The Truth About Multi-Level Marketing Businesses And How They Hurt Military Members

A military spouse goes through the growing pile of bills she is struggling to pay at her home.
AP Photo/The Augusta Chronicle, Jackie Ricciardi

Direct-sales businesses are prevalent in military communities, as military spouses and even some service members try to either launch full-time jobs or just make some extra cash on the side. These sorts of businesses raked in nearly $36 billion in sales in 2015 and have become so prevalent on military bases that one Duffel Blog, a military humor site, referred to the small army of scented-candle and oil-sales representatives as “SCENTCOM”.

Direct-sales businesses — often referred to as multi-level marketing businesses — have been around for decades, ever since companies like Avon and Tupperware recruited employees to sell their products in exchange for a small commission on each sales. They are often conflated with pyramid schemes, although there is an important legal distinction between the two. Pyramid schemes (which are illegal) gain the majority of their revenue from the recruitment of new members, while multi-level marketing businesses receive the majority of their money from the sales to external consumers — as do most legitimate businesses. That said, it can be difficult for outsiders to differentiate between legitimate multi-level businesses and pyramid schemes. Since 1996, 26 multi-level marketing businesses have been charged by the Federal Trade Commission for operating as a pyramid scheme, alleging that these businesses were less than forthcoming about the potential earnings for those who participate in them. Of those 26 businesses, each was either found guilty or was forced to settle out of court.   

Screenshot/The Office

I spoke to several people who worked for multi-level marketing business, and some did indeed make money, including one person who made a killing selling sex toys to the spouses of a deploying Army brigade. But these are the exceptions rather than the rule. According to a study hosted on the FTC’s website of nearly 350 direct-sales companies, roughly 99% of employees lose money after accounting for overhead costs, inventory, and other fees.

Just take a look at some of the direct-sales businesses popular in military communities. Around 86% of active “designers” at Origami Owl make an average annual income of less than $250 (not including expenses) per year selling jewelry, according to the company’s financial disclosure statement. Selling wickless candles for Scentsy? You’ll need to work for an average of four years to gain “Star” consultant status, with average annual earnings of just $1,300 per year (not counting expenses) — or roughly three and a half hours per week at minimum wage for one year to earn the same annual income.

One researcher who spoke to me studied the spread of these businesses, comparing them to viral epidemics. Military communities are tight-knit and can be isolated from the rest of American society at large. Military communities also represent a giant, untapped labor pool for multi-level marketing companies.  Although military spouses are better educated than their civilian counterparts, according to a 2015 RAND study, they face high levels of unemployment as well as under-employment, with nearly half of all military spouses claiming they were over-qualified for their current or most recent jobs in terms of education level. Many military spouses cited difficulties finding jobs due to frequent moves — generally every two to three years — and the perception that employers would not want to hire military spouses. Not to mention, many military spouses may find themselves stationed overseas where costs of living are high, yet there are few job opportunities either on base or in the surrounding communities. Military spouses face further employment challenges, especially considering they are more likely to have children than their civilian counterparts and may have to act as a single parent for months at a time due to long deployments.

That said, when polled, many military spouses still felt a strong desire to work. But surprisingly, only around half of those polled said they wanted to do so to generate income — over 90% of military spouses said they wanted to work for personal fulfillment. Underemployment and a desire for fulfillment drives many military spouses toward direct-sales businesses. One blog catering to the military community touted the benefits of direct-sales businesses, claiming they “fulfill a need.”   

Many in the military community reported being bombarded with requests to participate in multi-level marketing businesses schemes or attend parties selling products upon arriving at a new duty station, often feeling pressure to do so in order to fit in and make new friends. Even service members aren’t immune. I was personally approached several times by members of a multi-level marketing firm specializing in energy drinks named Quixtar — I even knew a fellow service member who was roped into the scheme. Quixtar, a subsidiary of Amway, was eventually sued for operating a pyramid scheme, settling out of court for $56 million.

Can anything be done to prevent service members from losing money to these types of predatory businesses? Yes.

For decades, payday lenders and shady car dealerships preyed on young service members, offering loans with exorbitant interest rates. Making matters worse was that payday lenders had plenty of political backing — millions of dollars in campaign contributions and lobbying. But Congress eventually passed a series of provisions, which, although far from perfect, limited the amount of money payday lenders could charge service members. Since then, the Consumer Financial Protection Bureau designated Holly Petraeus to spearhead efforts to protect service members and their families from future scams. Service members and their families might benefit from similar oversight to curb losses from multi-level marketing businesses by requiring companies to buy back unused stock should participants not be able to sell it. Military life makes service members and their families vulnerable to certain unique financial threats — consumer protection agencies should continue to assist military service members and their families.  

Finally, more must be done by both the Pentagon and private industry to address the underlying issue which makes predatory businesses so prevalent on military bases: high unemployment rates among military spouses. Although there has been great progress in reducing unemployment among post-9/11 veterans, both public and private-sector agencies should now focus on providing America’s military spouses with meaningful employment by partnering with agencies like Hiring Our Heroes or other such programs.

Until then, just keep deleting those invites.

If you’re a transitioning service member or veteran looking for a job, check out our sister site Hirepurpose »

A Coast Guard Aids to Navigation Team Kodiak boat crew displays their new 38-foot Special Purpose Craft - Training Boat in Womens Bay Sept. 27, 2011. (Coast Guard/Petty Officer 2nd Class Charly Hengen)

A collision between a Coast Guard boat and a Navy vessel near Kodiak Island, Alaska on Wednesday landed six coasties and three sailors to the hospital, officials said.

Read More Show Less
(U.S. Army/Staff Sgt. Jamarius Fortson)

The Navy has identified the two Defense Department civilians who were killed in a shooting Wednesday at the Pearl Harbor Naval Shipyard in Hawaii.

Read More Show Less
(U.S. Navy photo)

A shooting at Naval Air Station Pensacola in Florida has left four people dead, including the gunman, law enforcement officials said at a Friday news conference.

The shooter and two victims were killed at the base and another victim died after being taken to the hospital, said Chip Simmons, deputy chief of the Escambia County Sheriff's Office.

Another seven people remain hospitalized, including two sheriff's deputies who engaged the gunman, Simmons said at Friday's news conference. One was hit in the arm and the other was shot in the knee. Both are expected to recover.

Read More Show Less
U.S. Marine Corps Cpl. Victoria Fontanelli, an administrative specialist with 13th Marine Expeditionary Unit, moves through a simulated village inside the Infantry Immersion Trainer as part of training for the Female Engagement Team, at Marine Corps Base Camp Pendleton, Calif. Oct 16, 2019. (U.S. Marine Corps/Cpl. Brendan Custer)

Widespread sexism and gender bias in the Marine Corps hasn't stopped hundreds of female Marines from striving for the branch's most dangerous, respected and selective jobs.

Six years after the Pentagon officially opened combat roles to women in 2013, 613 female Marines and sailors now serve in them, according to new data released by the Marine Corps.

"Females are now represented in every previously-restricted occupational field," reads a powerpoint released this month on the Marine Corps Integration Implementation Plan (MCIIP), which notes that 60% of those female Marines and sailors now serving in previously-restricted units joined those units in the past year.

Read More Show Less
Sailors aboard the Los Angeles-class fast-attack submarine USS Columbia (SSN 771) prepare to moor at the historic submarine piers at Joint Base Pearl Harbor-Hickam following a six-month Western Pacific deployment, June 6, 2018. (U.S. Navy/Mass Communication Specialist 2nd Class Michael H. Lee)

The troubled 22-year-old Pearl Harbor sailor identified as shooting three shipyard workers Wednesday and then killing himself may have come from a troubled ship.

Gabriel Romero, a sailor on the submarine USS Columbia, fatally shot two civilian workers and wounded a third while the Los Angeles-class vessel is in Dry Dock 2 for a two-year overhaul, according to The Associated Press and other sources.

Romero "opened fire on shipyard personnel with his M-4 service rifle and then turned his M9 service pistol on himself," Fox News Pentagon reporter Lucas Tomlinson reported, citing a preliminary incident report.

Joint Base Pearl Harbor-Hickam was not able to provide information Thursday on a report that multiple suicides have occurred on the Columbia.

Hawaii News Now said Romero was undergoing disciplinary review and was enrolled in anger management classes.

Read More Show Less