Faltering flame - Westfair Communications

Blyth Inc. quietly has shown 90 employees the door from its direct-selling unit, which encourages independent sales agents to pitch Blyth products to acquaintances.

The cuts come as Blyth deals with a more worrisome drain from its ranks of independent consultants, and as the Federal Trade Commission weighs restrictions on the recruitment of such agents going forward.

Robert Goergen started Blyth in 1977 by acquiring a small candle maker in New York City, establishing the company”™s headquarters in Greenwich. In 1990, Blyth bought out Colonial Candle, a Cape Cod, Mass., company that has been making candles since 1909.

Colonial Candle had a unit called PartyLite that functioned primarily as an outlet to liquidate excess candle inventory no longer slated for store shelves, generating less than $10 million in annual revenue at the time.

Hardly a wallflower today, Plymouth, Mass.-based PartyLite”™s 20,000 agents helped serve up $694 million in direct sales for Blyth in 2006, 57 percent of the company”™s total revenue. Last year the company added a line of gourmet kitchen ingredients and foodstuffs via the acquisition of Twin Sisters Gourmet in Orlando, Fla.

Blyth”™s revenue from direct-selling operations have guttered downward 5.7 percent the past two years, even as overall revenue for similar “direct-selling” companies have increased over that span.

Sales are also down at the company”™s smaller retail-sales channel, which is led by Goergen”™s son Robert Goergen Jr. and which besides candles sells the Sterno brand of chafing-dish heaters.

Besides New England living rooms, PartyLite agents sell candles over bowls of salsa in Mexico, fondue pots in Switzerland, teapots in Great Britain, and in seven other countries. The company has had particularly strong growth in Europe, where it has more than 16,000 agents today.

PartyLite”™s international expansion has been led by Anne Butler, who groomed her career at New York City-based Avon Products Inc. and Dallas-based Mary Kay Inc., and whom Blyth hired in 1999 to lead its European operations.

This past May, Blyth promoted Butler to president of PartyLite, and this month the company made a $200,000 payment to cover undisclosed long-term compensation she surrendered in the past.

Frank Mineo, who previously led Blyth”™s direct-selling operations, was hired in June as CEO of Jafra Cosmetics International Inc., a Westlake Village, Calif., competitor to Avon and Mary Kay now owned by a German company.

Goergen and Butler have a formidable task ahead: In the first half of the company”™s fiscal year ending in July, overall sales were down another 7.4 percent, though the company reversed course from its $120 million loss at the midpoint of 2006 by eking out a $15 million profit in the first half of this year.

Direct-selling revenue was $130 million in the second quarter, off 10 percent from a year ago, with Goergen blaming the decline in part on the loss of 4,000 independent agents in the past year for reasons he did not specify.

In April, Blyth sold off facilities in Memphis, Tenn., and Bentonville, Ark., that distributed its Blyth HomeScents candles, receiving $25 million in the deal. Blyth retained a manufacturing plant in Elkin, N.C., that produces Colonial Candle products.

At the same time, it closed a manufacturing facility in Tijuana, Mexico, amid other structural changes, eliminating 150 jobs.

As of January, Blyth reported having 4,000 employees.

The Blyth cuts come against a general background of industry growth. The direct-selling industry has increased sales annually from $20.8 billion in 1996 to $32.2 billion last year, according to the Direct Selling Association of Washington, D.C. The industry has shown growth in good times and bad, including 5.7 percent year-over-year growth in 2006 and a decade-high 7.5 percent gain in 2002 when the overall retail sector was growing more slowly following a recession.

The entire industry is threatened, however, by a proposed “business opportunities” rule intended to minimize exposure to pyramid schemes. The rule would prevent new agents from being recruited on the spot in living rooms, instead mandating a seven-day waiting period to give recruits a chance to vet companies hoping to recruit them as agents.

Blyth”™s direct-sales channels are considered a network-marketing or multilevel marketing (MLM) arrangement in which agents earn bonuses for recruiting new members. For instance, according to its Web site Twin Sisters Gourmet pays a 25 percent commission on retail sales and awards a $100 bounty for new “consultants” referred by its agents.

MLM arrangements differ from illegal pyramid schemes in that new members are not required to purchase inventories of product in advance that they are unlikely to sell.

PartyLite publishes a code of ethics on its Web site, but like many direct-selling companies its agents have been criticized on consumer-complaint Web sites for late deliveries of merchandise or for shoddy customer service.

PartyLite consultants bombarded the U.S. Federal Trade Commission (FTC) with form letters defending their ethics and complaining that the rule would force them to travel hundreds of extra miles weekly, returning to various homes to get signatures on contracts and issue agent starter kits.

The letters also expressed misgivings about a proposed FTC rule that would require them to distribute the contact information for the 10 PartyLite agents nearest the target recruit, voicing reservations about their personal information being distributed willy-nilly without their knowledge.

“We certainly support the premise of consumer protection, absolutely,” said Amy Robinson, a spokeswoman for the Direct Selling Association, a Washington, D.C., group that likewise opposes the new rules. “Oftentimes, in trying to regulate the bad actors you negatively impact those companies following the letter of the law.”