Amway

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Amway

The Amway Corporation has grown from a two-man company selling all-purpose cleaner to become the largest and best known multi-level or network marketer in the world. Its diverse product line, ranging from personal care items to major appliances, generated sales of over seven billion dollars in 1998 and was sold by nearly one million distributors in 80 countries and territories. In the process, founders Richard M. DeVos and Jay Van Andel have made millionaires of some of their adherents and Fortune 400 billionaires of themselves. With the growth of home businesses in late twentieth-century America, Amway has inspired a slew of imitating companies, selling everything from soap to long distance telephone service. Amway, or the American Way Association as it was first called, has also revived interest in the American success story; rags-to-riches financial success based on hard work, individualism, positive thinking, free enterprise, and faith in God and country.

The prosperous years following World War II inspired people to search for their own piece of the American dream. A variant of the 1930s chain-letter craze, pyramid friendship clubs swept the United States in 1949. The clubs encouraged people to make new friends by requiring them to pay one or two dollars to join and then recruit at least two other paying members. The individual at the top of the pyramid hosted a party and received all of the proceeds before dropping out. This "new mass hysteria," as Life magazine called it, was popular mostly among the lower middle class but attracted adherents even from the upper class. The pyramid aspect was illegal—a form of gambling—but authorities risked huge public protest if they intervened. Hundreds of irate readers even threatened to cancel their subscriptions to the Detroit News when the paper published stories condemning the clubs. That, however, did not stop magazines and movie newsreels from showing images of lucky participants waving fistfuls of cash at pyramid parties. But most of the schemers got nothing more than dreams of instant riches.

Amway co-founders Jay Van Andel (1924—) and Richard DeVos (1926—) met as students at Grand Rapids, Michigan, Christian High School in 1940. An oft-told business deal brought the high school buddies together; DeVos paid Van Andel a quarter each week for rides to and from school in Van Andel's old Ford Model A. The Dutch American DeVos and Van Andel shared the same church, the conservative Christian Reformed, and similar backgrounds, values, and interests. Their families encouraged hard work and both young men were instructed to develop their own businesses as a means of assuring their financial future. World War II intervened, but the pair reunited after the war and founded their first businesses, a flight school and the first drive-in restaurant in Grand Rapids.

Following an adventure-filled trip to South America by air, sea, and land, the two men searched for a new business opportunity in 1949. The answer appeared—at the height of the pyramid craze—in the form of Nutrilite vitamins and food supplements. Nutrilite had been founded by Carl Rehnborg, a survivor of a Chinese prison camp. Rehnborg returned to the United States convinced of the health benefits of vitamins and nutritional supplements. His company used a different sales technique, multi-level or network marketing, that was similar to but not exactly the same as pyramiding. New distributors paid $49 for a sales kit, not as a membership fee but for the cost of the kit, and did not have to recruit new distributors or meet sales quotas unless desired. Nutrilite distributors simulated aspects of pyramid friendship clubs. They sold their products door-to-door and person-to-person and were encouraged to follow up sales to make sure customers were using the purchases properly or to ask if they needed more. Satisfied customers often became new distributors of Nutrilite and original distributors received a percentage of new distributors' sales, even if they left the business.

DeVos and Van Andel excelled at network marketing, making $82,000 their first year and more than $300,000 in 1950, working out of basement offices in their homes. Over the next ten years, they built one of the most successful Nutrilite distributorships in America. In 1958, a conflict within Nutrilite's management prompted the pair to develop their own organization and product line. The American Way Association was established with the name changed to Amway Corporation the following year. DeVos and Van Andel built their company around another product, a concentrated all-purpose cleaner known as L. O. C., or liquid organic cleaner. Ownership of the company had one additional benefit beyond being a distributor. DeVos and Van Andel now made money on every sale, not just those they or their distributors made.

The new enterprise "took on a life of its own, quickly outgrowing its tiny quarters and outpacing the most optimistic sales expectations of its founders," according to a corporate biography. Operation was moved to a building on the corporation's current site in a suburb of Grand Rapids—Ada, Michigan—in 1960. In 1962, Amway became an international company, opening its first affiliate in Canada. By 1963, sales were 12 times the first-year sales. In its first seven years, Amway had to complete 45 plant expansions just to keep pace with sales growth. By 1965, the company that started with a dozen workers employed 500 and its distributor force had multiplied to 65,000. The original L. O. C. was joined by several distinct product lines with dozens of offerings each. Most of the products were "knock-offs," chemically similar to name brands but sold under the Amway name. A fire in the company's aerosol plant in Ada in 1969 failed to slow growth.

The 1970s were an important decade for the company. Pyramid schemes attracted renewed public attention in 1972 when a South Carolina pitchman named Glenn Turner was convicted of swindling thousands through fraudulent cosmetic and motivational pyramid schemes. The Federal Trade Commission (FTC) accused Amway of similar pyramid tactics in 1975. "They're not in a business, but some sort of quasi-religious, socio-political organization," a FTC lawyer said. The FTC alleged the company failed to disclose its distributor drop-out rate, well over 50 percent, as well. But an administrative law judge disagreed in 1978, arguing that Amway was a "genuine business opportunity." The company began a vigorous public relations campaign against pyramid schemes, which was to continue on its corporate web-page through the late 1990s.

Amway expanded its international operations in earnest during the 1970s, adding countries in Europe and Asia. In 1972, Amway purchased Nutrilite Products, the firm that had started Van Andel and DeVos. The firm's first billion dollar year came in 1980. Amway World Headquarters continued to expand as a new cosmetics plant was opened in Ada. By the end of the 1980s, Amway distributors were operating in 19 countries on five continents, marketing hundreds of Amway-made products in addition to other name brand products sold through a catalog.

Personal computers and corporate downsizing aided to the rise in home businesses during the 1980s and 1990s, benefitting network marketing companies like Amway. Although less than five percent earned more than $40,000 a year, The Direct Selling Association estimated that 30,000 people became new direct marketing distributors each week in 1997. In an era of increasingly impersonal retailing, customers enjoyed a return to personal salesmanship. "You buy a product at the store and the manager doesn't call to say, 'Hey, are you doing OK?'," one multi-level distributor told the Associated Press in 1997. Amway sales presentations stressed customer service but were blended with testimonials from successful distributors, healthy doses of positive thinking, and pitches to God and patriotism. The company's literature, including books, videos, and an internet site, was replete with rags-to-riches success stories, much like a Horatio Alger, Jr. novel of a century before. Not everyone, however, succeeded with the company. "I saw a lot of other people making money, [but] things just didn't click for us," one former distributor told the Associated Press. Still, the Wall Street Journal reported in 1998 that an increasing number of doctors were recruiting patients and other doctors to sell Amway as a means of making up for lost income due to managed health care.

A second generation assumed senior management positions at the privately-held Amway Corporation during the 1990s. A board of directors comprised of DeVos, Van Andel, and eight family members was formed in 1992. Steve A. Van Andel (1955—) and Richard M. DeVos, Jr. (1955—) succeeded their fathers as chairman and president. Meanwhile, in 1998 the elder DeVos and Van Andel had personal fortunes estimated at $1.5 and $1.4 billion dollars respectively, and they have used their money to support educational and Christian philanthropy. But, Amway faced new legal problems as well. Beginning in 1982, Procter & Gamble sued various Amway distributors for telling customers that the company encouraged satanism. In 1998, Amway responded by suing Procter & Gamble for distributing "vulgar and misleading statements" about Amway and its executives. The litigation revealed the extent of Procter & Gamble's concern over Amway's competition.

The DeVos family attracted media attention toward the end of the twentieth century for their support of the Republican Party and other conservative political causes. Richard M. DeVos, Sr. and his wife gave the most money to Republicans, $1 million, during the 1996 presidential campaign while encouraging their Amway distributors to donate thousands of additional dollars. Amway put up $1.3 million to help the party provide its own coverage of the 1996 national convention on conservative evangelist Pat Robertson's cable television channel—"a public service," as Richard M. DeVos, Jr. explained. "I have decided … to stop taking offense at the suggestion that we are buying influence. Now I simply concede the point. They are right. We do expect some things in return," DeVos' wife Betsy wrote in an article for Roll Call. Regardless, or perhaps because of its politics, the "easy money" allure of Amway continued to attract new distributors to the firm. "Amway wasn't just a soap business," one ex-school teacher couple related on the company's web-page in 1999. "People's lives were changed by it. Now we are living our dream of building an Amway business as a family."

—Richard Digby-Junger