Multi-level Marketing Hit by COVID Cold Wave... Closures Twice the Number of New Registrations

Multi-level Marketing Sellers Decline for 3 Consecutive Quarters... Lowest in 5 Years
Visit Sales Restricted Due to COVID-19... Industry Perception Also Worsens
Concerns Over Continued Operations of Some Closed Businesses... "Check for Temporary Closure or Permanent Shutdown"

On June 8, 2020, when secondary infections related to the Richway multi-level marketing senior health product company and the ping pong hall continued, the Richway office in Gwanak-gu, Seoul, was sealed off./Photo by Jinhyung Kang aymsdream@

[Asia Economy Sejong=Reporter Lee Jun-hyung] The number of multi-level marketing (MLM) sellers who sell products through door-to-door sales has decreased for three consecutive quarters. This is due to the direct impact on face-to-face sales methods caused by the COVID-19 pandemic that has lasted for three years. There are also unregistered operators who continue illegal business after closure, raising concerns about some closed companies.

According to the "2021 Q4 Major Information Changes of Multi-Level Marketing Sellers" announced by the Korea Fair Trade Commission on the 4th, as of the end of last year, there were 125 MLM sellers. Although three companies newly entered the MLM business, six existing companies closed, resulting in a decrease of three compared to the previous quarter (128 companies). The number of MLM sellers has decreased for three consecutive quarters since the second quarter of last year. The number of registered companies is the lowest in the past five years.

Although the number of closures itself is not large, the downward trend needs to be closely observed. This is because the government has set higher entry barriers for MLM businesses than for general door-to-door sales to protect consumers. To legally operate an MLM business, several requirements must be met, including a capital of over 300 million KRW and subscription to consumer damage compensation insurance. Since market entry is relatively difficult, deciding to close a business is not easy either. This is why the number of closures in the fourth quarter of last year is considered sufficient to reflect the current situation of the MLM industry.

A Fair Trade Commission official explained, "MLM sellers start with strict requirements, so they do not close just because the economy worsens slightly," adding, "The fact that six companies closed means the overall situation of MLM businesses was quite difficult." The official also added, "Considering the proportion of closures among all MLM sellers, it cannot be said to be small."

The reason for the decline in the number of MLM sellers lies in COVID-19. Face-to-face door-to-door sales were restricted, inevitably shrinking business operations. According to the Fair Trade Commission, total sales of MLM businesses in 2020 were 4.985 trillion KRW, a 4.65% decrease compared to the previous year (5.2284 trillion KRW). During the same period, the number of MLM sellers decreased by 70,000 from 8.34 million to 8.27 million. Cases of infections linked to MLM sellers occurred repeatedly, worsening the industry's reputation. Some local governments issued gathering bans targeting MLM sellers or classified MLM sales offices as high-risk facilities.

The spread of the 'stay-at-home' culture also led to a surge in online shopping. According to Statistics Korea, online shopping transaction volume last year was approximately 192.9 trillion KRW, a 21% increase from about 159.4 trillion KRW the previous year. This is the highest since statistics began in 2001.

Consumer groups have warned consumers to be cautious as some closed companies may continue operations. This is because some continued MLM business without meeting government requirements after closure. The Fair Trade Commission has disclosed major information changes of MLM sellers every quarter since 2006 to prevent consumer damage. Since MLM sellers often change their business names or addresses, caution is necessary as this can lead to consumer harm.

Ryu Yong-rae, head of the Special Transactions Division of the Consumer Policy Bureau at the Fair Trade Commission, said, "The MLM business status survey is largely intended to warn workers and consumers," adding, "It is necessary to be cautious of MLM sellers conducting illegal business by checking closures, suspensions, and insurance contract status."

This content was produced with the assistance of AI translation services.