Counterfeit products hit direct selling industry in India: KPMG-Ficci study

Report calls for discontining practice of showcasing direct selling products in retail stores

Counterfeit products are posing a serious challenge to the Rs 75-billion direct-selling industry in the country, according to a study conducted by KPMG-FICCI, released on Friday.

“Direct-selling products should not be sold through retail stores. …Many retailers have become direct sellers. …This leakage …through traditional retail channels is contradictory to the very nature of direct selling and needs to be adequately addressed. This channel also encourages the sale of counterfeit products which affects the brand,” the study said.

Even though most direct-selling companies initially started in the south, many now have pan-Indian operations. Maharashtra, Tamil Nadu, Kerala and Andhra Pradesh have the highest shares in revenue. 

Recently, the industry grew in the eastern part of the country, with many companies in tier-II and -III cities trying to reach out to customers in untapped markets.

“India is a thriving market for direct selling. According to data issued by the World Federation of Direct Selling Associations, the global direct selling industry reported revenue of $189.6 billion for 2017, with approximately 117 million distributors. About 74 per cent of them are women,” the report said. 

The report found direct selling contributed 0.4 per cent of total retail sales, far lower than the industry’s market share in other comparable economies (one-half of China and a tenth of Malaysia). With growth in consumer markets and an increase in its penetration, the industry has the potential to reach a size of Rs 645 billion by 2025.

“The potential for this industry to grow and provide direct and indirect employment, contribute to the economy and help with skills development for women and youth is enormous, provided a clear regulatory framework protects all the stakeholders. The introduction of model direct selling guidelines in 2016 by the Centre is a step in the right direction. However, till these are codified… a lot of uncertainty remains,” said Vijay Sardana, chairman, task force on direct selling, Assocham.

The direct selling industry in India is dominated by the organised players contributing around 95 per cent to the market. The market has grown to become a key channel for distribution of goods and services in the country, especially for health and wellness products, cosmetics, consumer durables, water purifiers and vacuum cleaners. However, it is still underdeveloped as compared to global peers and the variety of brands and products available in the country are lower than those in other economies.

Apart from the counterfeit products, the direct selling industry in India lacks a systematic policy that clearly defines the regulatory framework of the industry. There is no clear definition for legitimate direct selling to differentiate it from ponzi/pyramid schemes attempting to disguise themselves as direct selling structures. As a result of the lack of clarity, the number of fraudulent activities in the industry has increased and legitimate direct selling is being confused with ponzi/pyramid schemes.