the globalization of the retail environment, it is no longer unusual to operate and receive allowances abroad, but it is difficult for Korean regulatory agencies to track business activities that take place overseas. Ultimately, foreign-owned companies are in an overwhelmingly advantageous position over domestic ones regarding the construction and operation of IT systems and the payment of allowances, and this gap is only widening.
Fifth, all of these situations combined have made it difficult to find cases where new personnel or new capital has been injected into the market, or to find hit products. In the past, there were periodic hit products. There were products that gained popularity in the market with various names and ingredients, such as "Dead Sea salt," "Acanthopanax," "natural herbal medicine," or "hemp components," but it is difficult to find such cases recently.
What is particularly puzzling is the cosmetics sector. Cosmetics are a core item for the multi-level marketing industry. However, the industry's presence in the cosmetics market has faded recently. This is despite the fact that the share of the two companies that were once absolute powerhouses has decreased, and it has become standard practice to outsource development to ODM companies, making it possible for anyone with good planning and marketing skills to compete. The multi-level marketing industry has completely failed to jump on the K-beauty bandwagon.
I have discussed the pessimistic state of the market up to this point. People in the industry might feel upset and think I am speaking too bluntly. Nevertheless, I believe that the multi-level marketing business or method will not easily go extinct, and companies that adapt to market changes will soon expand their influence. I will explore those methods in the next column.