Before the internet, direct-to-consumer meant something entirely different. People could not buy some items in stores and certain brands used door-to-door salesmen to sell their wares.
When it came to higher-end items like vacuums, that made sense because a demonstration could seal the deal. In many cases, however, direct-to-consumer companies used what’s known as a multi-level marketing (MLM) model.
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In that setup, you signed on with the company to sell its wares and got a commission for everything you sold. The real money, however, came in recruiting other people to join your sales team.
When you did that, you also got a commission on anything they sell and on the sales of anyone they recruit. It sounds like a viable way to make money, but in reality, the deck is stacked against the salespeople who often have to pay and sometimes pre-buy products to be part of the system.
John Oliver exposed MLMs in 2016.
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What is an MLM?
HBO’s “Last Week Tonight” did an episode in 2016 that explained how MLMs work. He noted that while the companies avoid the word “pyramid,” because that’s usually followed by the word “scheme,” that’s clearly the MLM model.
“Generally, distributors have two main ways to make money, sell the product itself, whether it’s a makeup, vitamins, or health shakes, and earn money on those sales; and, this is a key, recruit other people into the company and get money based on their sales and sales of people they recruit in turn,” host John Oliver explained.
While the pyramid part is clear, Oliver shared how you can detect the “scheme” part of it.
“In broad terms, if a distributor’s earnings come primarily from selling products to extra costumers outside of the company, that is probably a legitimate business. But if those earnings come primarily from selling product to the distributors you’ve recruited below you and they sell the products to the distributors they’ve recruited below them, all within the company, that’s maybe a pyramid scheme,” he said.
Oliver’s expose never mentioned perhaps the most famous MLM, Tupperware (TUP) , a company that’s a brand name on the level of Kleenex, Sears, and maybe just a bit below Coca-Cola.
That does not mean it’s a legitimate way for most of its sales reps to make money, according to a late-2022 study.
“Tupperware’s business opportunity is disguised as an MLM in a Pyramid Scheme. The MLM perhaps gives a career with recruits working from home, but it is certainly not easy to sell the product directly to consumers, and in most cases, most people rely on recruits rather than selling the products. This is also partnered with statistics showing that only 1 out of 833 reps earn over $32k a year,” shared Good Bad Marketing.
The company’s business model is legal, but it’s one that has been exposed partly by reports like Oliver’s and partly by the bad word of mouth many MLMs have generated. Now, with its business model being exposed by disgruntled former sales reps on social media and the internet, the company has shared that it won’t be able to file its annual report on time and that it has “substantial doubt” about its ability to remain a going concern.
Tupperware’s problems are building
“While the company did not respond to requests for comment, news of the struggling firm’s late filing and strained internal financial reporting resources comes as the accounting industry is struggling with a shortage of new talent as fewer students are choosing to go into the profession. It is not clear if this broader trend exacerbated Tupperware’s strained accounting resources,” RetailDive reported.
Tupperware lost $122.5 million in its most recent quarter. It also shared that it had about $679 million in assets and $1.2 billion in liabilities. The company had about $130 million in cash at the time of the filing.
In its latest SEC filing, Tupperware shared that it would not be able to file its annual report on time.
“Due to the ongoing material weaknesses in internal control over financial reporting, significant additional procedures are warranted related to the 2023 Form 10-K, which are also causing a delay in preparing and filing the Company’s 2023 Form 10-K,” the company shared.
In addition, Tupperware shared that its longtime independent auditor PricewaterhouseCoopers had declined to be reappointed for its 2023 filings. KPMG has since take on that position, but Tupperware acknowledged that a key finding from its former auditor remained a concern.
“The report for the fiscal year ended December 31, 2022 included an explanatory paragraph indicating that there was substantial doubt about the company’s ability to continue as a going concern. The company notes that such substantial doubt is continuing,” it shared.
