Multi-level marketing companies, which rely on their sales representatives to sign up new representatives to generate more direct sales, have seen that business model struggle over the years.
Direct sales represent a small portion of the U.S. overall retail market as person-to-person sales generate about 1% of total retail sales in the U.S., with about $40.5 billion in direct sales in 2022, according to the U.S. Direct Selling Association.
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Some of the most well-known multi-level marketing companies include the industry leader Amway, which started in 1959 and sells nutrition, beauty, and cleaning products; Herbalife, founded in 1980 and produces and sells nutritional products; and Tupperware, known mostly for its air-tight food storage containers.
When it comes to Tupperware’s direct sales reps, only 1 out of 833 earns over $32,000 a year selling its goods, according to Good Bad Marketing. Those sales reps also face retail competition from Target and Macy’s, which both sell Tupperware products in their stores.
All three direct sales companies adopted online sales years ago to prop up declining direct sales. Amway and Tupperware joined the online retail model in 1999, but Herbalife went online later in 2015.
Amway generated about $7.7 billion in sales in the year ending Dec. 31, 2023, a 5% decline from 2022. Herbalife reported $5.1 billion in sales in 2023, down 2.7%. Tupperware reported $1.1 billion in revenue in 2023 for a 14% decrease.
Sales haven’t been adequate for Tupperware Brands (TUP) lately, as the global food storage products provider and nine affiliates filed for Chapter 11 protection on Sept. 17 seeking a sale of its assets and to prevent an ad hoc group of three lenders from acquiring the company through an out-of-court foreclosure on certain company assets, including the Tupperware brand name.
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Tupperware, which is hampered by about $811 million in funded debt obligations primarily from a single, first-lien credit facility, issued a going concern warning with its 2022 third-quarter earnings report after its historic direct-selling model began showing weaknesses, according to a declaration by the company’s Chief Restructuring Officer Brian J. Fox.
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The company began a marketing process in April 2023 to seek a buyer for its assets but did not produce any offers acceptable to its term loan lenders. The debtor restructured its debt in August 2023, but missed a loan payment in February 2024 that led to a forbearance agreement.
Tupperware’s second effort to sell the company fell through just before the July 4, 2024, holiday weekend. Also in July, the company’s first-lien debt traded to a new group of lenders, and the company entered discussions about a going-concern transaction in which the ad hoc group of lenders would purchase the Tupperware brand, certain U.S. assets and select foreign subsidiaries.
The debtor proposed that any sale to the ad hoc group be implemented through a Chapter 11 bankruptcy process and funded by debtor-in-possession financing from the lender group.
The debtor submitted Section 363 sale and DIP loan proposals to the lender group, which was expected to submit a DIP term sheet and proposed order to the debtor.
Instead, the ad hoc lender group indicated that it was planning to acquire the company’s name and certain assets through an out-of-court strict foreclosure, according to court papers.
The debtor believed it had no choice but to file for Chapter 11 bankruptcy protection and to use its limited cash on hand to fund a 30-day bidding process for a Section 363 all-cash auction of its assets.
The Orlando, Fla.-based debtor listed $679.5 million in assets and over $1.2 billion in debts in its petition filed in the U.S. Bankruptcy Court for the District of Delaware.
The debtor cited several reasons for its bankruptcy filing including shifts in consumer behavior toward online shopping. It said only 4% of homeware sales come from direct selling, though the company derives 90% of its sales through the model.
It also listed other operational challenges, such as anti-plastic sentiment among consumers who will not purchase plastics containing BPAs, marketing deficiencies, and underdeveloped infrastructure.
The debtor’s largest unsecured creditors include Chang Tsi and Partners Ltd., owed over $1.2 million; BDO USA, owed $1.06 million; and FTI Consulting, owed $659,467.
Tupperware was founded in 1946 and currently employs over 5,450 workers in 41 countries and partners with over 465,000 independent sales representatives worldwide, who sell the company’s products on a freelance basis in 70 countries.
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