'Stella & Dot' - The Financial Times begins to look at 'MLM' racketeering.

'Multi-Level Marketing' Warning

The following deconstructed analysis has been formulated to sharpen the critical and evaluative faculties of all unwary persons approaching 'Multi-Level Marketing' from the dangerous (subjective) point of view that it must be a business, rather than from the safe (purely-objective) point of view that they don't really know what it is.

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More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:

• the widely-misunderstood phenomenon that has become popularly-known as 'Multi-Level Marketing' (a.k.a. 'Network Marketing') is nothing more than an absurd, non-rational,  cultic, economic pseudo-science maliciously-designed to lure unwary persons into de facto servitude, dissociate them from external reality and not only steal their money, but also deceive them into unconsciously acting the role of bait to lure other unwary persons (particularly their friends and family members) into the same trap. 

• the impressive-sounding made-up jargon term, 'MLM,' is therefore, the misleading title for an enticing structured-scenario of control which has been developed, and constantly acted out as  reality, by the instigators, and associates, of various copy-cat, major and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim 'Long Cons*'  - comprising self-perpetuating rigged-market swindles**, a.k.a. pyramid scams (dressed up as 'legitimate direct selling income opportunites') and related advance-fee frauds (dressed up as 'legitimate: training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).

• Apart from an insignificant minority of shills (whose leading-role in the 'Long Con' has been to pretend that anyone can achieve financial freedom simply by following their unquestioning example and exactly-duplicating a step-by-step-plan of recruitment and self-consumption), the hidden overall net-loss/churn rate for participation in so-called 'MLM income opportunities,' has always been effectively 100%.

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*A 'Long Con' is a form of fraud maliciously designed to exploit victims' existing beliefs and instinctual desires and make them falsely-believe that they are exercising a completely free-choice. 'Long Cons' comprise an enticing structured-scenario of control acted out as reality over an extended period. Like theatrical plays, 'Long Cons' are written, directed and produced. They involve leading players and supporting players as well as props, sets, extras, costumes, script, etc. The hidden objective of 'Long Cons' is to convince unwary persons that fiction is fact and fact is fiction, progressively cutting them off from external reality. In this way, victims begin unconsciously to play along with the controlling-scenario and (in the false-expectation of future reward) large sums of money or valuables can be stolen from them. Classically, the victims of 'Long Cons' can become deluded to such an extent that they will abandon their education, jobs, careers, etc., empty their bank accounts, and/or beg, steal, borrow from friends, family members, etc.

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** The enticing structured-scenario of control fundamental to all 'rigged-market swindles' is that people can earn income by first contributing their own money to participate in a profitable commercial opportunity, but which is secretly an economically-unviable fake due to the fact that the (alleged) opportunity has been rigged so that it generates no significant, or sustainable, revenue other than that deriving from its own ill-informed participants. For more than 50 years, 'Multi-Level Marketing' racketeers have been allowed to dissimulate rigged-market swindles by offering endless-chains of victims various banal, but over-priced, products, and/or services, in exchange for unlawful losing-investment payments, on the pretext that 'MLM' products/services can then be regularly re-sold for a profit in significant quantities via expanding networks of distributors. However, since 'MLM' products/services cannot be regularly re-sold to the general public for a profit in significant quantities (based on value and demand), 'MLM' participants have, in fact, been peddled infinite shares of their own finite money (in the false expectation of future reward). 

Thus, in 'MLM' rackets, the innocent looking products/sevices' function has been to hide what is really occurring - i.e The operation of an unlawful, intrinsically fraudulent, rigged-market where effectively no non-salaried (transient) participant can generate an overall net-profit, because, unknown to the non-salaried (transient) participants, the market is in a permanent state of collapse and requires its non-salaried (transient) participants to keep finding further (temporary) de facto slaves to sustain the enticing illusion of stability and viability.

Meanwhile an insignificant (permanent) minority direct the 'Long Con' - raking in vast profits by selling into the rigged-market and by controlling/withholding all key-information concerning the rigged-market's actual catastrophic, ever-shifting results from its never-ending chain of (temporary) de facto slaves.

Although cure-all pills potions and vitamin/dietary supplements, household and beauty, products have been most-prevalent, it is possible to use any product, and/or service, to dissimulate a rigged-market swindle. There are even some 'MLM' rackets that have been hidden behind well-known traditional brands (albeit offered at fixed high prices). Some 'MLM' rackets have included 'cash-back/discount shopping cards, travel products, insurance, energy/communications services' and 'crypto-currencies' in their controlling scenarios.

No matter what bedazzling product/service has been dangled as bait, in 'MLM' rackets, there has been no significant or sustainable source of revenue other than never-ending chains of contractees of the 'MLM' front companies. These front-companies always pretend that their products/services are high quality and reasonably-priced and that for anyone prepared to put in some effort, the products/services can be sold on for a profit via expanding networks of distributors based on value and demand. In reality, the underlying reason why it has mainly only been (transient) 'MLM' contractees who have bought the various products /services (and not the general public) is because they have been tricked into unconsciously playing along with the controlling scenario which constantly says that via regular self-consumption and the recruitment of others to do the same, etc. ad infinitum, anyone can receive a future (unlimited) reward.

I've been examining the 'MLM' phenomenon for around 20 years. During this time, I've yet to find one so-called 'MLM' company that has voluntarily made key-information available to the public concerning the quantifiable results of its so-called 'income opportunity'.

Part of the key-information that all 'MLM' bosses seek to hide concerns the overall number of persons who have signed contracts since the front companies were instigated and the retention rates of these contractees. 

When rigorously investigated, the overall hidden net-loss churn rates for so-called 'MLM income opportunites' has turned out to have been effectively 100%. Thus, anyone claiming (or implying) that it is possible for anyone to make a penny of net-profit, let alone a living, in an 'MLM,' cannot be telling the truth and will not provide quantifiable evidence to back up his/her anecdotal claims.

Although a significant number of 'MLM' front-companies (like 'Vemma', 'Fortune Hi-Tech Marketing', 'Wake Up Now') have been shut-down by commercial regulators, some of the biggest 'MLM' rackets (like 'Amway' ,'Herbalife', Forever Living Products' ) have continued to hide in plain sight whilst secretly churning tens of millions of losing participants over decades.

The quantifiable results of the self-perpetuating global 'Long Con' known as 'Multi Level Marketing,' have been fiendishly hidden by convincing victims that they are 'Independent Business Owners' and that any losses they incurred, must have been entirely their own fault. 

Blog readers should observe how (in the above linked-videos) chronic victims of 'MLM' cults are incapable of describing what they were subjected to in accurate terms. Even though they are no longer physically playing along with the 'Long Con's' controlling-scenario, they unconsciously continue to think, and speak, using the jargon-laced 'MLM' script - illogically describing themselves as 'Distributors.' 

Chronic victims of blame-the-victim cultic rackets who have managed to escape and confront the ego-destroying reality that they’ve been systematically deceived and exploited, are invariably destitute and dissociated from all their previous social contacts. For years afterwards, recovering cult victims can suffer from psychological problems (which are also generally indicative of the victims of abuse):

depression; overwhelming feelings (guilt, grief, shame, fear, anger, embarrassment, etc.); dependency/ inability to make decisions; retarded psychological/ intellectual development; suicidal thoughts; panic/ anxiety attacks; extreme identity confusion; Post-Traumatic Stress Disorder; insomnia/ nightmares; eating disorders; psychosomatic illness, fear of forming intimate relationships; inability to trust; etc.  

David Brear (copyright 2018)

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Stella & Dot: a fun way to earn or a path to financial loss?

The jewellery brand says it ‘democratises entrepreneurship’, but critics argue it obfuscates likely income

By Sarah Shannon 31 May 2018

www.ft.com/content/d4bb0690-3e42-11e8-bcc8-cebcb81f1f90

After her first son was born, advertising executive Marie Evans was lured by an advertisement on Facebook to join Stella & Dot as one of its 30,000 costume jewellery sales representatives. The 32-year-old had recently left her position as an account director at an advertising agency in London and was getting to grips with life as a working mother in what she describes as a less exciting role in a local company in Buckinghamshire, just outside London.

 “I thought of it as a potential escape route. If I can make it work, I can do it and be a mum, and maybe that’s the magic formula. So I signed up,” Ms Evans says. She invited her friends over for drinks and canapés, hoping they would buy the £48 beaded statement earrings and £96 gold-finish pendants. She promoted the business on Facebook and convinced others to host parties. But the jewellery, which she considered “overpriced”, would not shift. She was encouraged to pay for training to boost her sales. After six months she had had enough. 

 “I have nothing to show except [that] I stuck a load of jewellery on a credit card. I think I probably spent easily £1,000 on products. They make it so complicated to figure out how much you’re earning. I rationalised that I bought it for myself but I don’t want to admit to myself how much I lost.”

 As with many so-called multi-level marketing (MLM) companies, it appears making a profit from selling Stella & Dot’s products is difficult, with many earning very little or nothing and a tiny percentage at the top prospering. The San Francisco-based company offers discounts of 50 per cent on jewellery for personal purchases, but not all make a profit after expenses.

 In the UK, the average monthly income for those who sign up — known as “stylists” — is £125 to £374 working three to five hours a week, according to Stella & Dot’s website. However, that number does not account for costs or hours spent pursuing the sales and in the small print is a disclaimer warning that those earnings do not represent income that stylists “can or will earn”. 

 Set up in 2003, Stella & Dot is a direct-selling MLM business, or as co-founder Jessica Herrin has described it in media interviews “a social selling company”. The Stanford graduate co-founded Weddingchannel.com, an online bridal planner, in her twenties, which she sold to The Knot in 2006 for $61.7m in cash and 1.15m shares. 

 Stella & Dot has attracted Silicon Valley venture capital firm Sequoia Capital, an early investor in Apple, which in 2010 invested $37m for a 10 per cent stake. 

 Ms Herrin confirmed to the Financial Times that the company generated revenues of $200m in 2012 but declined to comment on current sales. 

 The business’s mission, she says, is to “democratise entrepreneurship”. Stylists buy a £169 start-up kit which includes £300 worth of costume jewellery and guides on how to throw “trunk parties” — much like the Tupperware equivalent from an earlier generation. But sales are also sought through social media and, for an additional £10 a month, sales reps can add a personalised website.

Recruits receive weekly emails with images of products they can upload to Instagram to tempt friends and to show off new ranges. Sellers receive up to a 35 per cent commission, which is paid on to their Stella & Dot debit card. This Visa debit card also has a cost: a £5.95 one-off fee plus £1.25 a month.

In the UK, it attracts women in wealthy pockets of Kent, Essex, Hertfordshire and Buckinghamshire. The company particularly targets mothers looking for flexible work, with taglines such as “Be your own boss” and “Extra income is just the beginning. Join a community of strong and supportive women”. 

 Kristine Kirby, a managing director of a consultancy agency, signed up earlier this year as a means to make some extra money “on the side” following major surgery. But for the Berkshire-based businesswoman it was not a success and she made no profit, despite paying extra for her own Stella & Dot personalised website. The allure of selling trendy costume bracelets to friends quickly met reality when she realised “you need to have women underneath you to make any money” — sales reps earn commission from the sales made by new sellers they recruit. 

 In Ms Kirby’s experience, the three to five hours a week Stella & Dot says you need to spend to earn up to £374 per month is more like 15 to 20 hours, including at least three parties of 20 eager-to-buy friends. Ms Kirby says she felt constant pressure to buy the latest products as samples to show her friends. The challenge was compounded by having fellow sellers on her patch; her first “upline” — the sales rep who coaches you and takes a commission on your sales — lived just a few miles away. In Ms Kirby’s view the product is “expensive” versus contemporary British brands like Monica Vinader and Astley Clarke.

 Ms Herrin says Stella & Dot differs from other direct-selling businesses as unsold stock can be sent back to the company, avoiding “inventory loading”. Stella & Dot even exited the UK’s Direct Selling Association because, she says, she did not want to be associated with such practices and people being paid for the recruitment of others, as opposed to earning commission purely from those recruits’ sales. “We are an incredibly different business,” she adds. 

That is not enough to appease growing consumer activism against Stella & Dot and other MLM campaigns in the UK. The Anti-MLM Coalition and Timeless Vie are among the blog sites that are outspoken against MLM models. Sites like the Talented Ladies Club, a magazine-style site for working mothers looking to find flexible work or start a business, and Mrs Gloss & The Boss, a Facebook beauty group, openly censure such companies.

 Kate Dyson, founder of The Motherload online parenting community, with more than 50,000 members, says she was forced to impose a zero-tolerance policy for any MLM representatives recruiting on the site. “We’re so hot on it. We see it all the time and we remove them immediately,” Ms Dyson says. “I get really angry about how they are just out to exploit by encouraging women that it’s a sustainable business to be in involved in. Because the reality is for every successful rep there are going to be huge numbers who are unsuccessful and lose a lot of money.” 

Some stylists, particularly those with recruits, report a positive experience, however. Katie Joynson has been a Stella & Dot representative for five years and has a team of 25 recruits who help her to earn around £20,000 a year, she says. “They’re mainly day hobbyist ladies who want to do it for a bit of fun, or stay-at-home mums who want another interest and some retired ladies who want to get out of the house. They’re earning a hundred to a couple of hundred pounds a year, if that. A lot of them do it so they can get the freebies and the discounts,” says the Newcastle Upon Tyne stay-at-home mother. “I absolutely love it.” 

 With sales of $1.25bn (£920m) last year, costume and fashion jewellery in the UK is a booming sector that grew 5.3 per cent between 2016 and 2017, according to Euromonitor. But it is a competitive space, with high-street brands like Zara and J Crew jostling with specialist stores like Swarovski and Pandora to bridge the gap between budget offerings and luxury brands. 

Globally, the World Federation of Direct Selling Associations estimates the industry is worth $182bn. In the UK, direct selling is a £1.35bn business that climbed 6 per cent last year, according to Euromonitor. 

 MLM schemes operate legally in the UK if earnings are derived from products or services sold — as in the case of Stella & Dot — rather than just from recruiting people. They must also comply with UK consumer law and regulations. These cover things such as cooling-off periods and not misleading on likely income, according to Ros Prince, a partner at law firm Stephenson Harwood in London.

 “Looking at Stella & Dot, they are selling products. I have not seen any evidence to suggest that there is any misrepresentation on earnings,” she says. “Ultimately earnings are intended to be made on the sale of jewellery, so they are operating legally.” 

 Pyramid schemes, where the only real benefit comes from recruiting others who in turn pay to participate, are illegal under the Fair Trading Act, with unlimited fines and up to two years’ imprisonment for offences. 

 The UK government can also apply to wind up anything it believes to be unlawful, as it tried to do unsuccessfully in 2008 with Amway, a direct seller of lifestyle products. This partially explains how Stella & Dot can operate today. 

 Amway business owners make an income from selling cookware and make-up, but the UK government argued those business owners misrepresented the earnings potential to new recruits. Of the 33,000 Amway business owners, only about 90 earned enough to cover the cost of building their business, according to the investigation. 

 Davina Given, a partner at London law firm RPC, says Amway changed its practices in response to the case. “The tension is between offering people an opportunity to make money through selling on commission, which is not inherently wrong, and overhyping the likely financial return on that opportunity.” 

 A seller could, however, make a civil claim if the company has misrepresented earnings of existing sellers. But due to the small payments usually involved, it is rarely worth it for an individual to bring a claim. 

By the third quarter this year, Stella & Dot says it expects to have paid out $500m in commissions globally since it started. Some consumer advocate groups, such as pyramidscheme-alert.org, reckon up to 99 per cent of MLM recruits will end up with a net loss once costs and time are accounted for.

 Ms Herrin concedes that a quarter of people who sign up “never go on to sell” and only a “small percentage stay for a long time”. About half of stylists leave every year, she adds. But she points out that 74 per cent still generate income — although this figure does not account for costs. “A lot of people like the idea they are saving on their own fashion spend. They think of themselves as getting paid in discounted product. So I think that’s really a high rate then.”

Its US website shows that three-quarters of paid stylists fall into a bracket that earns an average income of $1,400 a year, with the bottom 25 per cent of that group of earning about $200 a year. This is based on monthly average commissions paid, so if a stylist were to earn $100 for three months but stopped after failing to pay back her initial investment for the $399 starter kit, extra display stock and the hours spent, her income would still be included in the monthly average. 

Robert Fitzpatrick, a US consumer advocate and author of False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes, and president of pyramidschemealert.org, has studied dozens of compensation statements including Stella & Dot’s. He considers them to be “misleading”. 

 He says: “It’s what was paid out on average — it doesn’t imply the average person received that much. It’s an aggregate annual figure and the problem with the term is it’s based on an annual basis, but how many people in the whole scheme actually stay active for a year?”

Most people in MLM schemes make a net loss, he adds. “If you were to include all the people that came and went, not just inactives, and how many have joined from the beginning, it would be less than 1 per cent” earning a profit, he adds. “It’s an orchestrated sham as a business opportunity. If it is one in 1,000, that’s not an income opportunity, that’s a sham.” 

Ms Herrin says that in the case of Stella & Dot “there are no false promises”. Indeed, it is the additional benefits of jewellery discounts that she says make the business “profitable” for most stylists: “I believe that our stylists are profitable because of the differences of Stella & Dot to other companies including the fact our stylists earn free products so it’s not money coming out of their pocket.”

 So why does Ms Herrin not show a clearer measure of the average earnings potential of recruits? As 80 per cent of stylists are flexible workers with other roles, different metrics would not explain the business opportunity so well, she says. “This is not a corporate job and that’s why we don’t measure it like one.” 

 Ms Evans has set up her own digital marketing agency since leaving Stella & Dot and says she is embarrassed about her involvement with the company. “I’m strong enough to say it wasn’t a great moment, I don’t put that on my CV,” she says. “The rational side of my brain knew, but I was desperate for something to work.” 


 Copyright The Financial Times Limited 2018. All rights reserved.