The Wall Street Journal: An Army of Underemployed Goes Door-to-Door in Brazil

by Miriam Jordan

OSASCO, BrazilFive years ago, amid one of Brazil’s many economic downturns, Marcia Carvalheiras saw her world crumble. Her employer, an appliance distributor, folded. Her husband’s bookbinding business was dying. Jobless and desperate, Ms. Carvalheiras sold her car and gave up her family’s health insurance. In order to feed her family of four, she collected food handouts from a local church.p. Then she got a flier in the mail from a Brazilian direct-sales company. Within two years, she had resumed her middle-class lifestyle. Today, she is practically rich.

Ms. Carvalheiras, 38 years old, is one of Brazil’s top Avon representatives. She’s also a champion seller for Avon’s homegrown Brazilian rival, Natura Cosmeticos, and for 12 other direct-sales firms whose pamphlets tout everything from lingerie to saucepans. From her office in this industrial Sao Paulo suburb, the new entrepreneur subcontracts a small army of people to sell door-to-door for her, primarily in the area’s sprawling slums. Her roughly 1,000 workers come from Brazil’s large number of unemployed or underemployed women, many of them eager to earn whatever extra cash they can. Ms. Carvalheiras trains her sales force, buys from direct-selling firms for them and splits the commission. Her business earns a monthly profit of $5,000 on revenue of $15,000. The average monthly income in Brazil is just $260.

Door-to-door sales are a bright point in Brazil’s volatile economy. While retail sales edged up a lackluster 2.6% last year amidst the latest economic downturn, door-to-door sales jumped 15.8%. Brazil is Avon Products Inc.‘s second-biggest market by volume after the U.S., and is home to Avon’s largest sales force — 800,000 people, up from 150,000 a decade ago — though many, such as Ms. Carvalheiras, split their loyalties with other companies. Avon’s U.S. sales force is about 500,000.

“If the economy is strong, we sell because consumers are inclined to buy,” says Saulo Nunes, Avon’s vice-president for sales in Brazil. “When the economy is weak, sales remain brisk because we attract more representatives to get consumers to buy.” In 1999, when a massive currency devaluation traumatized the nation, Avon sales in Brazil jumped 26% in local-currency terms.

Off the Books
Underpinning this resilient market is a ready sales pool born of 12% unemployment and declining real wages. Economists estimate that at least one-third of Brazil’s economy is off the books, driven by legions of underemployed people who make ends meet by doing part-time work or freelance jobs, such as selling for Ms. Carvalheiras.

Despite a turnover rate of nearly 30%, Ms. Carvalheiras has little trouble finding replacement workers to peddle lipstick, lotion and lingerie. “Brazil’s crises have drawn more and more women to direct selling to supplement their income,” says Joao Carlos Basilio, president of a Brazilian cosmetics-industry association. “That has created a market.”

In Brazil, about 60% of perfume, 75% of eye makeup and 80% of lipstick sales are made face-to-face rather than in stores. Brazil’s Natura, which has a more upmarket image than Avon, has seen its sales swell about 35% a year in the past decade. The country’s largest lingerie maker, De Millus, has a door-to-door sales force of 100,000 women, who rang up 75% of the company’s $77 million in revenue last year.

Direct sales also get a boost from a Brazilian penchant for mixing business and personal relationships. The intermingling of professional and social affairs permeates everything from big business to politics. Many of Ms. Carvalheiras’s customers say they will spend a bit more to buy from someone they know rather than save money at a shop. “Personal relations count more than economic logic in Brazil,” says Roberto DaMatta, a University of Notre Dame professor and one of the leading anthropologists studying Brazil.

‘Extra Cash’
Ms. Carvalheiras, who started her own direct-selling career when she faced financial hardship, intentionally targeted needy communities. With a loudspeaker attached to her husband’s subcompact Fiat, she recruited women in the slums that abut Osasco, promising only “extra cash.” It worked. Ms. Carvalheiras enlisted hundreds of women in a matter of weeks.

Lillian Manoel, 20, who has a high-school diploma, lost her job when the bingo parlor where she worked as a receptionist folded six months ago. Since then, she has filled countless job applications, most recently to stock shelves at a pharmaceutical company. But, echoing a common complaint in Brazil, she says her chances of getting hired evaporate when prospective employers learn she recently married. She already has one young daughter out of wedlock, and Ms. Manoel assumes companies won’t hire her since they don’t want to get stuck with Brazil’s generous four-month paid pregnancy leave if she should have another baby.

In Sao Paulo, Brazil’s most industrialized state, unemployment hit 19% in 2002. Half of the breadwinners in Ms. Manoel’s row of hovels lost their jobs in the last year. Ms. Manoel, who earned about $150 a month at the bingo parlor, now makes about $50 a month selling cosmetics, lingerie, costume jewelry and other items for Ms. Carvalheiras. Her husband, Eurico, works at a construction company, where he earns about $110 a month — enough to feed and clothe the family. The couple and Ms. Manoel’s two-year-old, Isabelli, live in the tiny living room of a relative’s shack. The cash that Ms. Manoel makes goes to paying a bricklayer, who is building them a home. “Thank God for this freelance work,” says Ms. Manoel, as she climbs to the top of the hill where the half-built hovel is precariously perched.

Ms. Manoel counts on her friends to buy something every three weeks, the interval at which companies such as Avon and Natura refresh their catalogs and special offers. One neighbor, Arlene Soares, regularly purchases body lotion and cologne for about $4 each. The single mother of two, who earns about $100 cooking and cleaning for a Sao Paulo family, says that at a local drugstore she can find comparable products for less than half the price of Ms. Manoel’s. But, “Lillian is very knowledgeable about what she sells,” says Ms. Soares. “And, I know I am helping her out.”

Some critics say direct sellers are taking advantage of the high unemployment by inducting armies of part-time salespeople into their organizations without having to shell out benefits. “The companies get high productivity with virtually no expenditure,” says Carlos Alonso Barbosa de Oliveira, an expert in labor relations at the University of Campinas.

Ms. Carvalheiras doesn’t need to advertise heavily to attract people to sell for her. Outside her main office in the heart of Osasco, two young women wearing aprons emblazoned with “The King of Catalogs” — the name that Ms. Carvalheiras gave her business — distribute fliers to passersby. Recruiters also visit open-air markets and wait outside schools. They stand outside Avon product meetings to lure Avon representatives to work for Ms. Carvalheiras on a freelance basis, selling all the brands that her company represents. Avon tolerates the poaching: Ms. Carvalheiras’s Avon sales rose 75% last year to about $50,000. (Avon is one of her most popular brands.)

To handle her large sales force, Ms. Carvalheiras operates three distribution centers. On a recent afternoon, Ms. Carvalheiras’s central office in a low-rise, dingy building was packed with women, several with toddlers at their side, who came to place orders, and collect and pay for merchandise. Ms. Carvalheiras knew several of them by name. She helped an illiterate woman fill out an order form. Another wanted help figuring out how much she must sell a month to earn a net of 100 reals, or about $30.

Ms. Carvalheiras’s free-lance workers, most of whom wouldn’t qualify as official representatives for Avon and other brands, are effectively her customers. She buys directly from the company based on orders they place. Then her workers buy the products from her and resell them. In the case of Avon, Ms. Carvalheiras gives two-thirds of the commission to her saleswomen and keeps one-third herself.

Management Fee
Though Avon gives Ms. Carvalheiras 31 days to pay, she demands payment from her saleswomen within 10 days and charges stiff interest penalties — around 3% a month. Though high by U.S. standards, her rate is lower than the nearly 9% a month charged by major Brazilian banks for overdrafts. The time lag benefits Ms. Carvalheiras. She can pay Avon early and get a discount, often about 3% a month, which she keeps as a kind of management fee. “That’s more than I would make on any short-term investment,” she says.

Ms. Carvalheiras has brought her workers benefits uncommon in Brazil’s informal economy. She persuaded a local private hospital to offer group health insurance to about 300 women and their families at a fraction of the normal rate, after learning that many longed for an alternative to the surly service and long lines at government health centers. For the poorest women, she persuaded a bank to waive a minimum-deposit requirement so that they could open accounts.

Ms. Carvalheiras also shoulders risks that a large company wouldn’t take. Many of the women selling for her wouldn’t pass background checks by a direct-selling firm. Ms. Manoel, for one, appears on a national debtors list because she missed payments on a bed that she had bought in installments after losing her full-time job. Some direct-selling firms require their new representatives to make an initial investment in a demonstration kit, which Ms. Manoel couldn’t afford. Also, many women who work for Ms. Carvalheiras sell too little to meet minimum sales targets that companies set for their official representatives. “I like working with Marcia because she doesn’t mind if I come in with an order that’s as small as one item,” says Maria da Guia, 50, after buying just $30 in products to resell in her slum.

Ms. Carvalheiras offers her sales force advice about domestic violence, drug abuse, marital infidelity and other problems that afflict their households. She says she recently escorted a young woman who had been raped to the hospital and the police station. “I have entered a world that people like me normally only read about in the newspapers,” says Ms. Carvalheiras, who has a degree from a local college and considers herself middle class.

Even so, it’s tough going for the saleswomen on the bottom rung. The turnover remains at 30% a month because many workers fail to earn as much or as quickly as they hoped. Others give up because of personal problems, such as drug addiction and illness in the family.

Ms. Carvalheiras has started devising incentives to motivate her ever-growing sales force and reduce turnover. She has hired 10 women as team leaders, overseeing small groups. Ms. Carvalheiras has also started rewarding top performers — those who sell more than $300 a month — with food items and small appliances. “I learn from Avon and replicate on a smaller scale,” she says.

As her empire has expanded, Ms. Carvalheiras has accumulated wealth. She recently bought a three-bedroom apartment in Osasco that she plans to rent out and is building a four-bedroom house. She has also invested in herself: breast implants, a nose job and a hair transplant.

Because of her high sales (she’s the third-biggest Avon seller in the country), the company has showered her with prizes, including cars, home appliances and trophies. (Another company awarded her a trip to Disney World.) Several Avon executives have visited The King of Catalogs to see her business close-up and will soon be training freelancers in her new headquarters.

In October, Ms. Carvalheiras opened her first franchise in another city and plans her second one this year. Her husband, who left his bookbinding business, is now her accountant and technology officer, having designed The King of Catalogs Web site. Ms. Carvalheiras will soon launch her own line of skin products, undeterred by Brazil’s fickle economy. “I got into this thanks to a crisis,” she says. “I intend to grow a lot more.”

February 19, 2003

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