Alticor Inc. Business Information, Profile, and History

Company Perspectives:

Our products and services help people live better lives by offering them the opportunity to have their own businesses. The business services we offer help companies develop, manufacture and distribute their own products, using our 40 plus years of expertise. The wellness, body & beauty and home products we create and manage are some of the best in the world, helping make life cleaner, easier, healthier and more beautiful for those that use them.

History of Alticor Inc.

Alticor Inc. is the holding company for four businesses, the most well-known of which is Amway Corporation, the pioneer of multilevel marketing (MLM). Amway Corporation sells its own products as well as brand name products from other companies through a network of more than three million independent distributors worldwide. Unlike many other MLM firms, Amway offers a broad selection of items, ranging from cleaning products, cosmetics, and vitamins to travel services, discount car purchases, and catalog merchandise. Amway derives roughly 80 percent of its sales from Asia. Alticor's other businesses are Pyxis Innovations, Quixtar, Inc., and Access Business Group. Pyxis serves as the corporate development arm for the organization. Quixtar, which generates more than $1 billion in annual revenue, sells personal care products, health supplements, laundry care products, and a range of other merchandise on the Internet. Access Business Group develops, manufactures, and distributes products for Amway, Quixtar, and unaffiliated companies.

Origins

Amway's history represents a recent chapter in the long history of direct selling, which began in the American colonial period with unorganized Yankee peddlers selling tools and other items door to door. By the 1800s, direct selling decreased with the advent of mass merchandising, such as department stores and mail-order sales. In the later 19th century and early 20th century, however, some manufacturers found direct sales had advantages over the sales of their products in large stores. They preferred the personal touch, with salesmen making home demonstrations of their products exclusively. By the 1920s door-to-door salesmen were marketing brushes, cooking utensils, and other products. Retail stores fought back with local laws on peddlers. The federal government's regulations of company-employee relations led to the independent contractor solution. As independent contractors, salesmen were no longer employees: they were independent businessmen who bought products for resale. The first network marketing began in 1941 when two men created a mechanism to distribute Nutrilite vitamins. Within this mechanism, in addition to making money in retail sales, distributors earned a bonus on the sales of those individuals whom they personally recruited.

Amway's story began with the friendship between two youths who would become the founders. Jay Van Andel, born in Grand Rapids, Michigan, in 1924, and Richard M. DeVos, born in the small nearby community of Ada in 1926, became friends at Christian High School in Grand Rapids. Their common Dutch heritage of hard work, thrift, and entrepreneurship drew them together.

Both served in the Army Air Corps during World War II. Returning to Michigan after the war, they founded Wolverine Air Service to offer flying lessons. After selling Wolverine and a couple of other small businesses, the two young men bought a schooner and sailed off to see Latin America. The vessel sank in the Caribbean, and the two spent the next six months in South America; when they returned to Michigan, they started the JaRi Corporation to import and sell Caribbean handicraft.

In 1949 DeVos and Van Andel became distributors of vitamins for the Nutrilite Company of California. They enjoyed modest success from their own retail sales and from bonuses earned on the sales force they created in the Midwest. However, increasing government regulations and an internal conflict in Nutrilite led Van Andel, DeVos, and several other leading Nutrilite distributors to start their own venture. In April 1959 they created The American Way Association, later renamed the Amway Distributors Association, to protect the independent distributors. They chose as their first product a biodegradable liquid organic cleanser made by a small Michigan firm, the kind of high-demand merchandise that could be easily sold by MLM. By September 1959 the Amway Sales Corporation and the Amway Services Corporation were begun to assist the distributors. Van Andel and DeVos, with the help of their wives and a handful of employees, began operations from offices in their basements. Van Andel created sales literature and supervised new product development; DeVos motivated and trained new distributors.

The company rapidly expanded. The first full year of operations in 1960 resulted in gross sales of $500,000. That figure doubled in each of the next two years, and in 1964 it reached $10 million. Thousands of distributors signed up each month. The expansion was so rapid that as soon as the company moved into new facilities, they were already crowded. In the company history, Commitment to Excellence: The Remarkable Amway Story, DeVos noted, "We were always scrambling, just trying to catch up on back orders, working to train people adequately."

In 1964 the business underwent a major reorganization. The three divisions--sales, services, and manufacturing--were merged to create the Amway Corporation, with Van Andel as chairman of the board and DeVos as president. Major business decisions were always made jointly by the two founders.

A laundry detergent, SA8, was introduced in 1960. Amway's reputation for selling soap was based primarily on its experience with this product. Other products included a dishwashing liquid, aerosol shoe spray, cookware, hair products, and cosmetics. In 1962 Amway started international growth, with its expansion into Canada. In 1968 the Personal Shoppers Catalog allowed distributors to sell merchandise made by other companies. Catalog sales increased thereafter.

The 1960s also brought some false starts and problems for the new firm. It began marketing underground fallout shelters, for example, in an era when civil defense against atomic warfare was a priority, but gradually consumers lost interest in the shelters. Other short-lived products included 110-volt automobile generators and water-conditioning units. It was not surprising that some items were not successful, however, for by 1968 the company was selling more than 150 products through its 80,000 distributors.

In July 1969 Amway's aerosol manufacturing plant burned completely to the ground. Losses were estimated at $700,000. The next day plans were made for a temporary substitute supplier and a new facility. Six months later the new facility was completed and the company moved in.

Growth and Controversy: 1970s-80s

The 1970s began with a change in corporate structure. Van Andel and DeVos remained board chairman and president, respectively, but four vice-presidents were added to handle the daily burden of a rapidly expanding firm. In addition, 30 regional warehouses were replaced by seven new regional distribution centers in Georgia, Michigan, Texas, California, New Jersey, Washington, and Colorado. Overseas expansion in the 1970s began with Australia in 1971, a choice that was partly influenced by the common culture, language, and economic system. Operations in the United Kingdom began in 1973. Other European operations began with West Germany in 1975, France in 1977, and the Netherlands and the Republic of Ireland in 1978. The Asian market was opened with ventures into Hong Kong in 1974, Malaysia in 1976, and Japan in 1979.

Diversification and acquisitions marked Amway's experience during this time. In 1972 the company purchased Nutrilite Products, Inc., the firm that had introduced Van Andel and DeVos to direct selling. Moreover, to reward and train its key distributors, the company acquired a yacht, Enterprise II, to serve as a floating conference center. A luxury resort and hotel complex on Peter Island in the British Virgin Islands was purchased in 1978, another amenity used to motivate Amway distributors. To house distributors coming to corporate headquarters, the firm bought the dilapidated Pantlind Hotel in Grand Rapids. The hotel, renovated and renamed Amway Grand Plaza Hotel, along with the newly constructed adjoining Grand Plaza Tower, marked a significant addition to downtown Grand Rapids.

Amway's growth was predicated on the success of its independent distributors. Lacking formal control over the distributors, Amway relied on bonuses and incentives to motivate them. As the company grew, distributors built larger and larger sales organizations. Their status and income increased and were marked by achievement levels identified as "pin levels." The first major milestone of a successful distributor was reaching the level of Direct Distributor (DD), thus buying products and literature directly from the corporation instead of from a sponsor or other DD. Soon after Amway's origin, it began recognizing further sales milestones by using the names of jewels in achievement awards. The first Ruby DD was awarded in 1962, followed by Pearl, Emerald, and Diamond, in each instance the award including a decorative pin in which the specific stone was mounted. In 1966 the first Double Diamond level was reached, the Triple Diamond in 1969, Crown in 1970, and the highest level, Crown Ambassador DD, in 1977. By Amway's 25th anniversary in 1984, there were 24 Crown DDs and 15 Crown Ambassador DDs. Almost all of these 39 distributors were married couples; 28 were based in the United States.

The corporation kept in touch with its distributors through a monthly magazine, the Amagram, and provided a wide variety of sales literature, audiocassettes, and videocassettes. Although much of the product promotion was done by distributors, Amway also sponsored advertising in magazines, newspapers, radio, and TV. Its advertising costs were much less than other corporations, allowing Amway to introduce new products inexpensively.

Amway's most important legal battle was its successful defense against the allegation that it was engaged in an illegal "pyramid scheme," characterized in part by making money on recruiting new distributors. The Federal Trade Commission (FTC) in 1969 began investigating several companies, including Amway and Nutrilite, filing formal charges against Amway in 1975. Three months of FTC hearings began in May 1977, and a ruling by the full FTC in 1979 declared Amway's MLM plan legitimate. The decision was based on findings that distributors were not being paid to recruit new distributors, that products had to be sold for distributors to receive bonuses, and that the firm was willing to buy back excess distributor inventory. Lawyer Rodney K. Smith in his book Multilevel Marketing, after reviewing several cases, concluded, "Amway is not and never has been an illegal pyramid scheme."

In another legal controversy, the Canadian government charged Amway with not paying millions of dollars in customs duties on goods imported from the United States. In 1983, after pleading guilty in the criminal case, Amway paid a CAD 25 million fine in an out-of-court settlement. Maclean's, Canada's leading weekly news magazine, reported in a November 1983 issue that the fine was "the largest sum that a Canadian court has ever levied and one of the heaviest criminal penalties ever imposed against any corporation in the world." A separate civil case was continued by the Canadian government to collect the duties it should have been paid in the 1970s. Amway again settled out of court, this time in 1989 for CAD 45 million, 40 percent of the amount the Canadian government tried to collect.

Other serious problems occurred in the first half of the 1980s, when, for the first time, Amway sales declined. Some of the major distributors sold their businesses, and a substantial number of top executives either quit or were demoted or fired. The pyramid allegations surfaced again, not against the corporation, but against certain distributors who advised their sales groups to downplay retail sales, buy Amway merchandise for their own use, and purchase many motivational items, such as tapes and books, from the distributor.

One corporate executive, COO William W. Nicholson, previously a secretary to President Gerald R. Ford and a key player at Amway headquarters since 1984, oversaw the introduction of many new products and services. According to Nicholson, a turning point was reached in 1985 when MCI decided to market its long distance telephone services through Amway. By 1990 Amway was gaining more than 40,000 new clients per month for MCI. Offering its customers discount purchases on new cars was another Amway innovation; by 1988 this service competed with five other discount autobuying services, including the American Automobile Association. Other new items in the Amway inventory included Visa credit cards, prepaid legal services, real estate, and Tandy computers. The increase in high-tech merchandise and services was a dramatic shift for Amway, but the bulk of its sales remained in traditional products such as home care items. According to some analysts, Amway's transition to include more services reflected a general U.S. movement from a goods-and-manufacturing economy toward a service economy.

Not all new ventures worked well for Amway. The Mutual Broadcasting System (MBS), with its hundreds of affiliated radio stations, was purchased in 1977, but inexperience in the field, unfulfilled goals, and lack of profitability, according to DeVos, led to the sale of MBS in 1985. Having retained one satellite division from the original purchase, Amway manufactured and sold satellite dishes for some time, but the last division was eventually sold in 1989.

Probably the most publicized Amway activity in the late 1980s was its failed bid to take over Avon Products, Inc. Amway and corporate raider Irwin L. Jacobs jointly acquired 5.5 million Avon shares, 10.3 percent of the company's stock, in 1989. One week later, without Jacobs's cooperation, Amway offered to buy Avon for $2.1 billion in cash. Although a billion dollars in debt, Avon rejected the bid, citing Amway's evasion of Canadian customs duties and an incompatible corporate culture. In May 1989 Amway withdrew its bid. Business Week, in a May 1989 issue, characterized the bid as Amway "flexing its muscles for the first time"; although the bid failed, it was a good indication of Amway's financial strength.

Amway and its founders also became significant sponsors of the arts in the 1980s. In 1982 Jay Van Andel chaired the Netherlands American Bicentennial Commission, while the company sponsored an art exhibit at Amsterdam's Stedelijk Museum. Amway also supported tours of the Hong Kong Children's Choir and the Malaysian Youth Symphony Orchestra. In Grand Rapids, Michigan, the company helped fund an Art Museum, Arts Council, and the Gerald R. Ford Presidential Museum.

Amway also made commendable efforts to be environmentally responsible. Several of Amway's early products were biodegradable, and its SA8 detergent was available in a phosphate-free formula to limit pollution of waterways, and products were concentrated, reducing the amount of packaging that ended up in landfills. After chlorofluorocarbons were reported as hazardous to the ozone layer, Amway modified its aerosol products to delete those compounds. In 1989 Amway was a main sponsor of the two-month-long Icewalk, an expedition to the North Pole, designed to focus attention on environmental issues. In cooperation with the American Forestry Association, Amway also participated in the Global ReLeaf Program, to plant 100 million trees by 1992. In fact, on June 5, 1989, Amway received the United Nation's Environmental Programme's Achievement Award for Excellence, becoming one of two corporations to gain that honor. That same day the firm announced that it would end all animal testing in its research programs and that it would not cooperate with the Cosmetics, Toiletry and Fragrance Association's campaign against the ban on animal testing. In the area of recycling, Amway was named Michigan Recycling Coalition's 1992 Recycler of the Year, for its onsite recycling center and recycling practices in its operations and product development.

Despite the legal battles and occasionally unfavorable media characterizations of Amway, and direct selling in general, the concept was becoming increasingly popular. According to the Direct Selling Association (DSA), total retail sales were approximately $9.7 billion in 1988, up 10.3 percent from 1987, and Amway accounted for about 16 percent of that total. A 1976 Harris poll of U.S. households found that 16 percent of the respondents had tried direct selling. The boom was influenced by shifts in employment trends. First, more women had moved into the workplace and were selling Amway products; in fact, the DSA reported that in 1988, 81.4 percent of all salespeople were women. Moreover, instability in corporate employment had prompted increasing numbers of workers to consider alternative vocations, particularly those in which much of the administrative activities might be handled in home offices.

Amway's European expansion also continued throughout the 1980s, with operations established in Switzerland and Belgium in 1980, and in Spain and Italy in 1986. In 1985 Panama became the first Latin American base of Amway operations, followed by Guatemala in 1986. Amway de Mexico was established in June 1990 with headquarters in Monterrey and distribution centers in Mexico City, Guadalajara, Tijuana, and Juarez. Amway's success depended in part on its ability to adapt its product line to suit local cultures. In Japan, for example, the company began marketing a small induction range made by Japan's Sharp Company, which proved ideal for the small homes of Japan and sold well when demonstrated in the home by Amway distributors. Perseverance and high quality goods resulted in 1988 sales of $536 million for Amway (Japan) Ltd., Amway's largest overseas subsidiary.

International Expansion During the 1990s

Based on rapid international expansion, strong family leadership, and good financial condition, Amway remained a strong force in the 1990s. When Van Andel and DeVos, whose children had begun in the business in the mid-1970s, retired from the company in the early 1990s, all eight of the Van Andel and DeVos children were in leadership positions. Dick DeVos was named president in 1992, and Steve Van Andel was appointed company chairman. Jay Van Andel planned to remain active with the company as senior chairman and member of the policy board.

With the failure of communist economies in Eastern Europe and other nations, Amway's promotion of free enterprise became increasingly noteworthy in the years ahead. During the first half of the 1990s, Amway's territories expanded into Korea, Hungary, Brazil, Portugal, Indonesia, Poland, Argentina, the Czech Republic, Turkey, and Slovakia. In addition to tapping into new, emerging economies, foreign expansion was possibly part of Amway's strategy to offset slowing U.S. sales, prompted, according to one article in an October 1994 U.S. News & World Report, by regulatory investigations and media criticism of the company. In 1991, for example, Procter & Gamble won a $75,000 judgment from a group of Amway distributors, who were accused of spreading rumors that Procter & Gamble's products were instruments of Satan. Nevertheless, Amway's overall performance did not suffer; in 1994, sales increased by 18 percent over 1993 to total $5.3 billion. Dick DeVos estimated that 70 percent of 1994 sales came from abroad and predicted that figure would increase to 75 percent by fiscal 1996. In 1994 Amway moved its entrepreneurial business into the Eastern European market and also targeted Vietnam and China as its newest markets.

Japan was probably one of Amway's most successful foreign markets in the 1990s. In a culture where many Japanese businesspeople were accustomed to staying with one company for their entire career, Amway offered new economic freedom. In fact, word of mouth recommendations allowed Amway to operate in Japan without spending any money on advertising up until around 1989. In 1990, over 500,000 Japanese belonged to Amway, making the company one of the largest and most profitable foreign companies in Japan. In 1989 Amway (Japan) Ltd. had over $500 million in sales and $164 million in pretax profits, comprising about one-third of Amway's worldwide business. By the mid-1990s, revenues had more than doubled and the Japanese subsidiary had grown to include 816,000 salespeople. Public offerings of stock in Amway Japan and Hong Kong-based Amway Asia Pacific in 1994 proved a huge success, raising $6.7 billion. DeVos and Van Andel reaped the rewards, more than doubling their net worth in one year. Together, the pair were worth an estimated $9 billion by the end of 1994, vaulting the founders into the exclusive ranks of the ten richest people in the United States, according to Forbes magazine.

The strong reception to the public offerings in Asia was indicative of Amway's strength in the 1990s. The company was achieving success not only in Asia, but in markets throughout the world as well, deriving nearly all of its growth from international expansion. Between 1990 and 1996, Amway established 20 new foreign affiliates, increasing the number of countries and territories in which it operated to more than 75. Concurrent with the company's aggressive expansion overseas, sales soared, increasing 300 percent between 1990 and 1996 to reach $6.8 billion. The vibrant growth of Amway's international business, which accounted for more than 70 percent of companywide sales, could not have come at a better time because domestically the company's vitality was beginning to wane. Sales in the United States were flattening by the mid-1990s, unaided by persistent accusations of rumormongering that tarnished the company's image. The strident growth of the company outside North America, however, more than offset its anemic domestic performance, underpinning the seamless transition to the second generation of DeVos and Van Andel management.

Much of the company's success during the latter half of the decade depended on continued growth in foreign markets, but continued growth did not arrive. The foray into China, financed by the 1994 public offering of Amway Asia Pacific, ran into a pernicious obstacle in 1998, when the Chinese government banned direct selling because of concerns it would spawn illegal activity. Eventually, Amway was able to sidestep the prohibition by selling products through sales representatives that did not buy products and resell them, as traditional Amway distributors did. A more crippling blow was delivered by the faltering Asian economy in the late 1990s, the effect of which was readily discernible on Amway's balance sheet. Sales peaked at $7 billion in 1997 before falling 18.5 percent the following year to $5.7 billion. For the first time in more than ten years, Amway posted a decline in sales.

While the company waited for economic conditions in Asia to improve, new areas of growth were explored that hinted at an entirely revamped Amway for the future. In 1998 the company strayed far from its core business by teaming with Virginia-based Columbia Energy Group to sell natural gas and electricity in deregulated markets. Initially, Amway began selling natural gas in Georgia, intending to expand into electricity and to broaden its geographic reach as other states became deregulated. The company's other prominent venture during the late 1990s sparked the greatest excitement, leading some industry pundits to hail it as the boldest move in Amway's history. In September 1999, the company established a new company named Quixtar to sell consumer products on the Internet. With Quixtar, Amway used the same marketing concept as it did in its traditional business: distributors purchased products at volume discounts and earned commissions on the sales and bonuses from the sales of new recruits. Apart from Quixtar's business being conducted electronically, the greatest difference between Amway and its new company was the conspicuous absence of the Amway name. Years of negative publicity stemming from the numerous lawsuits filed by Procter & Gamble had stained the Amway name, observers contended, prompting Amway to distance itself from a questionable reputation by adopting a new name. Additionally, by excluding the Amway name from its Internet venture, the company hoped to attract younger customers and younger distributors. The expectations for the new business were high, with the most far-reaching predictions calling for Quixtar to eventually supplant Amway's traditional business. President and co-CEO Dick DeVos did not foresee the ultimate elimination of Amway's traditional business, maintaining both companies could coexist well into the future, but his confidence in Quixtar's potential was unequivocal. "Eventually," he informed Cosmetics International in June 1999, "Quixtar ought to be larger than Amway," giving Amway a lofty goal to pursue as it entered the 21st century.

New Identity with the New Century

Quixtar's creation did much to alter the Amway organization at the dawn of the new millennium, representing one of the reasons the company decided to change its corporate identity after four decades of existence. News of the change occurred in May 2000 after Amway reported discouraging financial results for 1999, a 12.3 percent decline in revenues. The company announced it was restructuring its operations to restore its financial vitality, a sweeping effort that involved a reduction in its workforce by 1,300. The most visible aspect of the restructuring program was the unveiling of a new corporate title for the entire organization. In October 2000, the umbrella organization for Amway and its affiliated companies was introduced as Alticor Inc., a name derived from abbreviating the Latin words for high, heart, mind, and judgment. The name change in no way marked the end of the Amway name or its direct-selling business. Amway continued to operate, recording its greatest growth in Asia, but it operated alongside Alticor's three other businesses: Quixtar; Pyxis Innovations, the corporate development arm of the parent company; and a new company formed in 2000, Access Business Group. Access Business Group developed, manufactured, and distributed products for both Alticor and non-Alticor companies, counting its two sister companies, Amway and Quixtar, and its two largest customers.

One of the primary reasons for the name change was to help foster the growth of Amway's diversification, to free Quixtar and Access Business Group from being associated with the Amway name during their maturation. Direct-selling and multilevel marketing had its many detractors, a negative perception that fell squarely on Amway, the most successful of the breed. Quixtar, Access Business Group, and any other companies that executives in Ada thought to create later would fare better operating under a banner that did not bear the Amway name, company officials reasoned. The success of Amway under the Alticor name presented little opportunity for criticism about the name change. The Amway organization under the Alticor name thrived in the early 2000s, recording encouraging financial gains as it transitioned through one of its few senior management changes.

Dick DeVos announced his retirement in the spring of 2002. His departure, slated for the end of August 2002, was marked by his statement, quoted in the April 17, 2002 issue of Internet Wire. "When I arrived," DeVos said, "we were a company that was still questioning whether we could transition past the active involvement of our founders. Now, as I prepare to leave, we have transformed into a more international corporation, sustained by a strategic vision, and with management befitting a leading global company." DeVos left, accepting the position of chairman of the World Federation of Direct Selling Associations, leaving his youngest brother, Doug DeVos, the chief executive officer of Amway and Quixtar for the previous two years, to take his title as Alticor's president. After little more than a month in his new position, Doug DeVos took stock of what he saw and appropriately described his company. "We're basically an Asian company," he said in an October 18, 2002 interview with the Grand Rapids Press.

By 2004, Alticor had recorded its fifth consecutive year of revenue growth, posting the largest dollar increase in its history in 2004, when sales jumped 27 percent to $6.2 billion. A good portion of the growth was attributed to new businesses such as Quixtar, which eclipsed $1 billion in sales for the year, but the driving financial force of Alticor continued to be Amway, a direct-selling operation that was achieving its greatest success overseas, in Asia particularly. In China, for example, through its subsidiary Amway China Co. Ltd., sales exceeded $2 billion in 2004, the highlight of other substantial gains in Japan, Thailand, India, and Malaysia. "All eight cylinders are hitting," Alticor's chairman, Steve Van Andel, said in an October 21, 2004 interview with the Grand Rapids Press, expressing the mood of the company as it pressed ahead.

Principal Subsidiaries: Access Business Group, LLC; Pyxis Innovations; Nutrilite Products, Inc.; Amway Gesellschaft m.b.H. (Austria); Amway of Australia Pty. Ltd.; Amway Belgium Company; Amway (U.K.); Amway China Co. Ltd.; Limited; Amway France; Amway (HK) Limited (Hong Kong); Amway Italia s.r.l. (Italy); Amway (Japan) Limited; Amway (Malaysia) Sdn. Bhd.; Amway Nederland Ltd. (Netherlands); Amway of New Zealand Ltd.; Amway de Panama, S.A.; Amway (Schweiz) AG (Switzerland); Amway De España S.A. (Spain); Amway Asia Pacific Ltd. (Hong Kong); Amway (Taiwan) Limited; Amway (Thailand) Ltd.; Amway GmbH (Germany); Amway de Mexico; Amway Communications Corporation; Amway Hotel Corporation; Amway Global, Inc.; Amway International, Inc.; Quixtar Inc.

Principal Competitors: Avon Products, Inc.; CCL Industries Inc.; PFSweb, Inc.

Chronology

• Key Dates:
• 1959: Jay Van Andel and Richard M. DeVos start The American Way Association.
• 1964: The business is renamed Amway Corporation.
• 1971: Amway expands overseas for the first time.
• 1979: After years of investigation, the Federal Trade Commission declares Amway's business model is legitimate.
• 1989: Amway fails in an attempt to acquire Avon Products, Inc.
• 1992: The founder's children, Dick DeVos and Steve Van Andel, assume control over the company.
• 2000: Amway restructures and creates Alticor Inc. as a holding company.
• 2002: Doug DeVos is named president of Alticor.
• 2004: Sales eclipse $6 billion for the first time.